What noodles can teach us about Nigeria's reluctance on free trade
Nigeria recently declined to join a pan-African free trade deal. But closing its markets gives Africa's largest economy little incentive to improve business conditions and may ultimately leave it behind.
If you want to understand why trade is such a contentious topic for Africa’s largest economy, just consider the noodles.
The instant noodles, to be precise.
Over the last three decades, those iconic bricks of dried wiggly dough – known locally as Indomie after a popular brand – have become a staple of the Nigerian diet. Today, in fact, the country has the 12th largest instant noodle market in the world, with 1.76 billion servings of the starchy stuff sold here each year. And thanks to a government ban on noodle imports, almost all is locally produced – a rarity in a country that imports many of its staples.
But the noodle industry also highlights the incredible challenges of doing business in Nigeria. Building a noodle factory here means more than setting up an assembly line and hiring a few workers.
It also means finding your own sources of electricity to supplement erratic government-provided supplies. It means scoping out the cheapest providers of imported wheat for flour, since Nigeria doesn’t grow its own. And it often means building the roads to your factory, because asking the government to do it probably won’t get you anywhere anyway.
“We have a lot of challenges,” says Olumi Ezekiel, a spokesperson for Royal Noodles in Abuja, where the air outside smells faintly of powdered chicken seasoning. “When you have all these costs, the margin of profit becomes that much lower.”
In March, most of Africa’s presidents gathered in Kigali, the Rwandan capital, to sign a historic free trade deal designed to eliminate the tariffs and red tape that have made doing business across Africa a massively complicated undertaking. Less than a fifth of exports from African countries currently go to other African countries, while in Europe that figure is 70 percent.
But faced with the option of opening its markets to a regional trade deal with 49 other African countries, Nigeria has, at least for now, chosen to protect its local industries. It’s doing so based in part on its recent experience with open trade, and in part on the calculation that, as Africa’s largest economy, its domestic market is big enough to support its businesses.
The problem is that by walling off foreign competition, Nigeria has little incentive to eliminate the internal roadblocks that make it hard to do business here.
“Our industries, in many cases, simply can’t compete internationally,” says Mma Amara Ekeruche, the founder of Your Nigerian Economist, an Economics blog. “In the short term, a deal like this won’t really benefit us.”
Mr. Ezekiel agrees: “We need these protections [from government]. Otherwise how can local industry survive?”
Nigeria’s government says it didn’t sign the deal because it simply needs more time to consult with the country’s businesses and labor unions. And in the months since, it’s been doing exactly that, crisscrossing the country for conversations with workers and business associations.
“We had to make sure we consulted all the stakeholders,” said Okechukwu Enelamah, Nigeria’s minister of industry, trade, and investment, at a recent panel discussion in Abuja. “If you don’t, they have every reason to question what you do.” (The Nigerian government did not respond to repeated requests for direct comment.)
But the country’s ambivalence to free trade also has deeper historical roots.
In the late 1980s, after a global crash in the price of oil, Nigeria’s main export commodity, Nigeria was broke. The World Bank and International Monetary Fund were willing to give loans, under the condition that African countries tighten their belts and open their markets.
In the mid-1990s, Nigeria joined the World Trade Organization, further pushing it to open its markets to goods from the outside. At the same time, a rise in cheap manufactured goods from east and south Asia made it increasingly difficult for many African countries to compete.
“Pretty quickly, we were overwhelmed by cheap goods from overseas,” remembers Issa Aremu, a longtime trade unionist here. At the time, Mr. Aremu worked in textiles, a booming industry in Nigeria that employed half a million people. Within years, as textiles from China and other overseas markets poured into Nigeria, that number plummeted. Today, despite a revival of import prohibitions on textiles, you’d be hard pressed to find a single Nigerian-made fabric among the hundreds of samples dangling from stalls in Abuja’s main market.
“We used to have them, but the factories have all gone overseas,” says Yakubu Muaze, a trader at Abuja’s Wuse market, apologetically, explaining that he last sold Nigerian textiles about 10 years ago. Around him, bolts of bright fabric bear “made in” tags that read Cote D’Ivoire, Ghana, and China.
“We became a dumping ground,” Aremu says. “So it’s guided by this background that we’re suspicious now when government comes to us with the proposition of this new trade deal.”
Indeed, one of the biggest questions around the negotiations for the continental trade deal, which Nigeria’s government worked closely on, was how the deal would protect African manufacturers from dumping. Critics warned that the deal’s “rules of origin” provision had to be exacting so that international manufacturers couldn’t bring near-finished products into an African country, make superficial changes, and then say they were “made in” that country.
Rather than clamor for protection, Nigerian manufacturers should push for government support that would make them more competitive, says Femi Boyede, a former adviser to several ministers of trade and industry.
“There’s this lazy thinking among Nigerian industrialists that the size and population of Nigeria means they don’t need outside markets,” he says. “But now the continent is moving ahead with free trade, and there’s only so long it will wait for Nigeria to catch up.”
Corruption, meanwhile, continues to play an outsized role in trade, he notes. The country’s often-porous borders mean that even when the government does attempt to restrict goods from moving in and out, it often fails. The local textile industry, for instance, estimates that the country loses more than $300 million annually in tariffs from imported fabrics, since most of the goods enter the country illegally.
Back at Royal Noodles, Ezekiel ponders what impact the trade deal might have on his own business. It could open up new markets, he says, but then again, it wouldn’t eliminate any of the challenges that already make noodle production here so taxing.
“To build this factory, we had to bring the road here. We had to bring the electrical grid here. And we had to bring generators for when that grid fails,” he says. “It’s hard to compete. But you have to start somewhere.”
Soji Bamidele contributed reporting to this story.