Last week, Boris Johnson, the UK Prime Minister, hosted the UK-Africa Investment Summit in London. Despite media chatter about Buhari’s absence from the welcome dinner portrait, the President, never shy to mix work and travel, was in attendance.
So what was the objective of the summit?
It was the UK’s opportunity to strengthen its economic partnership with African countries – working towards its aim of being “Africa’s partner of choice for trade and investment”.
Since the UK decided to leave the EU in 2016, it has been on a mission to “replace” the economic ties or losses that will occur from divorcing its largest trading partner. As part of its global drive, engagement with Africa has ramped up. We saw this with the previous Prime Minister, Theresa May’s visit to Nigeria and other African countries in 2018. The tour had its mix of fun and investment, including the announcement of several deals and a viral video of May dancing with locals in Nairobi.
So, we know that the UK is certainly looking to shake the ground post-Brexit, but what will the impact be on Nigeria?
First, does the UK even matter for Nigerian trade?
For most countries, the main channel through which Brexit will have an impact is via trade. So let us start by looking at our trading relationship.
The headline news is that Nigeria and the UK are not close trading partners; Nigeria accounts for less than 0.5% of the UK’s trade. And according to the National Bureau of Statistics, the UK is responsible for less than 3-4% of Nigeria’s goods trade.
That being said, the UK does enter our top 10 trading partners list: hovering around 7th for both imports and exports. But, the value of the trading relationship is still relatively small and is mainly made up of the usual suspects aka oil products. Interestingly though, baby food was the most imported product from the UK in the first quarter of 2019, with a 10% share of total imports.
To summarise, the fact remains that currently, UK trade is dwarfed by China (15%), the US (8%), India (12%), and the Netherlands (8%) which account for around 40% of Nigeria’s total goods trade.
Second, will Buhari bite?
Though relatively small in value, several of Nigeria’s top imports from the UK are machinery and parts. And these are products that the UK is interested in supplying.
A year after the Brexit referendum vote, the UK announced an Industrial Strategy that was focused on increasing productivity and boosting its manufacturing sector. More recently, at UK-Africa Investment Summit, 25 out of the 27 investments announced were related to the industrial sector.
So, we know that the UK has machinery that its willing to sell. The question is if Nigeria wants to buy.
Nigeria’s ability to import more manufacturing is more dependent on our domestic economy than the UK’s post-Brexit trade policy. During its time in the EU, the UK was (and is expected to continue to be) a big fan of using imports as inputs into manufacturing production and exports. For instance, a car made in the UK could receive an engine from Germany, seat belts from France and leather from Italy – all within a day.
This the type of mentality Nigeria needs to grow its manufacturing sector. Admittedly, we are further away from the UK but our neighbours, Benin and Niger are unlikely to provide the required inputs to boost our manufacturing sector.
In the first quarter of 2019 alone, Nigeria imported ₦2 billion worth of elevators and conveyors from the UK. Yet, these are the types of goods that create extra infrastructure value in the economy. So while Nigeria enjoys the recently signed African Free Trade Agreement with mostly agriculture-based countries, we should remain strategically placed to use the UK to boost other parts of the economy.
Third, what can we sell?
On the export side, it seems that the UK is not currently interested in Nigerian goods. Of course, this excludes oil – 98% of our exports to the UK and are oil products. But this isn’t a UK specific problem. Nigeria doesn’t export much else – less than 5% of 2018 exports were non-oil products.
Therefore, there are currently no obvious impacts of Brexit on oil, and significant changes are not expected there.
However, the remaining 2% of exports to the UK are mostly agricultural products. So maybe Nigeria could look to boost agriculture trade with the UK?
Right on cue, the Agriculture Minister announced this week that Nigeria will begin exporting rice by 2020. There is no new news about Nigeria’s drive towards boosting the country’s agriculture local production and future hope of exportation. For the Buhari government, Agriculture is the next producing and exporting sector after oil.
The problem is the UK also needs to protect its own
Unfortunately, however, agriculture is probably the last sector that the UK will be opening up its borders to.
While the UK is going to be on a global drive to reduce trade barriers and protectionism after January 31st; the chances of it doing the same in its relatively inefficient agriculture sector is slim.
For years, the UK and the EU have protected their farmers with a range of measures such as subsidies and high tariffs; all part of what is called the Common Agricultural Policy. This has been the EU’s version of Nigeria’s protectionist policies as they focus on supporting farmers financially while ensuring a stable supply of affordable food from within the EU.
What this has meant for decades is that foreign agricultural goods have struggled to break into the EU market to compete. For example, the average tariff foreign food producers face when exporting to the EU is 22% – milk is as high as 70%.
Now, post-Brexit the UK will leave the EU’s agriculture policy but will likely make its version of protection.
We have seen early warning signs. The UK released a document last year showing what tariffs it will set in the event of no-deal with the EU. Almost 90% of tariffs were set to 0 – the excluded goods that remained with high tariffs were mainly in agriculture such as beef and dairy, including butter which Nigeria exports to the UK.
The UK, however, has announced that least developing countries will get special preferential access to the UK post-Brexit – as is the case in the EU now. While many African countries such as Benin, Angola, and Senegal are on the list; unfortunately, or fortunately, Nigeria does not make the cut of being labelled as a least developing country.
Regardless, Nigeria and other African countries have always struggled to meet other non-tariff requirements such as certificates and quality control and the UK is unlikely to weaken those barriers significantly post Brexit.
Therefore, without intentional efforts between the UK and Nigeria to address those barriers, our agriculture sector will struggle to breakthrough.
Big money investments
One of the other channels through which Brexit will have an impact is through the UK’s active drive to find economic prosperity outside of the EU. The UK- Africa Investment Summit policy paper has clues as to why the UK is interested in the continent.
The paper outlines that 8 of the 15 fastest-growing economies are expected to be in Africa, and by 2050 over 1 in 4 global consumers will be African.
In contrast to trade, the UK is Nigeria’s top foreign investor, contributing over 35% of Nigeria’s foreign investment in 2018 at $6bn. In 2014, the UK invested $11 billion in Nigeria – over 50% of total foreign investment that year.
Post-Brexit, the UK is looking to build stronger investment links with Nigeria and has begun the work already.
In 2018, the UK announced that it was adding the naira to its roster of “pre-approved currencies” at its export finance agency. What this means is that as long as a project has 20% British content, Nigerian firms can now get loans to import from the UK. These loans will be backed by the UK government – a dream come true.
That same year, Theresa May arrived in Lagos and announced a number of investment partnerships; including ₦1 billion in support of fintech innovators. She also announced support that will be provided to fight Boko haram and support for 100,000 children living in the conflict zone.
This year, the deal announcements at the UK-Africa Investment Summit were more related to physical infrastructure – closer to China’s alleyway. The UK announced investments worth over ₦150 billion on projects, which included the installation of street lights in Oyo state and smart meters at Abuja DisCo.
What the UK is looking to do is focus on deals that will “provide a firm foundation for a significant increase in trade and investment between both countries.” as the British High Commissioner put it during the export finance announcement.
It’s hard to overemphasise the impact the UK has had on Nigeria over the years. Today, its Department for International Development (DFID) has 46 active projects in Nigeria, ranging from solar energy to humanitarian assistance in the North East. Its 2019/20 Nigerian budget is over ₦160 billion; higher than the individual budgets of 15 states in Nigeria.
Foreign countries see Africa as a hotspot for high investment returns. And each country has its own agenda; China is focused on influence and its companies getting physical infrastructure projects, whereas Australia is interested in extractives like iron ore.
The UK has its political interests as it looks to find its place outside of the EU. Economically speaking, it is a forward-looking country, using innovation to drive economic growth. As it searches for new best friends across the globe, Nigeria should consider playing ball if it wants to learn a few things.
Stears Business
