Western countries have employed an entirely different approach from emerging market countries in the effort to stimulate their economies out of the global recession. The European [EU] Union and the United States particularly employed low cost strategies to stimulate output in readiness for an eventual global economic recovery. On the other hand, Nigeria and other emerging market economies employed high interest rates to defend local currencies without any strategic back up policy thrust in the event of a global economic recovery.
Now that the global economy is on the recovery process, the real costs and gains of these approaches are beginning to be unveiled. The apparent shortsightedness of emerging market economies is going to cost them their domestic markets, if the Economic Partnership Agreement, on trade liberalisation between the EU and the Economic Community of West African States is signed as currently proposed.
The low cost strategy of western countries has now been perfected to capture the internal markets of countries that have employed high interest rates to stifle domestic output. This is where Nigeria and other emerging markets have missed it again, finding themselves ill-equipped to take advantage of new export opportunities arising from global economic recovery.
As the global economic recovery begins to gain speed, Europe is well ready to ship out low cost consumer goods coming out of their elaborate monetary easing. The next move therefore for the Union is to press for trade liberalisation, knowing that emerging market economies, being circumscribed by pressures on exchange rate, aren’t in a position to compete in the export market. While we have been preoccupied with attracting portfolio investments, they have been perfecting plans to seize our internal market.
Nigeria and other emerging market economies will be constrained in responding to export opportunities being created by rising consumption spending in a recovering global economy. This is because the economies of these countries have been structured to respond to global economic declines using high interest rates to attract portfolio investments.
While the western nations were rebuilding their domestic economies, we in emerging markets have neglected domestic output through the use of high interest rates. In a recovering global economic situation therefore, Nigeria will soon come to the discovery that it lacks what it needs to take advantage of rising demand for consumer goods both locally and in the advanced economies.
The high interest rate policy that has helped us to defend exchange rate now stands in the way of growing domestic output and exports. The high cost of production involved also means we will be unable to compete with low cost imports even at home. The question is not the EU giving us access to its 300 million consumer market. The issue is that we are ill equipped to take advantage of that opportunity for now. If we eventually succumb to the EU pressure to sign free trade agreement that has been proposed, their low cost products are capable of completely silencing our domestic industrial engines.
Even if we decline to sign the agreement, the availability of low cost consumer goods stands to undermine our economy through smuggling in our nation with porous borders. Therefore, we need to balance the policy of defending exchange rate with the emerging necessity to defend our internal market as well.
The large internal market is a great resource Nigeria should capitalise on to create the much needed jobs. In order to build internal capacity, we need to extend to other sectors and industries the import substitution strategy that has worked well in cement manufacturing and which is now working in the bakery business.
We are highly appreciative of the fact that we have here a trade and industry ministry that clearly understands the risk we are facing with what our trade partners want us to do. It can be seen clearly why Segun Aganga, trade and industry minister, is vehemently opposed to signing the trade liberalisation agreement with Europe as proposed. It is not a surprise that the man, who authored the new automotive policy aimed at boosting local industry development, is demanding the review and amendment of certain aspects of the partnership agreement that are inimical to the interest of our economy.
We can see clearly the danger of throwing our borders wide open to economies that are producing cheaper goods than we do. We can understand why an economy that is in dare need of creating jobs for our people cannot afford to embark upon eliminating trade barriers for now. It can be easily understood that this is just about the worst time ever for us to consider a free trade practice.
At the moment, Nigeria and other ECOWAS countries do not have any significant export activities to Europe. This means that entering into such a trade liberalisation agreement will amount to dumping of foreign products. Development of capacity for industrial production needs to precede an agreement of how to trade in the global market.
It is becoming obvious that monetary policy primarily focused on defending exchange rate can cost us our domestic market. We need to urgently rebalance policies to stimulate domestic demand at low cost even as we try to ensure exchange rate stability. This will avoid leaving our economy vulnerable to an influx of cheap imports from countries that have all along courted their own production with low interest rates and other stimulatory policies.
If we miss these strategic steps now, we will no doubt end up having a more import dependent consumer market than we have ever seen before. If we let that happen, it will require more time and effort in the future to redress the situation than the steps we can begin to take right now.
Unemployment and under employment will reach a flash point, as industries fold up productive operations and take to importation and distribution of EU’s manufactures. The more we delay, the more we will need to run a new regime of low cost policy measures consistently and raise new tariff barriers latter to be able to reclaim even our domestic market that has continued to slip off the hands of our domestic producers.
