TOYIN AKOMOLAFE: To Encourage Investment, Govt Must Match Talk with Action
Chief Toyin Akomolafe is the president, Nigerian American Chamber of Commerce (NACC), which membership cut across diverse business interests in Nigeria and the United States. Akomolafe, who prior to his current appointment, was the chairman of Sino Nigerian Marketing Network, is also the founder and chief executive officer of Index Brook Group of Companies. He speaks with Kunle Aderinokun and Bamidele Famoofo on pertinent issues affecting trade and investment including the trade war between China and the US, African Continental Free Trade Agreement (AfCFTA), African Growth Opportunity Act (AGOA), ease of doing business, and the prevailing interest rate. Excerpts:
It will be a good way to start by asking your opinion on the trade war between the US and China?
The trade war between US and China would be quite an interesting subject for discussion if its potential impact were not so perilous to the world economy. My involvement with the Nigerian-Chinese Chamber of Commerce and recent election as the President, Nigerian-American Chamber of Commerce gives me a unique perspective of both sides of the isle. China is too important a market for foreign firms to exit. Even though they differ greatly, both countries need each other. The markets are intertwined and dependent on each other so it will be cutting off the nose to spite the face if you think you would allocate a winner takes all status to either party. On the other hand, co-dependency between the U.S. and China is extremely strong and can work in both nations’ favour.
Recent conjecture that China is winning the trade war is wrong, that is just perception. Nobody wins a trade war, and in a case when the world’s two largest markets are in conflict, it is tantamount to mutually assured destruction. Everyone loses out in the bigger picture. World trade is affected, global growth slows, jobs are lost, livelihoods wrecked and prosperity impeded. Recently, the Trump administration imposed a 10 per cent charge on $200 billion of Chinese goods and it is due to rise to 25 per cent in January, 2019. Another $50 billion of Chinese goods already is subject to 25 per cent duties.
Beijing has responded with its own tariff increases on $110 billion of American goods. President Trump has threatened to expand U.S. penalties to all goods from China. To strengthen the resolve of his home front base, he established a $12billion programme to compensate and support farmers affected by the trade disputes. China’s global exports rose 12.6 per cent to $217.3 billion in October, down from September’s 14.5 percent growth. Imports rose 20.3 per cent to $183.3 billion, accelerating from the previous month’s 14.3 per cent. The global trade surplus was $34 billion, up from September’s $31.7 billion. The data is notoriously volatile and the longer-term trend shows the potential dangers ahead for both parties.
A recent publication from the South China morning post shows that the worsening US-China trade war might cost the world much more than US$430 billion of lost GDP. We should be expecting rough times if the trade war persists. That is why the two leaders must sheath their swords and check their egos. President trump said, ‘America first’ but as a Nigerian, we know that the Iroko tree cannot be the only tree in the forest. It will be very difficult to think any country can stand on its own. They would be well served by that age-old Chinese saying – where one thing stands, something else will stand beside it. It is not a winner take all situation, both parties should be able to make compromises.
The trade war has hijacked prices of consumer goods. One thing about the tariff “punishments” is that the main victims of these actions are America’s own global multinationals, and of course America’s own consumers. Which is why the farmers’ subsidy programme was instituted by the American government. Trump’s tariffs “largely tax the exports of foreign enterprises operating in China, whether U.S.-owned or with parents domiciled in other advanced economies (all U.S. allies)”. Once prices go up and considering that Nigeria is an import-driven economy, we will definitely bear the brunt of the war.
The relation between both countries’ trade flows is extremely strong. If U.S. exports to China are hitting a brick wall, then China will feel the effects through global multiplier effects as the trade row drags down world economic activity. If Trump is truly having an epiphany, Chinese President Xi Jinping also needs a wake-up call that the time for compromise is long overdue.
Critically, both countries need to come together to thrash out their respective problems amicably. A heated trade war is not the answer both in the short and long run. Both countries need each other to consolidate strong sustainable growth for both economies specifically, and the larger world trade. Talking is just the start and working together is the ultimate goal. A new U.S.-China economic pact could seal the deal.
They might not like to admit it, but America and China’s fortunes are conjoined – each economy is dependent on the other as the world’s two greatest superpowers. When I was growing up, Chinese goods were regarded as inferior, but now it is not. I am in the petroleum industry, most of the equipment’s are imported from the United States and the level of inclusion of Chinese products in the oil & gas industry has come to stay.
How will the AfCTA agreement impact business activities or operations of members?
In 2012, the African Heads of State and Governments resolved to establish African Continental Free Trade Agreement (AfCFTA) treaty to create a single continental market for goods and services in member nations of the African Union, with free movement of business persons and investments using a single currency.
Despite the recent shift in the growth poles of the global economy from developed countries to emerging and developing countries, Africa lags behind and remains marginalised. This is partly because the continent remains a fragmented bundle of small resource-rich, but commodity-dependent economies.
North America, from Mexico to Canada has its own free trading block initially memorialised as North American Free Trade Agreement (NAFTA), it has since been renegotiated by the Trump administration into a new agreement called the United States-Mexico-Canada Agreement (USMCA), similarly, member countries of the European Union (EU) have greatly benefited from their common association and free trading. AfCFTA is well overdue.
For Africa to optimise its resource endowments and translate them into welfare gains for its teeming population, regional integration is inevitable. The free movement of goods enhances growth for our member companies and now sees Africa as a global market and not as a microcosm, where market is restricted. The cornerstone of AfCFTA is promotion of industrialisation, sustained growth and development in Africa. The agreement is being pursued based on its potential to “boost intra-African trade, stimulate investment and innovation, foster structural transformation, improve food security, enhance economic growth and export diversification, and rationalise the overlapping trade regimes of the main regional economic communities”
In the United States, small to medium scale enterprises (SMEs) constitute about 45 per cent of the GDP, even in the oil industry, you have small marginal field players playing active roles in the value chain and making a good living. I will admit that the East African countries have been the most active in Africa with regards to this system of trade; Ethiopia, Kenya and recently Rwanda are doing well for themselves.
AfCFTA provides opportunities to exploit new frontiers and reach larger markets with Nigerian exports of manufactured goods and services. Member companies can take advantage of the opportunities this presents and the member nations make the aggregate of the parts greater than their sum.
Among exporting companies, 84 per cent expect AfCFTA to increase their volume of exports; the enthusiasm is shared by 91 per cent of small companies and 100 per cent of agriculture and trade businesses. Importantly, exporters of agricultural commodities view Nigeria as competitive within the continent and believe that CFTA will give them access to do business in African countries that are otherwise not easily accessible
Nigeria is still the largest economy in Africa. One cannot claim to be doing business in Africa if they are not engaged in Nigeria, An enlarged regional market will provide incentives for inward foreign direct investment (FDI) and cross-border investment for member States and companies, which is needed to spur productivity.
Some have argued that the treaty would impact government revenue and social welfare, as elimination of all tariffs among African countries would erode the trading states’ treasury by up to $4.1 billion annually and deepen poverty, with millions of Africans potentially exposed to starvation and death.
Others, particularly among the poorer economies, are afraid the benefits in the free trade area may not be equitably distributed among economies. These arguments highlight the need for a lot of education and advocacy. We need enlightenment programmes to aid people understand the benefits of the agreement.
What specific roles is the chamber playing in protecting the interest of member companies?
The chamber hosts breakfast meetings to which we invite thought leaders across industry to educate and enlighten member companies on topics that resonate with socio-economic issues of Nigeria vis-à-vis the United States. We organise capacity building workshops where members are exposed to best practices to scale up and sustain their businesses and professions. The chamber also engages in trade missions three times each year, in the last meeting with the executive committee, we agreed to focus on each sector of the economy to be more effective. We are currently targeting the ICT sector; we will like to explore opportunities for partnering between Silicon Valley and our chambers of commerce members.
Having member’s attend such programmes creates value for them. The Americans are looking at investment in Africa with more emphasis on Nigeria, largely because of our population. The U.S. Commercial Department which is our strong partners, have been very supportive lately in our plans for member companies.
Give us your assessment of trade and investment as well as the economy in general?
I like to base my assessment of trade and investment on the facts on the ground. We have already discussed the state of trade affairs between the U.S. and China. In Nigeria, we are not walking our talk yet and there are a lot of conflicts in policy implementation. The Ease of Doing Business ranking has improved, thanks to the various initiatives of the Presidential Enabling Business Environment Council (PEBEC), aimed at making the business environment more favorable.
The key thing is for government to play its role of providing a conducive business environment to enable the private sector do their own bit. We are interfacing the government agencies to let them know that we are the practitioners and should be the bridge between the government and the business community.
Is the current interest rate regime favourable to member companies’ businesses?
The Central Bank of Nigeria kept its benchmark interest rate on hold at 14 per cent on September 25th 2018, as widely expected. The last time policymakers changed rates was in July 2016, when they lifted the monetary rate by 200 bps. The committee noted inflationary pressures rebuilding, as the annual inflation rate increased for the first time since January last year to 11.23 per cent in August from 11.14 per cent in July, mainly due to higher cost of food. Interest rate in Nigeria averaged 10.88 per cent from 2007 until 2018, reaching an all-time high of 14 percent in July of 2016 and a record low of 6 per cent in July of 2009.
The committee from the CBN noted the uneven expansion in global output amidst growing trade tensions, rising oil prices and debt levels as well as currency depreciation in most of the notable emerging markets and developing economies.
When interest rates rise, banks charge more for business loans. This means you’ll need to use more of your earnings to pay interest on your loans, which decreases profits. You might decide not to start new projects or expansions during periods of high interest rates, which hampers the growth of the company. When interest remains low, businesses can borrow more readily. Low-interest loans can fund business growth and increase profitability because businesses can earn enough off new ventures to pay for the loan interest and have money left over for profits.
Customers have to pay interest on their personal loans, home loans and car loans. The higher the interest, the less money in customers’ pockets. By extension, less money in circulation, the market is stifled, money is not flowing around and this can breed social insecurity.
Businesses can invest their excess cash in interest-bearing accounts to make more money. During periods of high interest rates, businesses earn more from these investments. When rates are low, businesses may be more likely to use their cash for new equipment and plant improvements. While this can be good for equipment sellers and construction firms, banks lose out. Banks make their money from providing loans. When they don’t get business investments to boost their assets, they can’t make as much money because they have less to loan out.
Tell us about your objectives and high points for the Chamber during your tenure as President?
I am very passionate about this issue. In my acceptance speech, I opined that I would like to focus on three main thrusts for the Chamber. I am committed to re-branding and revitalising our image and balancing the American and Nigerian aspects of the organisation. We need to overcome cultural differences and work closely to have an underlying economic interest. I will fully participate in all economic fora and partner with leaders and leading organisations that could propel us toward a successful future. Also, I am committed to making this organisation serve its members, providing more networking and business opportunities.
We are looking at building a new secretariat during my tenure, The NACC is the oldest and foremost Chamber of Commerce in the country, it is very important that we have a secretariat of our own, this will be a cornerstone to define my tenure. Dr. Oba Otudeko, CFR, Chairman, Honeywell Group, who will be the chairman at my inauguration on December 14th, will be present to lend his support to this project and so is Chief (Dr.) Olusegun Osunkeye, OFR, OON, CON, former chairman, Nestle Nigeria Plc, who will be the guest speaker at the event.
I am committed to an aggressive membership drive to attract new members who are doing business with the U.S. to join the chamber. I will encourage more chapters to be established for the chamber in Nigeria and the US to create the critical mass that underscores the eminence of NACC among the pack. I am committed to de-personalising the vision and strategic plans of the chamber. My goal is to foster inclusivity in key decision making. All internal stakeholders need to feel a sense of belonging. After so many years as a member of this chamber, I appreciate the importance of harnessing the competence and wisdom of the executive, the board, state chairmen and past presidents in running the affairs of the chamber.
What is the perception of made-in-Nigeria products in the U.S. Market vis-à-vis the International market and how is the Chamber contributing to the growth of Made in Nigeria?
I am so proud to be a Nigerian at this moment. I was at the Africando Conference in Miami, Florida recently and there I saw so many Nigerian products. It is now a fad to wear hand bags made with Nigerian Fabrics from Nigeria, like the Ankara. Also, I saw people proudly wearing Nigerian Ankara fabrics. I am extremely proud of one of our member companies, who owns one of those companies making Nigeria proud in the U.S. Market. Such products are evidence of the kind of impact Nigerian products are making.
We have quite a number of members producing, packaging and labelling their own products especially in the agricultural, fashion and apparel sector. Last but not least, the quality of film production in Nollywood, Nigeria’s film sector, is improving every day. We are starting to export those products also.
The chamber has organised and still organising workshops to encourage profitable and standard export. We have opened conversation with the Nigerian-Export Promotion Council (NEPC) to see how we can maximise export opportunities. We have also started conversations with Business Clinics to leverage the ingenious cluster mechanism that allows small businesses rely on each other to exploit the export market.
Also, the chamber organises annually, The African Food & Products Exhibition (AFPE) which focuses on encouraging the promotion of Made in Nigeria by showcasing them at the exhibition.
What is the future of the Chamber’s relationship with the United States Mission in Nigeria vis-à-vis the United States?
The U.S. Ambassador to Nigeria, Stuart Symington, is a fantastic person, who is very passionate about Nigeria. I have met him a couple of times, I was with him in Abuja during the SME Conference organised by the Chamber in October, 2018. His passion was obvious. The team at the Consulate are awesome, I have a good relationship with John Bray, Consul-General, and we agreed recently to have member’s evening together once in a month and Brent Omdahl, the Commercial Counsellor has been very supportive.
It has been a good time for us together and in my tenure, we will explore our socio-economic interests for the growth of the Chamber.
The African Growth Opportunity Act (AGOA) has been extended to 2025. What opportunities abound with the Act for the Chamber and the economy?
The African Growth and Opportunity Act (AGOA) is a trade program that allows eligible countries in Sub-Saharan Africa to export certain products to the U.S. duty free. Nigeria happens to be one of the eligible countries.
The Act has been extended to 2025, but it is worrisome to note that the implementation plan is yet to be put in place. That is why most of our export through AGOA are being routed through countries like Ghana. I was with Mr. Okechukwu Enelamah, Minister of Industry, Trade and Investment recently at a conference in Washington D.C. and he promised to work on the plan.
The Chamber is the Private Sector AGOA Resource Centre and we have been at the forefront in promoting AGOA in Nigeria. We carry out regular sensitisation programmes and capacity building programmes and partner various stakeholders on AGOA related initiatives. It is a wake-up call for us to try and take advantage of the existing window we have.
The United States controls about 24 per cent of the world GDP. Hence the U.S. has the highest consumer markets in the world. The opportunities for Sub-Saharan Africa to export over 6,000 products into the United States through economic diversification cannot be over emphasised, be they agriculture products, leather products, etc.
Nigeria is completely reliant on oil for exports. As a result of new technology at Shale Oil, optimisation of existing wells and the disruptive technology of fracking, the U.S. has now become a net exporter of oil and the biggest producer. We must have the ability to export other products to the U.S. with the incentives of ‘no duty’, which will create jobs, diversify the economy and add to foreign exchange.
However, we have fared badly and we need Government-conscious efforts at promoting AGOA. We need the national strategy on AGOA like other countries, Ethiopia, Kenya and Ghana are benefiting enough. Shea butter is big and Niger State is the biggest shea butter producer in the world but our shea butter is exported through Togo and its processing is being done in Togo. We need a national strategy otherwise, 2025 will pass us by without having significantly improved our market stance in these areas. We are a work in progress and we hope to achieve and learn from what other countries are doing.