NIGERIA’S MULTILATERAL TRADE RELATIONS WITH THE G8 ECONOMIES: A GRAVITY MODEL APPROACH

NIGERIA’S MULTILATERAL TRADE RELATIONS WITH THE G8 ECONOMIES: A GRAVITY MODEL APPROACH

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CHAPTER ONE

1.0                                                                       INTRODUCTION

1.1       BACKGROUND OF THE STUDY

Development in international trade over the decades points to the fact that countries of the world cannot live in isolation. A close look across different political and economic climates of the world shows that this phenomenon has assumed a more competitive and multi-dimensional scale. Lurking at the background of multilateral trade relations is a quest to complement a country’s production deficiencies or limited resources by exploring available opportunities in some other countries. Global trade has expanded significantly since World War II and many countries have benefited from increased cross-border trade and investments for reasons which include: lower transportation and information costs, higher per capita income and changes in government policies (Onwuka and Eguavoen 2007 and Krol 2008). As a result, there is a global call for more trade across borders. This call has elicited one of the most enduring debates among policy makers in the world. Economists tend to believe that movements toward trade relations among countries, on balance, provide positive benefits. For instance, increased trade and investment flows help countries to develop faster than it should as trade generates income and the flows enable them to increase their stock of productive capital without compromising their level of consumption (Onwuka and Eguavoen 2007).

It is obvious that views would vary as some other economists like McCalman (2004) are of the opinion that when countries embark on a process of unilateral (or multilateral) trade arrangements, a period of backsliding is not far away. The main reason for this skepticism is the existence of groups with vested interests in maintaining tariff protection. Differences in production costs within countries


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determine much of the flow of goods and services across international borders in line with the concept of comparative advantage but not every nation is a full member of the global village especially, a developing country like Nigeria (Onwuka and Eguavoen, 2007). Developing countries are losing out as they experience the worsening of existing imbalances and distortions in the global economy which manifest in form of unequal distribution of political, economic and military power. The implication being that while global trade has created immense opportunities of wealth for some, it has produced two contrasting global villages - one which indeed is prosperous, rich and democratic for a few who live in it, and another in which the majority are poor, alienated and marginalized with hardly any voice to determine their own destiny (Collier and Dollar 2001, Zuma 2003).

Nigeria has trade relations with The Group of Eight (The G8); a group described as the world’s “most powerful” economic and political organizations in the world. The group participants have consistently supported the role of the General Agreement on Tariffs and Trade (GATT), and since 1995 its successor, the World Trade Organization (WTO), in monitoring multilateral trade agreements with a view to ensuring the openness of the international trading system, and as a forum for negotiations (Ulrich 2006; Adler 2008). However, it has been observed that Africa remains basically outside the global trading and investment system. At the end of the 1990s, a decade of globalization in finance and trade sees Sub-Saharan Africa still accounting for less than 2% of world trade and received less than 1% of global capital flows. A majority of the least-developed countries including Nigeria are in this category, and even the “middle-income” countries have suffered severe declines in per capita gross national product for year. (Wood and Browne, 2004).

The main thrust of Nigeria’s trade policy is the integration of the economy into the global market system (Briggs, 2007; Oyebanjo et. al. 2009). This entails


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progressive liberalization to enhance competitiveness of domestic industries; effective participation in trade negotiations to harness the benefits of the multilateral trading milieu; promotion of transfer, acquisition and adoption of appropriate technologies; and support for regional integration and co-operation. Thus, the government of Nigeria has a every opportunity reiterated its commitment to the principles and objectives of the multilateral trading system (WTO, 2005).

In response, there has been a remarkable increase in external trade and openness in the Nigerian economy over the two decades and has even grown more rapidly in recent times, especially since 2002 (Obiora, 2009). Nigeria became a founding member of World Trade Organization (WTO) with the coming into effect of the Marrakech Agreement establishing the Organization, in January 1995. However, Nigeria's involvement in the multilateral trade system dates back to 1960, when the country formally joined the General Agreement on Tariffs and Trade (GATT) after gaining independence from colonial rule (Briggs, 2007). Trade openness has risen from just above 3% in 1991 to over 11% by 2008. Direction of trade data indicates that the US, the EU, and Brazil are Nigeria's largest trade partners while US is Nigeria's single largest trade partner as it accounts for nearly 45% of Nigeria's export. However, oil exports account for the vast bulk of total exports (Briggs, 2007).

From the forgoing, one cannot say with precision how Nigeria’s multilateral trade activities especially with the G8, have fared or impacted on Nigeria’s economy. This indeed is an empirical puzzle this work wants to investigate.


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1.2 STATEMENT OF THE PROBLEM

In the wake of these trade imbalances in multilateral trade relations, policymakers in Nigeria may have to pay attention to the dynamics of trade flows with trade partners. Statistics has shown that the effect of a shock from a G8 economy, the US, rises over time in Nigeria with peaks around the end of the second year following the shock; a shock necessitated by three potential channels of spillovers name: trade, finance and commodity prices (Obiora, 2009). Whether this position holds between EU and the rest of the G8 economies, remains a largely a conjecture. For instance, Table 1.1 shows a trade survey involving the Nigeria and some of her trade partners in 2007. The ranks (bold figures prefixed to each of the countries) show that US is the most favoured having emerged second in imports but first in exports in trade among the EU major trade partners. Russia maintains a third position across the three groups. Japan takes 4th, 6th and 5th respectively while Canada assumes 13th, 10th and 11th positions respectively. South Africa (“S/Africa” as represented in the table) a Sub-Saharan African economy, takes 15th, 18th and 12th positions respectively while Nigeria assumes 30th, 31th and 33th positions respectively. The figures suggest that there is a serious dislocation in Nigeria’s trade relations with the G8 partners having been ranked 33th while a close Sub-Saharan African country like South Africa with far less endowments both in population and mineral resources, takes a 12th position. The table also shows the US, controlling 16.6% of total trade, Russia 8.7%, Japan 4.6%, Canada 1.8%, South Africa 1.6% while Nigeria controls only 0.7% of total trade. In the imports and exports categories, Nigeria’s share is 0.7% for both.


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Table 1.1 NIGERIA’S TRADE WITH G8 PARTNERS (2007)

Major imports partners

Major export partners

Major trade partners

PARTNERS  MIO

%

PARTNERS  MIO

%

PARTNERS MIO


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