Iheanacho Nwosu, Abuja
Prof. Benedict Okey Oramah, is the President and Chairman of the Board of Directors of the African Export–Import Bank (Afreximbank). Recently he was hosted to a colourful dinner at the Dome Entertainment Centre Abuja, by Dr Obiora Okonkwo, the chairman of the centre.
On gound to grace the occasion were captains of industry and other high profile personalities across the country.
In this interview with Daily Sun on the sideline of the reception, Oramah spoke on diverse economic issues, in African and Nigerian economy.
Afreximbank partnership with AU to launch a new financial transaction product.
One of the problems Africa has today is that it has very low levels of intra-regional trade. The intra-regional trade share of Africa’s total trade stands at between 15 to 17 percent. It is an improvement from the nine percent it used to be some 15 years ago, but still far from comparable regions.
The EU is talking of 70 percent, Asia, America and all that are talking of over 50 per cent.
A region that doesn’t trade with itself does not develop and Africa is the continent that trades the least with itself and which leaves it as the least developed economy in the world. When you trade with yourself, you then create dynamic comparative advantage. But beyond that, you create regional value chains and you are then able to create a market.
Why intra-Africa trade is low
Because of colonialism, Africa became fragmented into 55 countries and is even balkanised today, not just only fragmented.
So, you have so many countries, even some of them that are so small that they cannot be economically viable. That’s why we have these problems. Whereas, if everybody pools together, it becomes a different story; we create a market.
Big steps have been taken by the different governments and the current leaders to change all of that. It was because of this challenge that the Africa Continetal Free Trade Agreement, was signed last year.
Before that, in 2012, the African Union launched strategy called BIAT, (Boosting Intra- Africa Trade).
So, all these are reflective of the understanding of the leaders of the challenges of pursuing development and getting the integration that is required.
But signing the Free Trade Agreement is one thing and making it achieve the objectives for which it was created is another. One of the problems is the different currencies in use in the continent. Africa has a multiplicity of currencies.
Apart from the CFA Zone currencies, every country has its own currency and so if a country wants to trade with another country, it must use a third currency, either the dollar or the Euro. That creates another transaction cost and the estimated transaction cost for the level of trade we have achieved today is about $170 billion. Even if you take a transaction cost of about one percent for $170 billion, that’s about $1.7 billion of transaction cost, which is more than the total exports of more than 40 percent of the African countries.
So, what we’ve done is that we have created a technology driven platform for intra-regional payments and that platform will enable intra-African trade to be paid for in local currencies.
For example, if a Nigerian wants to buy goods from Ghana, he can pay in Nigerian currency. If a Ghanaian wants to buy goods from Nigeria, he can pay in Cedi and so forth. The effect of this is that it will reduce significantly, the foreign currency content of the intra-regional trade payment. That, for us, is going to be a game changer in the continent.
The African Union has adopted that platform as an AU project and that is why at the extra ordinary AU Summit in Niamey where the ACFTA implementation will be launched, this product will also be launched.
Reason Nigeria hasnt signed the African Free Trade Agreement
What I know is that Nigeria government said they are studying the implications. They didn’t have enough time to consult, socialise it among the labour unions, among the manufacturers. I believe they’ve almost completed it and they will make a decision soon. I believe that when it is time for that decision to be made, the right decision will be made. I don’t think Nigeria will take a decision that is not in its best interest.
As a country Nigeria has also invested in regional integration. It was Nigeria that hosted the meetings of the OAU in Lagos which articulated the long term plan that included all these issues of integration. There was also the Abuja Treaty of the 90s that set the integration roadmap, including the ACFTA. Nigeria hosted all these and committed resources. That indicates that Nigeria is not against economically integrating the continent.
So, I believe that they will conclude the consultations that they are holding and after that, they will make a decision that they consider appropriate.
Today, 52 countries have signed. It’s only Benin, Eritrea and Nigeria that are pending. I believe that Benin will sign if Nigeria signs. Eritrea, one can understand their delay because Eritrea has had issues about the sanctions that were placed. Eritrea is not happy about the way their dispute with Ethiopia was handled internationally. But they’ve resolved the issues with Ethiopia and the sanctions have been lifted. All those were just done a few months ago. So, you will expect that it will take them a bit of time to go through the process themselves, understand the discussions and then make their own decision.
How will this pan African payment and settlement system impact Nigerian economy?
Nigeria is a powerhouse for trade in the region. You do not see it in the trade statistics a lot because most of it is informal. What this will do is that it will formalise most of these informal trade because the small trader in Ghana that wants to buy goods from Nigeria, from his cellphone, can pay for the goods in Cedi and the seller in Balogun market in Nigeria, will get the money in naira. That trader doesn’t need to travel all the way to Nigeria. You will see official trade figures balloon and this will actually bring back a lot of the trade diverted because of currency. Much of the intra African trade that would have occurred are not occurring because of currency issues, and because people want to earn dollars somewhere to be able to pay for intra-regional trade.
But if they know they will pay for it in local currency, they don’t have to be looking for foreign currency to be able to pay in foreign currency. So, the trade that today goes away from Africa will become intra-regional and Nigeria will be a big beneficiary for it.
Afreximbank has a huge portfolio. Tell us how you’ve used it to help African economies grow, especially Nigeria in the last few years?
We are very active on the continent in many ways. Apart from the loans we give and the advisory services, we are pursuing so many initiatives. We disburse an average of between $8 billion to $10 billion of loans and advances, every year, apart from the guarantees. Besides that, for Nigeria in particular, almost $15 billion has been disbursed in this country. We are the major supporter of many of the banks, through providing them with trade support lines to many of the banks. Not long ago, we arranged for the Bank of Industry, a $750 million facility in support of small and medium size enterprises.
We are also working with the Federal Ministry of Trade to develop three Industrial Parks – the Lekki Industrial Park, the Kano Industrial Park and the Enyimba Industrial Park. We have a project going on in Abuja to develop a centre of excellence for secondary healthcare and tertiary healthcare. We are doing that in collaboration with Kings College Hospital in Ogun State with the help of the State which gave us land.
We are also developing an African Quality Assurance Centre for testing and certification, which will help Nigeria to be able to export agricultural products to many parts of the world, which today is a difficult thing. Without that infrastructure, the goals of project MAN will not be fully achieved.
We are also supporting NNPC and working with other agencies of government to support some of the projects that are targeted at critical infrastructure in the country.
Your comments on China’s invasion of African on growth and intra-African trade?
China in Africa are doing business and is today the largest trading partner. The trade went down a bit when the commodity prices collapsed a few years ago. It’s gone up again to about $180 billion. The total trade is about $1 trillion dollars. But it may surprise you really that for many years, Africa enjoyed trade surplus with China. Specific countries sometimes have deficit. But for any years, Africa has surplus . They export to China more than they import from China. The only thing you will tell me is that most of their exports are raw materials. But China is encouraging Africa to export more of manufactured goods and more of certain kinds of agricultural goods. They even invited Africa to a big import fare they did, they want others to bring what they can sell to China. I think what Africa has to do is to explore what they can sell to the Chinese market, apart from those exporting petrol, oil and gas. They should look at other agricultural commodities like soybeans. China buys a lot of soybeans from the world. China buys a lot of sesame from the world.
Tell us your own idea of poverty alleviation that can work for Nigeria
Capital is scarce in developing countries. Labour is abundant. Land is fixed. So, what do you do? You have to make investments in labour intensive activities. So, the idea that some people go into labour intensive activities when they are making their development planning is a good thing. First of all projects get abandoned and even if you complete them, they do not tackle your unemployment issues. That is why I think light manufacturing is the way to go.
Some people say we want to add value to our raw materials. But adding value to raw materials means if I get cotton or if I have bauxite, I want to go and invest in alumina and all that. But is it the best thing? You know the cost of doing an aluminum plant, the investment you require and then the investment in power and all that to process bauxite into alumina and aluminum. And when you make that investment, how many people does it employ? You may invest a dollar in that and you employ one person .
Whereas, if you do an industrial park that is labour intensive, that does garments for export, if you spend one dollar, it will employ five people and a factory within the industrial park may cost you just five million dollars and you will employ 1,000 people. You will spend maybe $500 million dollars to build an aluminium plant and you will not have maybe 1,000 people there. Some people will say we have bauxite and industrialisation means processing it into alumina. But it’s not. To jinn cotton into lint, a plant may cost you about $40 million dollars. How many people will it employ? Maximum of hundred people. If you spend $40 million, you will build so many garment facilities that will employ not less than 2,000 people.
What are your criteria for determining what sector you can help to grow?
The agreement and charter establishing affairs determines what we do. We support trade, we finance exports, imports, projects that will promote trade, projects that facilitate trade like ports and we also offer guarantee for services. In a particular country, before we intervene, we do what we call the country strategy paper. First of all we look at what is the content of the strategy itself and we build our strategy around that.
Just few weeks ago, Governors in Nigeria raised the alarm that the country may recede into a recession again. How can Afrixim help Nigeria in such situation?
I was at the swearing in and I heard President Buhari say that the economy grew more than 2 percent. It may not be a very big growth but that is not a recession. With the commodity prices, the oil prices where they are, I don’t really think that Nigeria is going into a recession.
However, can Nigeria grow faster, yes it can and President Buhari even mentioned it. We need to make investments in the right places. We need to promote the private sector. We need to make sure we develop our infrastructure. Infrastructure is the biggest constraint. We need to make the right policies that will improve confidence in the economy.
What do you think Nigeria can learn from Egypt from your experiences so far?
Nigeria can build the infrastructure the way the Egyptians have focused on infrastructure. It shows that it can be done and done quickly. I also think that after the Arab Spring, security deteriorated a bit in Egypt but now it has been brought under control. So, I think it also shows those challenges can be controlled. Those are the areas that Egypt had similar issues with Nigeria and that gives me confidence that they can also be brought under control.