–Dr Obiora Madu, exports/supply chain expert
By Enyeribe Ejiogu
With bated breath, the whole world is waiting for the second inauguration of United States President-Elect Donald Trump. During the campaigns, he promised to impose 10-20 per cent tariff on all imports from all other countries and 60 per cent on imports from China, as a major component of the America First Agenda of his administration.
The proposed tariff increase will come at a critical time for Nigeria, which desperately needs to boost income from crude oil sales and non-oil exports to the United States. A drop in crude oil sales to US will affect the budget. Increasingly, Nigerian Small-Medium Enterprises, with the urging of the government and support of banks have been making inroads by exporting foodstuff and other non-oil products to the Nigerian/Africa Diaspora market in the United States.
In this interview, Chief Executive of Multimix and Director General of the African Centre for Supply Chain, Dr Obiora Madu, a leading expert on export and supply chain management as well as an Adjunct Professor of Malaysia University of Science and Technology, who holds a Doctorate in Business Administration from SMC University, Switzerland, and recipient of the 2014 National Productivity Order of Merit Award, gives insight on how Nigerian SMES can successfully navigate and boost export income from the US as the Trump Administration pursues the America First Agenda.
During the campaigns, US President-Elect Donald Trump declared that he would impose 10-20 percent tariffs on imports from other countries and a hefty 60 percent on all imports from China. In general terms, how do tariffs on imported goods affect trade?
The impact of the proposed tariffs on imported goods is not going to be too palatable. First of all, there will be reduction in imports because the increase in duty is definitely going to affect the quantity of goods coming in. That will also cause trade patterns to shift. And under the World Trade Organisation rules, retaliation is allowed. So, America is likely going to face retaliation from other economies. Then of course the US domestic prices for goods will increase. That will affect the purchasing power of the people and might also cause inflationary pressures in the economy. Trump’s plan is a protectionist policy, which can boost domestic production and create jobs in the process. But the tariffs will definitely affect the cost of imported production inputs. The purchasing power of the consumers will go down and will require companies to adjust their business strategies. In a nutshell, there will be benefits and consequences arising from the tariffs.
Nigeria’s major export to the United States is crude oil. How will the threatened tariff increase affect Nigeria’s crude oil sales to the US and by extension, President Bola Tinubu’s proposed 2025 budget?
If Trump imposes a 20 percent tariff on Nigerian crude oil that will be bad news for Nigeria because, again, everything that we have mentioned earlier, reduction in quantity and the rest of them will come in. It will make Nigerian crude less competitive in the United States. In that case, Nigeria might have to start developing new markets. The possibility of price discounts as a result of all that will start happening to be able to entice people to buy. Such development will automatically affect the 2025 budget. There will be revenue shortfall and, there will be more pressure on foreign exchange. It will probably create fiscal deficits. And then, of course, constrain the infrastructure and social programmes which the government has planned in education, healthcare and the other sensitive ministries. This is why Nigeria needs to diversify its markets.
Currently, a growing number of Nigerian SMEs have been exporting foodstuff to the Diaspora market spread across the United States. How will the proposed tariffs affect the SMEs, particularly at a time the government has been urging for increased foreign currency earnings from non-oil exports, to dampen the pressure on the exchange rate of the Naira against the dollar?
Again, if Trump imposes the 20 percent tariff on foodstuff and other non-oil items that the SMEs are striving to export to the US, it will be a problem because the purchase cost will increase. Sales prices will be affected negatively and lead to loss of market share. With under-utilization of production capacity, jobs will be lost. The way out for the SMEs is to pursue value addition. We have great commodities, fantastic commodities in Nigeria. Through value addition, they can create products that would enable them to diversify into other markets. In other words, they should look deeply into other countries with significant Nigerian and African diaspora populations.
One major reason the incoming Trump administration wants to impose tariffs on Chinese products and other imports is to create jobs in the United States by compelling such items to be produced on US soil with American labour and production factors (energy, buildings etc). To blunt the impact of the proposed tariffs on exported Nigerian foodstuff, is it possible to play it both ways, whereby bulk quantities of Nigeria-processed foodstuff are exported in large volumes for packaging in the US with US-based Nigerian labour – to meet Trump’s “Produced in America” requirements?
That will also involve a lot of marketing, not just by the SMEs themselves, but also by the governments. The Federal and State governments need to be the chief marketers for the SMEs and to secure favourable trade agreements. The Federal Government can actually negotiate with the US on some of these things on behalf of the SMEs. As at today, I don’t know what will happen to the Africa Growth Opportunity Act (AGOA) which will soon expire. No one knows whether President Trump will extend it. Going by the way he sounded during the campaigns, no one can tell. The government has to create export incentives to help exporters absorb the challenges that they are facing. An improved export infrastructure will help the SMEs to survive, and there should also be policies that will assist the SMEs. The SMEs need to adjust and adopt creative strategies that will enable them to thrive under the forthcoming tariffs proposed by Trump. The government needs to do its utmost to help SMEs.
Further, the government has to become very intentional about diversifying the economy. It should identify, develop and grow other markets. It has been mouthing off about diversification but doing nothing about this in real terms. We must necessarily increase our refining capacity, and sell refined products instead of crude oil. This is crucial at this time. Just as it is talking about non-oil exports, it should also be talking about entrenching and codifying the export of services, because we have the capacity but we are losing a lot of money. We don’t even have statistics. Then, of course, Nigeria will have to try to leverage the trade agreements that are favorable, that can help the economy bounce back.
If the scenario above is to play out, what should be the role of the Africa Diaspora Trade Organisation (based in Houston, Texas), Multimix Limited, Nigeria Export Promotion Council, the Nigeria Diaspora Commission and the Export Desks of banks in helping appropriate SMEs to meet the certification requirements of the US Food and Drug Administration? Similarly, what should be the role of the Export Processing Centre at Lilypond, Lagos in the proposed scenario?
All the relevant agencies in Nigeria will have to help in this very particular thing by advocacy and mobilizing the Diaspora to assist Nigerian SMEs with the new policies that are coming to increase advocacy. That kind of advocacy will increase the partnerships between the Diaspora and Nigeria/Africa. There is need for technical training and capacity building for these organisations that have to train people on export process optimization, quality assurance, support and others. The Nigeria Export Promotion Council (NEPC) has a lot of job to do here with policy and financial support for the SMEs and then, of course, helping them to get organic certifications, among others. The banks have a big role to play in creating advisory services, facilitation of certification costs and also creating international fairs and all the activities that can assist SMEs. The export processing centres that are being created across the country will help by making life easier for exporters at this end, providing processing facilities, inspection and every other activity at the ports.
What further advice can you offer SMEs on how to navigate and exploit new opportunities to be created as the Trump Administration begins to implement its America First Agenda?
Trump says America first. And I don’t see anything wrong with what he’s saying. Every country is trying to protect itself. He is seeking to promote domestic manufacturing. Protectionism is the reason for the tariff policy. Stringent immigration control and energy independence will apply. So, the Nigerian SMEs should focus on export of organic, cultural, ethnic and specialty foods, and agricultural commodities like sesame seed and the rest of them for processing. Therefore, investing in quality certification will be very, very important to the SMEs. They should undergo US Food and Drug (FDA) certification and compliance processes. Such certifications will be crucial for the goods to be accepted abroad. Technology will assist a great deal by enabling SMEs to get on e-commerce platforms, and using digital marketing tools and block-chain to help with traceability for the products which were sold. Tracking and tracing are part of our challenge right now.