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1999-
Ezeh, Remigius
Faculty of Social Sciences
Department of Political Science
ANALYSIS OF NIGERIA-CHINA TRADE AND
INVESTMENT RELATIONS, 1999-2012
CHIME, DARLINGTON
PG/M.SC/12/62782
-2012
Digitally Signed by: Content manager’sDN : CN = Weabmaster’s nameO = University of Nigeria, Nsukka
OU = Innovation Centre
Ezeh, Remigius
Science
CHINA TRADE AND
2012
: Content manager’s Name Weabmaster’s name
a, Nsukka
ANALYSIS OF NIGERIA-CHINA TRADE AND INVESTMENT RELATIONS,
1999-2012
BY
CHIME, DARLINGTON
PG/M.SC/12/62782
A PROJECT REPORT SUBMITTED IN PARTIAL FULFILMENT OF THE
REQUIREMENTS FOR THE AWARD OF MASTER OF SCIENCE (M.Sc.) IN
POLITICAL SCIENCE
(INTERNTIONAL RELATIONS)
DEPARTMENT OF POLITICAL SCIENCE
FACULTY OF THE SOCIAL SCIENCES
UNIVERSITY OF NIGERIA, NSUKKA
SUPERVISOR: PROFESSOR ALOYSIUS-MICHAELS OKOLIE.
JUNE, 2013
APPROVAL PAGE
This project report has been examined and approved by the Department of Political Science,
University of Nigeria, Nsukka for the award of Master of Science (M.Sc.) in Political Science
(International Relations).
_______________________________ _______________________________ PROFESSOR A.M.N OKOLIE PROFESSOR JONAH ONUOHA
SUPERVISOR HEAD OF DEPARTMENT
____________________________ _______________________________
EXTERNAL EXAMINER PROFESSOR C.O.T UGWU
DEAN OF FACULTY
DEDICATION
To the Almighty God
ACKNOWLEDGEMENTS
I acknowledge in a very special way, the Alpha and Omega, The Beginning and The End,
Who is, Who was and who is to come. There would not have been a work like this in his
absence. The completion of this work was indeed made possible by many people. Without
mincing words, I must immensely thank my amiable supervisor, renowned scholar, a political
pundit, erudite Professor and a role model, Prof. Aloysius-Michaels Okolie (Ph.D) who
painstakingly supervised and ensured that this research work was properly written. I quite
appreciate the time and effort; upon your tight schedule, this work was also paid attention to.
Prof., suffice it to state that I learnt so much from you during the course of this study. God will
continue to uplift you and protect your household.
To these myriad of scholars who have impacted on my priceless gift of knowledge
throughout my stay in the Political Science Department: Prof. Obasi Igwe, Prof E. O. Ezeani,
Prof. Ken Ifesinachi (Political Science, Postgraduate Coordinator), Prof. Assisi Asobie, S. N
Asogwa, P.C Chukwu (Head of Department), Dr M. I Abada, Dr. H. Agbo (My friend), Dr, Ike,
Dr. Chris Ezeibe, Mr. Vin Onah, Mr. Albert E. Okorie, Mr. Raymond Adibe, Mr. U. Michael and
Nwangwu, C. I also remember the indelible loss of our mother in the Department, late Prof.
(Mrs.) Miriam O. Ikejiani-Clark, may your soul find a resting place in God’s bosom, Amen.
Honestly, I must confess that the completion of this journey was indeed made possible by
my sweet mother, Mrs. B.N Chime. To Dad, De People Mr. F. Azuoma (Hello Dear, Sure-Men),
they collectively attended to my needs throughout my stay in this institution. I greet you in our
dialect AJE’ SIR. Mr. Alexander, Onyeukwu (Costa) has been a good friend and father, I say
thank you sir! Worthy of note again is my brothers from different parents, Mr. Ikemefuna
Sunday Nwoke (De Clinton) and Mr. Obinna Ugwu (Obaino). The words and moments we
shared together cannot be forgotten even in a hurry. Mbaegbu Casmir (De MACAS) is also
acknowledged. Also to my cousin and personal adviser, Master, Chukwudumebi Sunday Oseh
(Dume-Dume). I remember in pains and tears the demise of my Aunty, Late Madam Rose
Osogbue; Mama we shall meet to part no more. Also to my late cousin, Macqueen Onwubolu,
may your soul rest in peace, Amen.
It is of no doubt that I denied some people brotherly affection during the course of my
study, siblings and relatives: Seraphine Chioma (Mummy), Bertrand (Daddy), Rupert, Philibeth
and Shirlie the ‘almighty Osama’; it was at the verge of completion of this work that we
tentatively welcome your new born baby. Others are Monday Oji (Ojieh), Macpherson Enebeli
(De-Man); their company is highly unforgettable in “AREA”. I also want to say Kudos to those
who contributed in one way or the other in making this journey a success; dignitaries like
Nwaosah Friday, Happy Olodu (Bulldog), Wilson Obodo, Bassey Ubong of Glybass photos,
Stan Ezeobi, Francis Eze, Monday Oseh (Monday-Ogbe’anagba), Nnenna Joy, Chidimma
Nwafor J, Neme Ugwu, Helen Orji Anya, and in a special way Chinedum E.
Efforts of guys in Acid lodge cannot be undermined, Sis Chikaodi (kor-kor- Dumebi’s
wife), Sis Ogechi and Chineye, Sis Chioma O (able Corper), Mrs., Nwakaego Abuchi, Calistus,
Henry, Victor, Oviemuno (Oga landlord), Obi-utor, Sis Amaka including all that knows the
worth and value for neigbourhood. The service rendered by Skippo of Skippo’s laptop typing
work is highly appreciated, he painstakingly typed the manuscript. God bless you all.
CHIME, DARLINGTON
2013
ABSTRACT
The study sets out to examine the Nigeria-China trade and investment relations within the years, 1999-2012. Overtime, researchers have contributed on the aforementioned topic with fundamental interest on the volume of trade, foreign aids, foreign direct investment, trade and investment policies between the two countries. Most of them anchored their explanation on Centre – Periphery and dependency analysis from the Marxian political economy approach. They pay less attention in explicating the relations in terms of its mutual benefits and the positive implications resulting from the relations. However, this study employed theoretical foundation of complex interdependence theory to investigate the aforementioned issues; thus implicating unequal exchange and gains of trade between the two nations on the basis of comparative advantage arising from technological advancement and level of the development of productive forces. Therefore the above lacuna is the fundamental task of this study. In this research, we shall rely on secondary data to investigate our analysis. The study noted that China’s policy on the exportation of textiles has led to the increase in the volume of trade between Nigeria and China within the period under review. Also the industrial policy on steel industries has impacted positively on the inflow of foreign direct investment from China to Nigeria within the period under study. The study makes useful recommendations to enhance mutually beneficial relations between the two countries.
Darlington, Chime.
UNN, 2013
TABLE OF CONTENTS
Title Page-- -- -- -- -- -- -- -- -- -- -- i
Approval page -- -- -- -- -- -- -- -- -- -- ii
Dedication -- -- -- -- -- -- -- -- -- -- iii
Acknowledgements -- -- -- -- -- -- -- -- -- iv
Abstract -- -- -- -- -- -- -- -- -- -- vi
Table of Contents -- -- -- -- -- -- -- -- -- vii
List of Figures and tables -- -- -- -- -- -- -- -- ix
CHAPTER ONE
1.1 Introduction -- -- -- -- -- -- -- -- -- 1
1.2 Statement of the Problem -- -- -- -- -- -- -- -- 4
1.3 Objectives of the Study -- -- -- -- -- -- -- -- 7
1.4 Significance of the Study -- -- -- -- -- -- -- -- 8
1.5 Literature Review -- -- -- -- -- -- -- -- -- 9
1.6 Theoretical Framework -- -- -- -- -- -- -- -- 20
1.7 Hypotheses -- -- -- -- -- -- -- -- -- 24
1.8 Method of Data Collection -- -- -- -- -- -- -- 25
1.9 Method of Data Analysis -- -- -- -- -- -- -- -- 26
CHAPTER TWO: HISTORICAL BACKGROUND OF NIGERIA – CHINA RELATIONS
2.1 Historical Background -- -- -- -- -- -- -- -- 27
2.2 Nigeria’s post-independence relationship with China, 1960 - s1978 (Chinese Reform) 31
2.3 Nigeria’s post-independence relationship with China, 1979 – 1998 -- -- 33
CHAPTER THREE: CHINA’S TRADE POLICY ON TEXTILES EXPORTATION TO
NIGERIA
3.1 China’s trade policy on textile exportation; An Overview -- -- -- 38
3.2 China in Nigeria textile industry -- -- -- -- -- -- -- 46
3.3 Impacts of China’s trade policy on exportation of textiles on the Nigeria’s
volume of trade, 1999 – 2012 -- -- -- -- -- -- -- 57
CHAPTER FOUR: CHINA’S INDUSTRIAL POLICY ON STEEL INDUSTRIES AND
FOREIGN DIRECT INVESTMENTS TO NIGERIA
4.1 China’s Industrial Policy: An Overview -- -- -- -- -- -- 70
4.2 Impacts of China’s industrial policy on the inflow of Foreign Direct Investment
from China to Nigeria -- -- -- -- -- -- -- -- 75
4.3 Trends and Challenges of Nigeria – China trade and investment relations, 1999
– 2012 -- -- -- -- -- -- -- -- -- -- 90
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary -- -- -- -- -- -- -- -- -- -- 100
Conclusion -- -- -- -- -- -- -- -- -- -- 103
Recommendations -- -- -- -- -- -- -- -- -- 104
Bibliography
LIST OF TABLES AND FIGURES
Table 3.1. China’s international trade (USD 100 Million) -- -- -- -- 51
Figure 3.1. China imports of Africa cotton and China exports of yarn and fabrics to Africa 51
Figure 3.2: Africa’s share of China’s cotton imports and exports of yarn and fabrics 53
Figure 3.3: Nigeria’s sources of imports 2007 -- -- -- -- -- 54
Table 3.2: Nigeria–China bilateral trade, 2001–08 ($ millions) -- -- -- 59
Table 3.3: China’s Share of Nigeria’s Exports (US$ million) -- -- -- 63
Figure 3.4: Key African exports by country and by product -- -- -- -- 63
Table 3. 4: China’s Share of Nigeria’s Imports (US$ million) -- -- -- 65
Figure 3.5: Key African imports from China (by country and by product) -- -- 66
Figure 3.6 – China’s exports to Nigeria by products, 2010 -- -- -- -- 67
Figure 3.7: China’s imports from Nigeria by products, 2010 -- -- -- -- 68
Table 4.1: China’s FDI flows into Africa by Destinations (2003-2011) -- -- 80
Table 4.2: China’s FDI stocks in Africa by location (2011) -- -- -- -- 80
Figure 4.3: China’s financial commitment in infrastructure projects in major countries
(2001-2011) -- -- -- -- -- -- -- -- 82
Table 4.3: Some Characteristics of Chinese Companies listed in 2005 -- -- 93
Table 4.4: Some of the Chinese Investments and Projects in Nigeria -- -- 95
CHAPTER ONE
1.1 INTRODUCTION
Nigeria’s first contact with the People’s Republic of China (PRC) was in 1960, when she
was invited to the country’s independence celebrations. This first contact with China was
designated as “the era of informal ties, 1960-1971” (Owoeye 1986:297).
Okolie (2009:91) noted that “Nigeria which had consistently voiced its readiness to
formalise diplomatic ties with China finally did so on 10th February 1971”. To begin with, China
opened its embassy in Lagos on 6th April, 1971 while Nigeria reciprocated in October of that
year. Nigeria demonstrated its diplomatic support for China by voting in favour of the Albanian
resolution by which China finally regained its seat in the United Nations Security Council on 25th
October 1971 (See Okolie, 2009; Owoeye, 1986; Agbu, 1994; Chibundu, 2000; Ezirim, 2007;
Akinterinwa, 1994).
Apparently, China as economic partner to Nigeria has been very dogged and focused in
her relations with Nigeria over decades. Despite the ups and downs of Nigeria –China relations,
the Chinese have continued to ensure that their market shares in Nigeria remain on a steady path
of growth. This should suggest that China has a long term plan for its engagement with Africa,
particularly Nigeria to develop a strategy for managing the relationship (Alli, 2007).
Kwanashie (2007) rounded up the postulation by asserting that the danger for Nigeria is
that china’s interests might over shadow the benefits that could result from their relations. This
relation governed by agreements, protocols and treaties spanned a spectrum of areas including
political, trade, investment, aid, technical, scientific, cultural, education, health and military. The
implementation of these agreements appeared to be lopsided as China seems to be on the fast-
track while Nigeria appears to be lagging behind.
At independence, Nigeria’s political leadership was not only pro-West but vividly anti-
communist. The resultant effect of this peculiar disposition was that Nigeria’s attitude towards
communist China followed what had then emerged as a clear pattern of most of her relations
with the socialist states-diplomatic isolation accompanied occasionally by bitter attacks against
communist ‘subversive’ ideology at home. While the then Prime Minister Tafawa Balewa
declared in new year on October 7, 1960 that Nigeria would be friendly with all countries that
recognized and respect her sovereignty, territorial integrity and political independence, he soon
made it clear thereafter where the line is going to be drawn. The leaders of the major three
political parties- the Northern People’s Congress (NPC), the Action Group (AG), and the
National Convention of Nigerian Citizen (NCNC) were for various reasons not comfortable with
communism. The ideology was not properly understood and was therefore feared. Consequently,
neither Chief Obafemi Awolowo nor Dr Nnamdi Azikiwe visited a communist country during
their life time.
Meanwhile, Salami (2008) remarked that China and Nigeria have many things in
common. The two countries share the same national day, are both multi-racial. In addition, China
has 56 ethnic groups, Nigeria has about 250. Nigeria’s population is the largest in Africa, and
China is not only the largest in Asia but largest in the world. China had suffered from
humiliation and occupation during its colonial period and Nigeria also had her fair share of
colonial experience and humiliation. The relationship of the two countries is made more
interesting by the common features and experiences existing between them. As a corollary of the
above, Anozie (2013:23) asserted that “Nigeria and China have strong grounds for bilateral
interactions; they also have solid motivations to speak with one voice on international issues”.
He also added that “since the beginning of their relations, Nigeria and China have never been at
loggerheads except for claims and counter claims over whose responsibility about the fake and
low quality products and drugs that are constantly brought into the country from China”.
Nonetheless, our preoccupation in this study is to evaluate the Nigeria-China trade and
investment relations, most fundamentally, emphases will be on the Chinese policy on textile
exportation and the volume of trade with Nigeria as well as Chinese industrial policy and
Foreign Direct Investment from China to Nigeria within period under investigation.
1.2 STATEMENT OF THE PROBLEM
The thrust of this study is to examine the Nigeria-China trade and investment relations
within the years, 1999-2012. It is baffling that the economic engagement of Nigeria with the
Chinese has exponentially deepened that the nation Nigeria has not been able to pause and think
out of proper framework for engagement, this rapid growth in trade relations between the two
nation-states has been largely to the advantage of china (Ogunkola, 2008).
Overtime, researchers have contributed on the aforementioned topic with fundamental
interest in the volume of trade, foreign aids, foreign direct investment (FDI), and trade and
investment policies between the two countries. Most of them anchored their explanation on
Centre – Periphery and dependency analysis from the Marxian political economy approach. They
also concentrated energy in their scholarships to unravel the adverse effects and negative
implications arising from the ongoing Nigeria-China relations. Principal among these scholars is
Odeh (2007:113); he succinctly noted that “the economic relation between China and Nigeria is
premised on moral imperfection and economic imbalance”. The opportunities on the part of the
Chinese are higher than that of the Nigerians in terms of benefit (Anozie, 2013). In the same
vein, Okolie (2009:97) remarked that “the balance of trade has continued to be in favour of
China”. Ogunsanwo (2007) rightly pointed out that Nigeria has remained a good market for
Chinese goods.
However, he emphasized on the accusations leveled against the Chinese companies for
dumping cheap and substandard goods produced by cheap labour in China on the Nigeria
market, thus helping to kill nascent industries in the country. This obviously pictures on the
negative influence of Nigeria-China trade relations on Nigeria’s economy. Owoeye (1986) and
Chibundu (2000) variously highlighted that during the Nigerian civil war period (1967-1970),
the country continued to be a good market for Chinese goods. For instance, Okolie (2009:95)
pointed out that “China’s export to Nigeria stood at £5.4m in 1969, as against £3.72m in 1968. In
1970, the figure rose to £7.03m rising again to £10m in 1971”. After this period however,
subsequent years experienced a progressive decline in trade volume. For instance, while the
volume of trade was put at N35.7m in 1981, it declined to N17.8m in 1982. It plunged further to
N8.0m and N2.6m in 1983 and 1984 respectively (Okolie, 2009). The falling trend was attributed
to the austerity measure of the Nigerian government that brought about exchange stricture and
import restriction. The problem of trade imbalance between Nigeria and China had attracted
concern as far back as 1974 during Brigadier Shehu Yar Adua’s visit to Beijing. According to
the note of understanding subsequent released on the issue, “China pledged to purchase, in
addition to cocoa and cashew nuts, substantial quantities of cotton and palm kernel as a step
towards bridging the trade gap”. Nonetheless, the trade imbalance has persisted (Owoeye, 1986;
Chibundu, 2000 as cited in Okolie, 2009:95).
Having rigorously and systematically x-rayed what the above mentioned scholars and
others such as: Odenyi (2004), Owoeye (1986), Alli (2007), Okwandu (2008), Onuoha (2008),
Obinor (2006), Ogunkola (2008) and several others have written and what they have not
adequately addressed in the extant literature as concerns Nigeria-China trade and investment
relations especially in the last decade, it is evident to note that scholars are yet to address in
concrete terms the aspect of Chinese trade policy on textiles exportation and volume of trade
with Nigeria, Chinese industrial policy and foreign direct investment to Nigeria.
Therefore, on the strength of the above, we state the following questions for further
investigation:
● Has the China’s trade policy on the exportation of textiles enhanced the volume of trade with
Nigeria within the period under study?
● Has the China’s industrial policy on steel industries enhanced the inflow of foreign direct
investment from China to Nigeria within period under study?
1.3 OBJECTIVES OF THE STUDY
Opinions are diverse on reasons for the inability of Nigeria to make progress in her
developmental quest in her ongoing relations with China. Again, failure of various economic
measures adopted by different governments has attracted intellectual discourse amongst political
and economic scholars. While some blame it on the foreign policy thrust of Nigeria state, others
hinge it on domestic political environment.
However, the study has both broad and specific objectives. The broad objective of the
study is to analyse Nigeria-China trade and investment relations within the period, 1999 – 2012.
The specific objectives of the study are as follows:
■ To ascertain whether the China’s trade policy on the exportation of textiles has enhanced the
volume of trade with Nigeria within the period under study
■ To determine whether China’s industrial policy on steel industries has enhanced the inflow of
foreign direct investment from China to Nigeria within period under review
1.4 SIGNIFICANCE OF THE STUDY
Ideally, every social science research possesses two levels of significance; the theoretical
and the practical. In complying with this ideal, the study has both theoretical and practical
import.
The theoretical relevance of the study stems from the fact that; it will extend the frontiers
of knowledge on the issue under discussion. It will also enable the students of social sciences in
general and political science in particular to have more access to current data on the Nigeria-
China trade and investment relations. Lastly, it will add to the pull of literature on the subject and
create a new paradigm in the study.
On the practical angle, the study will equip us with enough facts on the conditions that
instigate the formation of formal ties between the two countries under study. Derive new
strategies to enhancing even and mutual relations in the ongoing Nigeria-China trade and
investment relations. Finally, the study shall be beneficial to foreign policy makers, statesmen
and diplomats who will examine critically the implications of policies and their executions in
relations with countries. Suffice it to also state here that going beyond investment and trade
transactions, China is currently indicating her interest in Nigerian universities with the
introduction of the study of Chinese language.
1.5 LITERATURE REVIEW
It is a well known fact that no knowledge exist in a vacuum as no man is an island unto
himself. It therefore follows that every intellectual endeavour is always built on pre-existing
knowledge. It is against this backdrop that we shall examine works of scholars that provide
intellectual base for this study. By reviewing extant literature relating to the area of study, we
hope to locate the lacuna in knowledge existing in the previous works.
However, quite a good number of researchers have made general and relevant
contributions to the issue under study. These scholars range from those who have written on the
general issue on Sino-Africa trade relations in terms of volume of trade, foreign direct
investment, foreign aid and trade policies to those who wrote specifically on the Sino-Nigeria
trade and investment relations. Attempt will be made at highlighting the issues they explored and
the pitfalls. As earlier stated, our preoccupation in this study is to critically examine the Nigeria-
China trade and investment relations, 1999-2012. Emphasis shall be on the China’s trade policy
on textile exportations and the volume of trade in Nigeria; and on the other hand, China’s
industrial policy and foreign direct investment from China to Nigeria within period under
investigation.
As a corollary of the above, our review of extant literature in the subject matter of study
shall follow a thematic approach. Thus, much of the review shall centre on the following themes:
(a) Chinese trade policy on textile exportation to Nigeria.
(b) China’s industrial policy and foreign direct investment to Nigeria.
CHINESE TRADE POLICY ON TEXTILE EXPORTATION TO NIGERIA.
There exist a plethora of scholarly submissions on the subject matter of Nigeria-China
trade and investment relations. However, this section, based on the first specific objective of this
study is primarily concerned with those literature that deal with the Chinese policy on textile
exportation and volume of trade with Nigeria
China’s textiles industry is the traditional pillar industry in the Chinese economy.
Employment in the industry was 33.6 million in 2011, accounting for 19.2 percent of the total
manufacturing workforce (Olusanya and Akindele, 2008). In order to avoid or limit the negative
impact that Chinese economy could suffer in textile sector, in 1974, Multi Fibre Arrangement
(MFA); also know as Agreement on Textile and Clothing (ATC) was introduced with developing
countries that specialize on textile and clothing. However, Ogunkola (2006:34) succinctly
remarked that “the nature and procedure of the Multi Fibre Arrangement was strict and
stringent”. This policy of intervention was created to protect domestic industries, which alleged
that producers in developing countries were applying dumping (See Eneji, 2012; Ogunkola,
2006; Chaponniere et al, 2010). They furthered that Multi Fibre Arrangement imposed quotas on
the yearly amount of textile that developing countries could export to Chinese markets from
1974 through 2004. It was set to expire on 1st January 2005. In the meantime, producers in
developed countries had time to improve its efficiency and recover its competitiveness.
However, they never managed to match the required competitiveness to remain in the market.
Olusanya and Akindele (2008) noted that prior to the Chinese Economic Reform of 1978;
China had limited access to foreign markets. Before the reform, foreign companies could not
operate in the Chinese economy, which was dominated by state-owned enterprises. Only after
1979 the private sector and foreign investments were promoted (Olusanya and Akindele 2008).
However, from after the reform, China has gradually moved from socialist to a market economy,
where stringent measures that restricted trade have been dismantled. In this historic opening up
and reforms, commodity exports, capital, labour, services and technology markets have since
emerged in China, (Eneji et al, 2012).
However, bilateral trade has grown exponentially since China and Nigeria signed an
agreement on trade and investment promotion and protection in 2001. The volume of trade
reached USD 17.7 billion in 2010, almost 10 times its level just ten years before (Egbula and
Zheng, 2011). While Nigerian exports to China more than doubled, they have not kept pace with
the growth of Chinese exports to Nigeria. Thus a hefty trade imbalance has not only persisted but
also intensified. They further maintained that Chinese exports represented 66.7 % of the bilateral
trade total in 2000 and 87.3 % of the total in 2010. By 2010, Nigeria had become China’s fourth
biggest African trading partner, and the second largest Chinese export destination on the
continent (Egbula and Zheng, ibid). They also remarked that trade between the two countries
accounted for nearly one third of the trade between China and the whole of West Africa,
indicating the importance of Nigeria to China’s entry into the regional market. Despite recent
expansion, China still only accounts for a small fraction of Nigeria’s global trade, lagging far
behind the country’s top partner (the United States) and also notably facing competition from
Brazil and India, as well as more traditional partners such as France. Around 87% of Nigeria’s
exports to China are oil and gas products. China, by contrast, exports a diversified range of
goods to Nigeria, most notably machinery, textile products, telecom equipment, vehicles and
manufactured commodities.
In confirmation, Okolie (2009:94) observed that the “Sino-Nigeria bilateral trade and
investment relations got a boost even during the period of informal ties between the two
countries”. By 1958, China’s export to Nigeria was put at £1.4m. It increased to £1.86m in 1959.
By 1963, Nigeria was the third largest market for Chinese exports in Africa after UAR and
Morocco. However, the pattern of trade during this period exhibited a heavy imbalance against
Nigeria (See Okolie, 2009).
During the Nigerian civil war period (1967-1970), the country continued to be a good
market for Chinese goods. For instance China’s export to Nigeria stood at £5.4m in 1969, as
against £3.72m in 1968. In 1970, the figure rose to £7.03m rising again to £10m in 1971 (Okolie,
2009:95). After this period however, subsequent years experienced a progressive decline in trade
volume. For instance, while the volume of trade was put at N35.7m in 1981, it declined to
N17.8m in 1982. It plunged further to N8.0m and N2.6m in 1983 and 1984 respectively (Okolie,
ibid). The falling trend was attributed to the austerity measure of the Nigerian government that
brought about exchange stricture and import restriction. Owoeye (1986) and Chibundu (2000)
remarked that balance of trade was in China’s favour. The problem of trade imbalance between
Nigeria and China had attracted concern as far back as 1974 during Brigadier Shehu Yar Adua’s
visit to Beijing. According to the note of understanding subsequent released on the issue, China
pledged to purchase, in addition to cocoa and cashew nuts, substantial quantities of cotton and
palm kernel as a step towards bridging the trade gap. Nonetheless, the trade imbalance has
persisted (Owoeye, 1986; Chibundu, 2000 as cited in Okolie, 2009:95).
The volume of trade between Nigeria and China has accordingly increased in recent time.
By 2045, China is projected to depend on imported oil for 45 percent of her energy needs. The
country therefore, needs supplies from relatively low cost African or Middle Eastern sources
(Ezirim, 2007; Utomi, 2008; Onuoha, 2008 as cited in Okolie, 2009). The foregoing situation has
made China to embark on the strategy of “going out”. In line with this, the Chinese government
has adopted various measures to promote trade and investment relations between her and Nigeria
and these measures according to Okolie (2009) include:
● taking positive measures to facilitate African products to enter China’s market, and to give
zero tariff treatment to parts of exports from “least developing countries” in Africa, to
enlarge the trade scale, and optimize the trading structure;
● Africa is one of the regions Chinese government encourages enterprises to make investment.
Chinese government will formulate and perfect related policy, simplify investment
procedures, enhance guide and services, and support powerful enterprises to invest in Africa.
She will not continue to sing and carry out “bilateral agreement to encourage and guarantee
investment”, and “avoiding double taxation” to safeguard the legal rights of investors;
● encouraging China’s financial institutions to setup branches in Africa to provide effective
financial services for China-Nigeria trade; and
● strengthening information service system to create conditions to exploit African market
(Onuoha, 2008 as cited in Okolie, 2009).
Okolie (2009) also remarked that the foregoing measures might have been responsible for
the recent increase in the volume of China-Nigeria bilateral trade relations. For instance, the
volume of trade between Nigeria and China increased from £178million in 1996 to £1.44billion
in December, 1998 (Momoh, 2009). The actual trade figures within the years of study (1999-
2012) is however conflicting among scholars. However, in the aspect of balance of trade, Okolie,
(2009:97) correctly noted that “the balance of trade has continued to be in favour of China”.
In summary, the extant literature reviewed at this level such as Ogunkola et al (2006),
Okolie (2009), Eneji (2012), Bankole (2005) Owoeye (1989), Odenyi (2004), Taylor (2007),
Ogunkola (2010), and several others have contributed in the area of the incursion of Chinese in
Nigeria textile sector, the resultant and adverse effect of the Chinese presence in Nigeria textile
industry in particular and the economy in general. From the elaborate review, there is convincing
evidence that little or no study has been done with respect to the Chinese trade policy on textile
exportation and volume of trade in Nigeria; most fundamentally the positive impact of Nigeria-
China trade and investment relations on Nigeria’s economy. More importantly, it therefore
becomes vital to chart the course as presented above to enable us bridge the lacuna in the extant
literature.
CHINA’S INDUSTRIAL POLICY ON STEEL INDUSTRIES AND FOREIGN
DIRECT INVESTMENT TO NIGERIA
In the past three decades since China’s economic opening to the world, the country’s
integration into the global economy has progressed by leaps and bounds especially after joining
the WTO in 2001, international trade and investment flows have been on a steep upward
trajectory, (Heiden 2011). This process was not only driven by market forces but heavily
influenced by government intervention in commodity and financial markets.
Most importantly, Stewart and Stewart (2007) remarked that the government authorities
are strongly determined to promote closer economic integration with the rest of the world; they
seek to supervise and control the process in order to carve out maximum benefits for domestic
enterprises and the economy as a whole. In the process of bringing this debate closer to the issue
at hand, Weld (2009) noted that balancing market forces and industrial policy strategy, political
decision makers have worked out an elaborate framework of measures to create an environment
conducive to the development of several sectors deemed backbone or pillar industries in China.
However, one of them, the steel industry. The industry is subjected to numerous measures
steering its development both in the home market and at the global market interface. Since the
founding of the People’s Republic of China, consecutive leadership generations have attributed
great importance to the steel industry considering a large steel sector as a basic precondition for
successful national development. After an attempt to rapidly increase steel output during the
‘Great Leap Forward’ campaign spectacularly backfired, leaving the Chinese economy in
shackles, very slow progress has been made before the onset of economic reforms. Since the
founding of the People’s Republic of China policy documents have repeatedly designated steel
as a pillar or backbone industry (NDRC, 2005). The appreciation for steelmaking has been
expressed through various means of support and facilitated massive flows of investment and a
spectacular capacity build up (Taube and Heiden 2009).
Taube and Heiden (2009) further stressed that the export restraints for raw materials like
coke and zinc, which are important inputs for steelmaking and finishing respectively, lead to a
bottling up of resources on the Chinese market while at the same time reducing supplies on the
world market. Due to the artificially created abundance and shortage situations, price
differentials are bound to develop over time. The fact that China is the world’s largest producer
of both commodities further exacerbates this problem. Subsequently, the profitability of Chinese
steelmakers is greatly supported by depressed input prices and export promotion for finished
products overseas.
In recognition of the potential influence of the steel industry, the Chinese government is
dedicating substantial resources to the monitoring and micro-management of China’s steel
industry’s interaction with the global markets. No wonder, Bruce (2001) took the analysis in
broader terms. He made reference to Chinese Industrial Policies as the major source and
determinant of policy on steel industries. He noted that Chinese Industrial policies (CIPs) include
such varying practices as production subsidies, export subsidies, and import protection, and are
commonly used to promote targeted sectors, (Bruce, ibid). However, such policies can have
significant impacts on sectors other than those targeted by the Industrial policies (IPs),
particularly when the target sector produces goods that are key inputs to downstream sectors (See
Blonigen, 2010; Alan, 2009; Price, 2007) .
Over the first three decades after the founding of the People’s Republic of China (PRC),
outward investment was practically non-existent – crippled not only by political considerations
but also by the absence of an adequate institutional framework and a severe shortage of foreign
exchange (Heiden 2009). One year after initiating the reform and opening policy in December
1978, the central government introduced the “Fifteen Measures for Economic Reform”. This
concept addressed the establishment of Chinese companies’ overseas and outward investment in
general for the first time (Heiden, ibid).
Eneji et al (2012) noted that prior the Chinese reform agenda, FDI to African
countries from the Asian giant (China) are largely affected by its trade restriction policy.
Even after the reformation, the inflow of FDI from China to Nigeria remains suspicion
owing the fact that these Chinese investor mobilize their workers from home to the host
country, this shows lack of commitment and proper investment plan for the host country
(Eneji et al, ibid). On the contrary, Nigeria occupied the 12th position as host countries of
Chinese outward FDI between 2003 and 2006 with the sum of US$191.01 million, Chinese FDI
to Nigeria increased from an average of $0.55 million in 1999-2000 to about $5.5 million in
2011 (Ogunkola et al 2010).
Ogunkola et al (ibid) further stressed that despite the increase in the inflow of FDI to
Nigeria, this is to the advantage of the Chinese economy. Structurally, Chinese investment
covers mainly manufacturing and construction activities, particularly in the area of infrastructure
and services. The composition of Chinese investment in Nigeria is highly fragmented. China has
set up over 30 solely – owned companies or joint venture in Nigeria in the construction, oil and
gas, technology, services and education sectors of the Nigerian economy (Ogunkola, Bankole
and Adewuyi, 2006).
Chinese economic interests in Nigeria can be broadly classified into two: private and
public. Nigerian Investment Promotion Commission (NIPC, 2010) revealed that Chinese private
FDI are mostly in agro-allied industry, manufacturing and communications sectors.
Correspondence is observed between countries with large Chinese natural resource investments
and those with large Chinese infrastructure financing for power and transport due to the need to
link mining deposits with power required for processing and rail and port infrastructure required
for export (NIPC, ibid). Nigeria, though a major recipient of Chinese infrastructure finance,
received relatively small volumes of Chinese infrastructure finance during 2002 and 2005
(Ogunkola 2010). Sectoral spread of Chinese infrastructure finance in Nigeria is a little different
from the entire Africa, with transport infrastructure projects amounting to 65.0% of all
commitments followed by power with 24.0% (Ogunkola, ibid).
Chinese investment is concentrated in a few sectors that are of strategic interest to China,
especially in the extractive industries. They are carried out largely by state-owned enterprises or
joint ventures. Ogunkola et al (2006) noted that Chinese FDI in Nigeria is typically accompanied
by Chinese workers and most of the supplies are sourced directly from China. Chinese outward
FDI is often associated to “pull” factors such as a host country’s favourable investment policies,
including incentives and other location-specific advantages.
Surprisingly, there has been insufficient systematic analysis of how Chinese Industrial
Policies impact on the FDI from China to Nigeria, at the same time deficient analysis how
China’s trade policy on textile exportation has impacted on the volume of trade in Nigeria.
Coincidentally, Ogunkola et al (2010) have noted that despite the increase in the Chinese foreign
direct investment to Nigeria, this is to the advantage of the Chinese economy; Okolie (2009:97)
also remarked that “the balance of trade between the two countries has continued to be in favour
of China”. It therefore becomes germane to chart the course as presented above to enable us fill
the lacunae in the literature.
SUMMARY OF THE REVIEW
The extant literature reviewed in this study such as Ogunkola et al (2006), Okolie (2009),
Eneji (2012), Bankole (2005) Owoeye (1989), Odenyi (2004), Taylor (2007), Ogunkola (2010)
and several others have variously contributed in the area of foreign aids, volume of trade, foreign
direct investment between the two countries. Most of them exhaustively centered their
explanation on the adverse effect of Chinese presence in Nigeria textile industry in particular and
the economy in general, unraveling the trade imbalance between the two countries as well as the
negative implications arising from the ongoing Nigeria-China trade and investment relations.
As a corollary of the above, Anozie (2013) succinctly noted that the opportunities on the
part of the Chinese are higher than that of the Nigerians in terms of benefit. Apparently, Okolie
(2009:97) remarked that “the balance of trade has continued to be in favour of China”. While
Odeh (2007:133) noted that “the economic relations between Nigeria and China is premised on
moral imperfection and economic imbalance”. However, there have not been adequate
systematic treatments of positive implications arising from the Nigeria-China trade and
investment relations with respect to how the relations have contributed to the Nigeria’s economy.
Ogunkola et al (2010) concluded that despite the fact that China has set up over 30 solely –
owned companies or joint venture in Nigeria in the construction, oil and gas, technology,
services and education sectors of the Nigerian economy, the foreign direct investment to Nigeria
is typically accompanied by Chinese workers and most of the supplies are sourced directly from
China.
Therefore, from the elaborate review, there is convincing evidence that these scholars
failed to highlight how the Chinese trade policy enhanced the volume of trade with Nigeria as
well as Chinese industrial policy on steel industries enhanced the inflow of foreign direct
investment to Nigeria. What seems to emerge from the literature reviewed on Nigeria-China
trade and investment relations is that even the impressive analysis of the dependency and centre-
periphery approach has not been exhaustive in explicating the correlation between the Nigeria-
China relations, most fundamentally in the aspects of trade and investment. It therefore becomes
imperative to chart the course as presented above.
1.6 THEORETICAL FRAMEWORK
The dynamic and vast nature of interactions among sovereign states is such that may
attract numerous approaches in analysis. Hence, Okolie (2006:74) argued that “many a scholar
usually fall into the temptation of deploying the dependency theory, which in most cases
misdirect the attention of the researcher by emphasizing the untenable policy of delinking, a
situation that is quite impossible and impracticable in the present world global village”.
Since the present globalised world operates under the regimes of capitalism and precepts
emanating from the paradigm of socio-economic liberalism; we therefore adopt the theory of
complex interdependence as a viable tool of analysis in this study. The complex interdependence
theory in international relations as a critique of political realism is postulated by Robert Keohane
and Joseph Nye (1977). It argues that states and their fortunes are inextricably tied together. The
concept of economic interdependence was popularized through the work of Richard Cooper.
With the analytical construct of complex interdependence in their critique of political realism,
“Robert Keohane and Joseph Nye went a step further and analysed how international politics and
trade relations are transformed by interdependence” (Crane and Anawi, 1997: 107). The theorists
recognized that the various and complex transnational connections and interdependencies
between states and societies were increasing, while the use of military force and power balancing
are decreasing but remain important. In making use of the concept of interdependence, Keohane
and Nye (1997) also differentiated between interdependence and dependence in analyzing the
role of power in politics and relations between international actors. From the analysis, complex
interdependence is characterized by three characteristics, involving:
1. The use of multiple channels of actions between societies in interstates, trans-
governmental, and transnational relations.
2. The absence of a hierarchy of issues with changing agendas and linkages between
issues prioritized.
3. Bringing about a decline in the use of military and coercive power in relations among
sovereign states.
Respectively, complex interdependence is based on specific characteristic that critique
the implicit and explicit assumptions of traditional international politics; (that is the superiority
of the state and a hierarchy of issues with military force and power the most important leverage
in international relations which traditionally defines political realism in political science).
Nye and Keohane (1977) thus argue that the decline of military force as a policy tool and
the increase in economic and other forms of interdependence should increase the probability
cooperation among states. The work of the theorists surfaced in the 1970s to become a
significant challenge to political realist theory in international politics and become foundational
to current theories that have been categorized as liberalism, neoliberalism and liberal
institutionalism. Traditional critiques of liberalism are often defined alongside critique of
political realism, mainly that they both ignore the social nature of relations between states and
the social fabric of international society. With the rise of neoliberal economics, debates, and need
to clarify international relations theory. Keohane (2002:2) has most recently described himself as
“simply an institutionalist”
The relevance of this theory to the understanding of Nigeria – China trade and investment
relations cannot be underestimated or overemphasized. The theory will help us to dispel the
general belief and misguided application of dependency theory in the treatment of relations
between nations.
Moreover, the theory is relevant in the explanation of the contemporary world in which
no country can be an island unto itself, since no nation is naturally equipped or endowed with all
the resources that it requires to sustain itself, hence nations must relate with one another in order
to survive. The basic contribution of this theory is that it directs attention to the fact that nations
are intricately dependent on one another, to the extent that no nation can entirely decide for
others. Though this does not dispel the fact that in every relations that there must be winners and
losers. Thus, the theory accepts and indicates the realities of unequal gains from trade among two
or more interacting nations.
APPLICATION OF THE THEORY
In the application of the theory to the study, we noted that Nigeria – China trade and
investment relations are borne out of the fact that none of the two countries possesses all the
resources that they require in their quest to produce and reproduce the material means of their
existence. Hence they have to enter into some form of interdependence upon one another to
secure these scarce and unevenly naturally endowed resources. For instance, China as an
industrializing economy requires the services of the energy that comes from oil (petroleum) and
Nigeria on the other hand as an underdeveloped economy requires the products that come from
these Chinese companies in order to satisfy the demands of its population. It therefore becomes
imperative that the two countries interact and transact across borders.
However, since these two countries trade and invest on commodities of various nature
and quality (one finished and the other primary product and raw material) it becomes evident that
the gains from this trade must at one point be tilted to the advantage of one against the other
based on the exigencies of the market forces of demand and supply of these tradable
commodities. The fundamental implication to this study is that since in absolute terms the
bilateral relations tends to favour China more than to Nigeria, there exist the need for the latter to
redress the imbalance through renegotiation and improvement in the latter’s productive
potentials.
Therefore, this theory will help us to appreciate the fact that:
(a) No country is unproductive
(b) A country cannot produce virtually all the goods and services needed by man
effectively.
(c) It is more economical and efficient for more than one country to engage in the
production of different commodities and products each can produce easily and with
minimum input.
(d) No country is absolutely dependent or independent economically.
According to the character of capitalism and free market economies as variously
postulated by Adams Smith and David Ricardo, countries are today encouraged even as the
world is now globalizing or the boundaries broken down to produce and concentrate on
commodities which they have the relative or comparative advantage since they could have
unlimited access to other commodities from other countries which they have the greatest
productive disadvantage.
1.7 HYPOTHESES
This study is guided by the following hypotheses;
(a) China’s trade policy on the exportation of textiles has led to the increase in the
volume of trade with Nigeria within period under investigation.
(b) China’s industrial policy on steel industries has enhanced the inflow of foreign direct
investment from China to Nigeria within the period under study.
1.8 METHOD OF DATA COLLECTION
Data collection has been described as “the science and art of acquiring information about
the select properties of units” (Selltiz et al 1976:2). A number of methods have been identified
and applied for the generation of data in political science research. However, this study shall
employ the observation method. In this case, the researcher would predominantly make use of
some works of scholars which include: textbooks, local and international journals, commission
reports, seminar papers, extricating information from the official documents and websites of
Central Bank of Nigeria, World Bank, Ministry of Trade and Commerce of the countries under
study as well as unpublished works of scholars and materials from the internet which centers on
the Nigeria-China trade and investment relations. Writing on this method of data collection in
political science, Obasi (1999:172) succinctly noted that “the examination, analysis and
interpretation of policies and documents constitute the dominant method of generating data by
traditional political scientist”. Obasi (2007:263) furthered clarifies the above assertion by
observing that “traditional political research could be likening to contemporary library search
method that derives its facts from documented materials”.
Collection of these documents would take us to libraries such as Center for American
Studies (CAST), Nmandi Azikiwe library, Department of Political Science library all in the
University of Nigeria, Nsukka; we shall also consult the Igbenidion library complex of the Lucky
Igbenidion University, Okada.
1.9 METHOD OF DATA ANALYSIS
In order to analyze our data, we shall adopt the qualitative descriptive method of data
analysis. Qualitative descriptive analysis is used to verbally and visually summarize the
information gathered in research (Asika, 1991). Obasi (2007:367) noted that “qualitative
research relates to aspects of enquiry that are more philosophical and argumentative”. Generally,
it involves a systematic transformation of quantitative data into qualitative data with a view to
situate the pattern or events in their historical context and establish their subsequent
development. Moreover, tables and pie charts will be used where necessary to enable us
articulate and present information in a concise and coherent manner, so as to expose the trends in
volume of trade as well as foreign direct investment between Nigeria and China.
CHAPTER TWO
2.1 HISTORICAL BACKGROUND OF NIGERIA – CHINA RELATIONS
As earlier stated, the study sets out to analyze the Nigeria-China trade and investment
relations. Thus, it will be germane to highlight and trace the historical background of the
relations between the two countries under investigation, starting from pre to post Nigeria’s
independence and Chinese reforms. As a corollary, this chapter shall explore the historical
background of Nigeria-China relations before Nigeria’s independence (1960); the relations
between the two countries, from 1960 – 1978 and from 1979 – 1998 respectively. Subsequently,
this will provide an insight in exploring the relations within the scope of our study (1999 - 2012).
However, Nigeria and China are not neighbours by any definition, nor do they share
cultural, historical, linguistic affinity to make relations between them inevitable. Being at least,
ten thousand kilometers away from each other, the factor of benefit or gain needs to be properly
explored in the bilateral trade and investment relations. China and Nigeria enjoy a long-standing
friendship. Indirect trade between China and Africa began as early as over 2000 years ago. In the
seventh century, direct marine contact was established. In the fifteenth century, Mr. Zheng He,
the renowned Chinese navigator, reached the shores of Eastern and Northern Africa. The
founding of the People's Republic of China as well as the independence and liberation of African
countries ushered in a new era of China-Africa relations (Ogunkola, 2006). On May 30th 1956,
the People's Republic of China and the Arab Republic of Egypt announced the establishment of
diplomatic ties at the ambassadorial level, the first of many diplomatic ties between China and
African countries in the years that followed. Nigeria’s contact with China, unofficially, only
began in the 1950s, 1957 to be precise. In fact, Nigeria’s contact with the Chinese was through
Egypt. It is on record that Chan Hiang-Kang, commercial officer in the Chinese Embassy in
Cairo, established unofficial trade links with Nigeria, along with Ghana, Ethiopia, Tanganyika
(now Tanzania) in 1957. It was a taboo for Nigerians to have anything to do with the communist
world which China belonged during this era. Over the past four decades, Nigeria-China relations
have withstood the test of the times and international vicissitudes. Be it in the fight against
colonialism and the pursuit for national independence and liberation.
However, Nigeria’s first official contact with the People’s Republic of China (PRC) was
in 1960, when she was invited to the country’s independence celebrations. According to Owoeye
(1986), the Nigeria’s first contact with China is designated as “the era of informal ties, 1960-
1971”. At independence, Nigeria political leadership was not only pro-West but vividly anti-
communist. The resultant effect of this peculiar disposition was that Nigeria’s attitude towards
communist China followed what had then emerged as a clear pattern of most of her relations
with the socialist states-diplomatic isolation accompanied occasionally by bitter attacks against
communist ‘subversive’ ideology at home. While the then Prime Minister Tafawa Balewa
declared in new year on October 7, 1960 that Nigeria would be friendly with all countries that
recognized and respect her sovereignty, territorial integrity and political independence, he soon
made it clear thereafter where the line is going to be drawn. The leaders of the major three
political parties- the Northern People’s Congress (NPC), the Action Group (AG), and the
National Convention of Nigerian Citizen (NCNC) were for various reasons not comfortable with
communism. The ideology was not properly understood and was therefore feared. Consequently,
neither Chief Obafemi Awolowo nor Dr Nnamdi Azikiwe visited a communist country during
their life time (See Ogunkola, 2006; Owoeye, 1986; Ogunsanwo, 2007).
Apparently, due to their anti-communist stance, the Nigerian government banned the
importation of communist literature into Nigeria during the transition periods from colonial rule
to flag independence (Ogunsanwo, 2007). Nigeria’s relation with China has blossomed in recent
years. This relation governed by agreements, protocols and treaties spanned a spectrum of areas
including political, trade, investment, aid, technical, scientific, cultural, education, health and
military. The implementation of these agreements appeared to be lopsided as China seems to be
on the fast-track while Nigeria appears to be lagging behind.
Perhaps, within the China-Africa relation, Nigeria stands to benefit in many ways from
the measures proposed at the Beijing Summit of Forum on China-Africa Co-operation (FOCAC)
in 2006, which is consistent and bears distinct features. The general principles and objectives of
China-Nigeria background agreement under the framework of China-Africa Co-operation which
re-affirmed older principles of co-operation, but added trade and investment as the basis for
engagement are as follows:
1. Sincerity, friendship and equality. China adheres to the Five Principles of Peaceful
Coexistence, respects African countries' independent choice of the road of development
and supports African countries' efforts to grow stronger through unity.
2. Mutual benefit, reciprocity and common prosperity. China supports African countries'
endeavor for economic development and nation building, carries out cooperation in various
forms in the economic and social development, and promotes common prosperity of China
and Africa.
3. Mutual support and close coordination. China will strengthen cooperation with Africa in
the UN and other multilateral systems by supporting each other's just demand and
reasonable propositions and continue to appeal to the international community to give more
attention to questions concerning peace and development in Africa.
4. Learning from each other and seeking common development. China and Africa will learn
from and draw upon each other's experience in governance and development, strengthen
exchange and cooperation in education, science, culture and health. Supporting African
countries' efforts to enhance capacity building, China will work together with Africa in the
exploration of the road of sustainable development.
Nonetheless, having explored the Nigeria-China relations in the pre-independence era, it
becomes germane to continue the exploration by tracing the history from Nigeria post-
independence till 1978 (before the emergence of the Chinese reform programmes) and till 1998.
But suffice it to state that each will be treated differently.
2.2 NIGERIA’S POST-INDEPENDENCE RELATION WITH CHINA, 1960 - 1978
(CHINESE REFORM)
The governments of newly independent Nigeria adopted a broadly pro-Western stance, and
while it did not actively support Taiwan, it also did not seek relations with China. Chinese
Premier Zhou En-Lai’s 10-country trip to Africa in 1963 did not include Nigeria, and a Chinese
delegation that visited Nigeria in 1964 seeking the establishment of diplomatic ties was sent
away empty-handed. Unlike other African countries that did draw close to China, Nigeria never
received gifts of imposingly built sports stadiums or government ministry buildings from the
Chinese government during this era (Bukarambe, 2005).
After two years of studied silence on the matter, in September 1968 the Chinese
government publicly backed the bid by Nigeria’s Ibo-dominated Biafra region to secede from the
federation. A statement by Chinese Foreign Minister Chen Yi at the time linked this support to
the Soviet Union’s backing of the Nigerian government on the issue, though another factor
appears to have been the support given to Biafra’s cause by China’s key ally in Africa at the
time, Tanzania. China covertly supplied the Biafran administration with small quantities of light
arms, souring China’s relations with the Nigerian government, but making no discernible
difference to the outcome of the war, which ended with Biafra’s collapse in January 1970
(Ogunsanwo, 2007).
Formal diplomatic ties were established only in 1971, when Nigeria was in the fifth year
of rule by its second military dictator, General Yakubu Gowon, and China, 22 years after first
applying, finally obtained admission to the United Nations. Bukarambe (2005) also noted that
Gowon visited China in September 1974, the first Nigerian head of state to do so, but to little
consequence, since he was ousted from power ten months later by Brigadier (late General)
Murtala Ramat Mohammed. Mohammed was assassinated in 1976, and Olusegun Obasanjo, then
the armed forces chief of staff, took over as head of state. Obasanjo became worried at the
growing trade imbalance between the two countries as Chinese manufacturing and export
capacity increased and high-level delegations travelled between the two countries in both
directions to discuss the matter in 1978 and 1979. The visits resulted in China agreeing to a
limited aid package for Nigeria, including the sending of medical personnel and agricultural
experts to assist in the development of new model farms but this did nothing to reverse the trade
imbalance. At the same time, the Nigerian government, like that of most other African countries,
strongly disputed the line that the Chinese government took during this period over the Angola
conflict. Despite its long-held rhetorical support for ‘anti-imperialist struggles’, the Chinese
government had, to the outrage of many other African governments opposed Cuba’s intervention
on the side of the Angolan government because of China’s support for a rival group, also backed
by the US, the Frente Nacional de Libertação de Angola. As with Biafra, China’s position
appeared solely due to its intense rivalry with Cuba’s superpower backer at that time, the Soviet
Union (Ogunsanwo, 2007).
The 1980s and 1990s were a difficult time for Nigeria. Obasanjo left power in 1979, and
Shehu Shagari won the ensuing election and became president, lasting until 1983, when he was
deposed by Major-General Muhammadu Buhari. Buhari ruled for two years until he too was
toppled, this time by Major-General Ibrahim Babangida. Babangida held power until 1993,
when, following a disputed election, defence minister Sani Abacha seized power. Abacha proved
to be the most brutal and inept of the country’s military rulers, presiding over both intensifying
economic collapse and ever-worsening state thuggery, and there was an unmistakable sense of
relief when it was learned in June 1998 that he had died, apparently of a heart attack, while in the
company of two prostitutes (Salter, 2009). Abacha initiated contact with the Chinese government
early in his rule. The Nigerian– Chinese Chamber of Commerce was founded in 1994, the China
Civil Engineering Construction Corporation (CCECC) won a $529 million contract to
rehabilitate the Nigerian railway system in 1995 (with Abacha’s children allegedly in the deal),
and the former premier of China’s State Council, Li Ping, visited Nigeria in 1997, signing
protocols relating to power generation, steel and oil (Bukarambe, 2005).
Utomi (2007) noted that the reasons why Abacha ‘looked east’ appeared to be similar to
those of Zimbabwean President Robert Mugabe, a decade later: the need to seek alternative
sources of aid and investment following the imposition of sanctions by Western nations, plus,
perhaps, the shared experience with China of sustained international criticism of their respective
countries’ human rights record.
2.3 NIGERIA’S RELATIONS WITH CHINA, 1979 - 1998
China, like India, is an emerging economy. The beauty that the Chinese economy is now,
its economic progress that many developing countries now admire, began in 1978 after Chinese
leaders, led by Deng Xiaoping, concluded that the Soviet style system that had been in place
since the 1950s was making little progress in improving the standard of living of the Chinese
people and also failing to close the economic gap between China and the industrialized
nations. China has undergone a series of phased reforms, reforms that were designed to solve
problems in the Chinese economy. The reforms have taken China from the 1970s through the
1990s to date. It has been quite an experience that, no doubt, has yielded robust results.
However, the standard of living of most Chinese has improved remarkably, with rapid
modernization of infrastructure, a poverty rate that dropped from 53 per cent of the population in
1981 to 8 per cent in 2001. As of 2005, 70 per cent of GDP has been in the private sector and the
relatively small public sector is domiciled by about 200 large state enterprises concentrating
mostly in utilities, heavy industries, and energy resources. Nigeria’s contact with China,
unofficially, only began in the 1950s, 1957 to be precise. Chinese relations with Africa were
essentially with North Africa. In fact, Nigeria’s contact with the Chinese was through Egypt.
Chan Hiang-Kang, commercial officer in the Chinese Embassy in Cairo, established unofficial
trade links with Nigeria, along with Ghana, Ethiopia, Tanganyika (now Tanzania) in 1957. It was
a taboo for Nigerians to have anything to do with the communist world which China belonged
during this era. Nigerians like Funmilayo Ransome-Kuti, a frontline Nigerian political and social
activist, much to the chagrin of the colonial authorities, secretly visited Berlin and Beijing in the
1950s to attend meetings. Her application for the renewal of her passport was turned down. All
contacts with the Eastern bloc countries and China were prohibited and proscribed. All Nigerian
students who obtained benevolent scholarships from undisclosed sources and Nigerian trade
union leaders who attended international conferences in those countries had to be smuggled out
of Nigeria through Ghana. But this position was reversed in 1958 by the Nigeria Prime Minister,
Tafawa Balewa in a policy statement in parliament which states in part: We shall, of course
endeavour to remain in friendly terms with every nation which promises and respects our
sovereignty.
In 1971, Nigeria-China mutually friendly disposition blossomed into the establishment of
relations at ambassadorial level. Thus a mutually and reinforcing and rewarding relationship
between both countries began in earnest. They speak with the same voice at the United Nations
and its specialised agencies and they are great advocates of South-South cooperation as a means
of achieving a New International Economic Order which has so far remained
unattainable. Whilst China respects and admires Nigeria’s ‘non-aligned foreign policy’
application, Nigeria remains a staunch supporter of ‘One China’ policy, that the Republic of
China ( Taiwan ) is an inalienable part of China, and that the Government of the People’s
Republic of China is the only legitimate Government of China. Nigeria regards Hong Kong as a
trading post; it fully supported the return of Hong Kong to the People’s Republic of China in
July 1997.
Apparently, Fang Yi, former Chinese Minister of Foreign Trade and Economic
Cooperation, visited Nigeria in 1972, a visit that provided an opportunity for signing the first
economic, scientific and technical cooperation agreement as well as a trade agreement. There
were several other visits to Nigeria, including that of a team of Chinese engineers from China
Civil Engineering Construction Corporation (CCECC) in 1996 for on the spot assessment of the
Nigeria Railway Project. This is aside from relations that had to do with agriculture irrigated rice
plantations in Ikotun, Lagos, water resources in Borno State and National Electricity Power
Authority (NEPA), now Power Holding Company of Nigeria (PHCN), in the 1990s. The Chinese
also had something to do with troubled Ajaokuta Steel project and Delta Steel project Aladja.
Chinese experts inspected these projects and the enabling agreement was signed on May
12, 1997 during the visit of Li Peng, former Premier of the state Council but the project was
plunged in the mire by alleged corruption scam in which late Sani Abacha, some of his family
members, Anthony Ani, former Minister of Finance and Bashir Dalhatu, former Power and Steel
Minister, were involved. Discussion between Nigeria and China on the rehabilitation of the
Nigerian Railways commenced during the Murtala Mohammed/Obasanjo regime of 1975-1979
when deliberate efforts were made to deepen relations between Nigeria and China. The Chinese
side was enthusiastic to complete the job having just completed the TANZAM Railway project
in East Africa. But subsequent discussions failed because of the alleged greed and corruption
practices of some Nigeria leaders who wanted kick-backs the Chinese would not give. That the
Nigerian railways suffered over three decades of neglect is now history.
More so, it was against this background that the Abacha regime came in with China Civil
Engineering Construction Corporation (CCECC). The contract for the project was signed
December 9, 1995 with a price tag of US$528.60 million. The contract was for rehabilitation
which involved supply of coaches, locomotives, wagons and guard vans, as well as restructuring
of rail lines. Unfortunately, the job was not completed on target date because Nigerian
contractors did not supply track materials within the stipulated period. The indication though,
was that over 80 per cent of the job had been completed by September 1998. But the government
statement did not say whether this additional task would be undertaken by CCECC.
The 1980s witnessed a litany of cultural exchanges such as the Anhui Acrobatic Troupe
from China which Nigeria hosted in early 1980, the Nigerian Basket Ball team which undertook
a two-week tour of China as answer to the acrobatic troupe challenge, and a series of Chinese
acrobatic troupes performances at the National Theatre, Lagos in 1983 and 1985. Regarding
sports, it would be recalled that China was instrumental to the development of table tennis (ping
pong), volley and badminton in Nigeria either through the attachment of appropriate coaches to
the National Sports Council or conducting relevant courses for Nigerian sports men and women
in China. Thus Nigeria-China relations have come a long way. It dates back to the 1950s and was
formalised in 1971.
Bilateral trade between Nigeria and China has come a long way. Back in 1969 its total value
was recorded at just GDP 2.3 million, climbing to GDP 5 million in 1970 and GDP 10.3 million
in 1971. Right from these early stages, the terms of trade were heavily in China’s favour, with
GDP 4 million of the trade recorded in 1970 derived from Chinese textile exports to Nigeria. By
1994 recorded bilateral trade had risen to $90 million. Although a significant increase on the
trade levels of two decades earlier, this was still a very low figure. Yet bilateral trade more than
doubled to $210 million in 1995, and had climbed to $830 million by 2000. Bukarambe, (2005)
observed that some of this increase was due to rising Nigerian exports to China. Nigerian exports
to China were worth $60 million in 1995, but $293 million in 2000, a nearly five-fold increase.
CHAPTER THREE
CHINA’S TRADE POLICY ON TEXTILE EXPORTATION TO NIGERIA
In this chapter, we shall interrogate the interplay between the Chinese trade policy on textile
exportation and the volume of trade with Nigeria. Firstly, we shall look at the overview of the
China’s trade policy on textile exportation, the Chinese in Nigeria textile industry and most
fundamentally the impacts of China’s trade policy on exportation of textiles on the Nigeria’s
volume of trade. For the sake of clarity, the aforementioned sub-topics shall be examined one
after the other.
3.1 CHINA’S TRADE POLICY ON TEXTILE EXPORTATION: An Overview
The textile industry is one of the traditional pillar industries of China, and it is also one of
the Chinese industries with strong advantage in the international competition. The development
of the textile industry has played an important role in the expanding employment, increasing the
income of rural residents, accumulating funds, earning foreign exchange through export,
booming the market, raising the level of urbanization, driving the development of related
industries and promoting the development of regional economy (Eneji, 2012). Employment in
the industry was 33.6 million in 2011, accounting for 19.2 percent of the total manufacturing
workforce (Olusanya and Akindele, 2012). In order to avoid or limit the negative impact that
Chinese economy could suffer in textile sector, in 1974, Multi Fibre Arrangement (MFA); also
know as Agreement on Textile and Clothing (ATC) was introduced with developing countries
that specialize on textile and clothing.
However, Ogunkola (2006:34) succinctly noted that “the nature and procedure of the
Multi Fibre Arrangement was strict and stringent”. This policy of intervention was created to
protect domestic industries, which alleged that producers in developing countries were applying
dumping (See Eneji, 2012; Ogunkola, 2006; Chaponniere et al, 2010). They furthered that Multi
Fibre Arrangement imposed quotas on the yearly amount of textile that developing countries
could export to Chinese markets from 1974 through 2004. It was set to expire on 1st January
2005. In the meantime, producers in developed countries had time to improve its efficiency and
recover its competitiveness. However, they never managed to match the required
competitiveness to remain in the market.
Olusanya and Akindele (2012) noted that prior to the Chinese Economic Reform of 1978;
China had limited access to foreign markets. Before the reform, foreign companies could not
operate in the Chinese economy, which was dominated by state-owned enterprises. Only after
1979 the private sector and foreign investments were promoted (Olusanya and Akindele 2012).
However, after the reform, China has gradually moved from socialist to a market
economy, where stringent measures that restricted trade have been dismantled. In this historic
opening up and reforms, commodity exports, capital, labour, services and technology markets
have since emerged in China, (Eneji et al, 2012). Suffice it to highlight that some guidelines or
principles are also inclusive in terms of the development of textile and apparel production and
exportation. Guideline for National Economic and Social Development (see GNESD, 2006-
2010), “optimizing and upgrading industrial structure” is laid out as a development focus. Under
this overriding principle for industrial development, one of the priorities of the Guideline is to
increase the value-added in the textile industry, specifically:
● To strengthen the technological capability of the textile industry
● Increase the number of Chinese-owned brand names;
● To develop high-tech, high-performance, differential, and environmental-friendly fibers and
renewable fibers,
● To enhance the development and utilization of textiles for industry-use, silk and non-cotton
natural fibers;
● To advance the gradient shift of the textile industry.
In the spirit of the Guideline, the central government mapped out a detailed development
plan for the textile industry in The 11th Five-Year Plan for the Textile Industry
(ng.chineseembassy.org/eng/zngx/t142490.htm). The Plan sets forth the following goals:
(1) To significantly enhance the independent innovation capacity of the textiles industry, develop
influential technologies with intellectual property rights ownership and foster well-known global
brand names;
(2) To optimize the industrial structure and upgrade technologies and equipment; and
(3) To effectively control inefficient low-level manufacturing which consumes excessive
amounts of energy and is not environmentally-friendly.
These goals echo the Guideline and are designed to address existing problems in the
development of the textiles industry. The Plan also spells out specific targets to be met by 2010
in production, consumption and exports.
With a view to better tackling challenges facing the textile industry, in 2006, the central
government also issued a Notice on Several Opinions on Accelerating Restructuring to Facilitate
the Upgrading of the Textile Industry. The Notice identified priorities of the restructuring efforts,
which include manufacturing equipment and technologies, supply of raw materials, industry
applications, utilization of natural resources, brand development, corporate organization, and
geographic distribution of the industry. The specific plan targets the development of advanced
textile machinery and upgrading of the textile industry, with priorities being given to the
development and industrialization of core equipment and technologies, including the polyester
short-fiber manufacturing equipment with daily output of over 200 tons, high-speed viscose
filament spinning machines, high-efficiency cotton-spinning equipment, rapier looms and air-jet
spinning machines featuring mechatronics (ng.chineseembassy.org/eng/zngx/t142490.htm).
In order to accomplish the various development goals, the above plans or opinions advocate a
variety of preferential policies to support the textiles industry. Principal among them are:
● To allocate special funds from the state fiscal budget to support the development of key
equipment and technologies.
● To use tax incentives to encourage R&D spending and technological innovation of textile
companies.
● To introduce the policy of increasing the magnitude of tax deductions for advertising
expenses.
● To aid the brand development and overseas investment of domestic textile companies,
rendering support in the establishment of overseas manufacturing facilities, R&D centers,
logistics and distribution centers, and the application for international certificates and
registration of trademarks.
● To implement preferential tax policies for the import of key spare parts and raw materials
required for the manufacturing of textile machinery.
● To encourage the procurement of major domestically-produced equipment.
Support Programs of the Chinese Central Government
In accordance with government development goals and policy support guidelines, the
Chinese Central Government has implemented many concrete programs and policies to subsidize
textile companies and the textiles industry. The subsidies take the form of government grants and
tax incentives, and include those available nationwide and those provided to selected regions.
The 2006 Circular on Relevant Policies to Promote Chinese Textile Industry to Shift to New
Ways of Growth in Foreign Trade and Support Chinese Textile Enterprises to Go Global issued
by the Ministry of Finance, the State Development and Reform Commission, and the Ministry of
Commerce, authorized the allocation of a special government fund to support technology
innovation and restructuring in the textiles industry and overseas investment by textile
companies. More specifically, the fund is utilized as follows:
● To support technology innovation and restructuring in the textile industry and facilitate the
shift to the new growth mode in foreign trade.
● To provide lump sum direct grants to projects of technology innovation, development and
industrialization of core technologies and equipment, establishment of innovation services
platforms, and brand development and promotion.
● To support the establishment of overseas textile industrial parks, providing a favorable
environment for textile companies in the course of “going global.”
● To provide loan interest subsidies for the construction of overseas textile industrial parks.
● To subsidize the provision of land, manufacturing facilities, infrastructure and services in
overseas textile industrial parks.
● To support textile companies in “going global” through overseas investment and diversifying
their products origin through overseas manufacturing.
● To subsidize the expenses of Chinese textile companies incurred in early stages of “going
global” that may involve R&D, consulting services, feasibility study and project
evaluation, and intellectual property rights protection.
● To subsidize the expenses of Chinese textile companies in the establishment of distribution
channels in overseas markets.
● To support service companies and dragonhead textile companies in the organization of
“going global” activities.
The initial scale of the fund is about RMB 1.35 billion, with RMB 560 million dedicated
to projects related to technology innovation and restructuring and RMB 800 million for the
“Going global” operation. The portion for restructuring is administered at the central level by the
Ministry of Finance and the State Development and Reform Commission, while the portion for
“going global” is appropriated to provincial governments who are required to formulate their
own measures on the administration of the fund in accordance with guidelines given by the
central government. The amount of the fund for “going global” received by each province is in
proportion to the exports and overseas investment of that province.
Jiangsu Province, for example, received a total of RMB 110 million in 2006 as a major
textiles and apparel exporter in China.9 Pursuant to the Jiangsu Province’s Measures on the
Administration of the Fund to Support Textile Companies to “Go Global” (October 26, 2006)
(See http://www.texnet.com.cn/news/2013/06/30/152680.html), the fund is to support the
establishment of overseas textile industrial parks, overseas investment by textile companies, set-
up of overseas marketing and sales networks, and activities of service companies in facilitating
overseas investment of textile companies.
Apparently, Eneji et al, (2012) pointed out that in the domestic scene of the Chinese
textile industry, there exist a wide range of restrictive measures and domestic policies which
include:
• Fully market oriented for quite long time.
• Chinese government always insists on marketization of textile industry and liberalization of
textile trade.
• Gradually removes interference and promotes industry self-regulation.
• Market is open globally; the duty for textile and clothing import is reduced to 11.4%.
• The new Law of foreign trade, which came into effect on July 1, 2004, stipulates that the right
for international trade is open up to companies and personals.
• On 1January 2005, state trading on silk was discontinued and export quotas and licensing for
seven cocoon and silk products were abolished.
• China's textile & clothing exports were tightly restricted for many years under international
trade agreements. China's exports of textile& clothing were subject to quantity restrictions
imposed by USA, EU, Canada and Turkey, until 1 January 2005.
• On January 1, 2005, the old quota system imposed on Chinese products was terminated. But
the restriction was not over. Some other restrictive measures on Chinese products kept
emerging.
Some self-regulation measures on textile and clothing export:
• On 1 January 2004, reductions of VAT rebate rates for most textile & clothing exports, from
17% to 13%.
• On 15 September 2006, reduce the VAT rebate rate of textile products further from 13% to
11%.
• In 2005, imposed export taxes on some textile & clothing products.
• In 2005, automatic licensing on some textile and clothing export
• The new mechanism of exchange rate is established and float of RMB value is allowed.
Under the China-EU MOU and China-US MOU, which is being implemented now and
controls some important categories of Chinese textile and clothing products, a new domestic
administrative system is established: "Interim Measures for the Administration of Textile
Exports (Trial Implementation)". For an export product listed in the Catalogue, part of the quotas
will be assigned through a bidding system, while the remaining part will be allocated to the
companies. The base of bidding and allocating is exporter's share in total export value in the
respective categories in the previous year.
At present, Chinese textile and clothing products are still under different kinds of
restrictive measures of some countries/regions. US, EU, Turkey, South Africa and Brazil impose
quantity restriction on Chinese textile and clothing products, while some anti-dumping,
safeguard and specific safeguard cases are in pipeline.
In all, therefore, it is pertinent to note that the Chinese trade policy on textiles production
and exportation to Nigeria in particular and overseas in general was restrictive and stringent prior
to the initial Deng Xiaoping led reform in 1978. Thus Olusanya and Akindele (2008) noted that
prior to the Chinese Economic Reform of 1978; China had limited access to foreign markets.
Before the reform, foreign companies could not operate in the Chinese economy, which was
dominated by State-Owned Enterprises (SOEs). Only after 1979 the private sector and foreign
investments were promoted (Olusanya and Akindele 2008). However, from after the reform,
China has gradually moved from socialist to a market economy, where stringent measures that
restricted trade have been dismantled. In this historic opening up and reforms, commodity
exports, capital, labour, services and technology markets have since emerged in China.
3.2 CHINA IN NIGERIA TEXTILE INDUSTRY
Despite criticisms of Chinese foray into the African market, the trade relations between
China and Nigeria are becoming more significant than before the establishment of the Forum on
China-Africa Cooperation (FOCAC) in 2000. The bilateral trade between Nigeria and China has
grown steadily since 1971 as the volume of trade between the two countries in 2009 hit
$6.373billion, in favour of China (Djeri-wake, 2009). Giving a breakdown of the trade
relationship between the two countries, China’s export to Nigeria stood at $5.476 billion, while
import from Nigeria was $0.897 billion, Nigeria having trade deficits. The figures represent an
increase of 76.3% compared to 2008.The most important reason for China’s trade surplus with
Nigeria is due to the different economic structures of the two countries. Manufacturing is an
important part of China’s economy, while in Nigeria; oil industry is the prime sector (although
most of the oil is exported to the West). This naturally creates the imbalance of the trade. One of
the items of trade that tops the list of China’s trade with Nigeria is textile.
Traditional textiles have been produced in Nigeria for many years, but real industrial
activity in textile production is comparatively recent. After some minor attempts, the Kaduna
Textile Mills was established in 1956, followed by Nigerian Textile Mills in 1962 (Jamie, 2007).
From inception, these companies were conceived as vertically integrated mills; to convert locally
available raw materials, mainly cotton - through spinning for the production of yarn, weaving for
the production of grey cloth, and dyeing, printing and finishing, for the production of finished
textiles. Today, the sector has developed to incorporate fibre production, spinning, weaving,
knitting, lace and embroidery makings, carpet production, dyeing, printing and finishing. The
sector produces a varied series of fabrics annually, ranging from African prints, shirting,
embroideries, etc., to Guinea brocades, wax prints, jute and other products (Jetter, 2002).
According to Nina (2010), the Chinese now have textile networks of the so-called
African prints. There has been emerging voices to step up imports restrain (Ron and Hannah,
2011) and increase surveillance on dumping, given the intensifying trade with China where
shoes, bags, apparels from China and other countries are dwarfing Nigeria’s textile industry.
China is making it harder for Nigeria to diversify from its natural resource-based exports profile
into manufacturing sector.
The textile industry of Nigeria is the third largest in Africa after Egypt and South Africa
(MNT, 2007). The industry, which currently accounts for about 25% of manufacturing value
added, has passed through various phases of growth. Import substitution policies induced steady
growth in the 1960s, which gave way to rapid growth, averaging 12.5%, in the 1970s; when the
economy was booming. The recession of the early to mid-1980s took its toll: the cumulative
textile production index (1972 = 100) declined from 427.1 in 1982 to 171.1 in 1984 (Jamie,
2007). The industry recovered in the late 1980s, achieving an annual growth of about 67%
between 1985 and 1991, with synthetic textiles alone accounting for about 80% of the recorded
growth. The industry is the largest employer of labour in the manufacturing sector. It accounted
for about 25% of total manufacturing employment between 1986 and 1991 due to improved
capacity utilization (MNT, 2007). And, with the backward integration programme instituted by
many firms in the industry following the strict government directive on the issue in the mid-
1980s, the level of domestic sourcing of raw materials was put at about 64% in 1991, a steady
improvement from 52% in 1987 and 57% in 1988. The industry is mainly controlled by large
private-sector firms, often with substantial foreign participation. Nigerian law has limited this to
60% of the total equity of textile sector firms but the drive for more capital inflow under the
present management philosophy lead to an upward revision of the ceiling.
The major foreign investors within the industry are from Hong Kong, India, the UK,
Liechtenstein, the Nether-lands, the US, Japan and China. These are private capital investments
for profits, except for China where most of the firms are State and Provincial enterprises. As at
1987, the 37 textile firms in the country were operating 716 000 spindles and 17 541 looms.
However the output of the sector has never exceeded 55% of annual domestic consumption,
allowing for a thriving trade in imported (mostly smuggled) textiles. Technological gaps in the
industry are illustrated by the fact that 12 mills, representing 61% of the total capacity, spin only
cotton.
Although, nearly 25% of existing mills are integrated mills, modernization of spinning
capacity is generally lagging behind technological improvements in the weaving mills. Labour
productivity in spinning operations is not high because of low capacity utilization and inadequate
provision for on-the-job training. Low productivity levels limit export capacities. Nevertheless,
the substantially liberated economic environment and the opportunity Nigeria offers to avoid
quota restrictions under the Multi Fibre Agreement (MFA), which is not applicable to Nigeria;
have induced some foreign entrepreneurs, mostly from Asian countries, to establish export-
oriented plants.
Chinese trade and investment on Nigeria textile industry
As earlier stated, the relations between Nigeria and China were established in 1971. From 1978,
China has gradually moved to a socialist market economy, where stringent measures that
restricted trade have been dismantled. In this historic opening up and reforms, commodity
exports, capital, labour, services and technology markets have since emerged in China. In 2006,
Nigeria and China became strategic partners following the signing of memorandum of
understanding (MOU) on strategic partnership under President Olusegun Obasanjo. The MOU
covers all areas of Nigeria’s cooperation with China, which include trade cooperation, cultural
exchanges, one China policy, science and technology, investment, agriculture and poverty
reduction, energy, power and environment. Presently, Nigeria is China’s second largest trading
partner in Africa, after South Africa. Chinese investments in Africa have come under increasing
scrutiny because of Africa’s lessons from Western imperialism. It has faced accusations of
propping up rogue governments in order to gain access to some of the continent’s most
promising deposits of oil, minerals and markets. China has faced the same criticism and
suspicion.
In 1986, export of China’s textile and clothes surpassed that of oil for the first time,
changing China’s export structure from resource product to labour-intensive manufacturing like
textile and clothes. In 1995, exports of mechanical and electronic products surpassed that of
textile and clothes, changing China’s exports structure from traditional products to modern
industrial products. Basically, processing trade essentially is an effective combination of
international capital and China’s cheap labour cost. Three strategies of China’s international
trade development since 1979 are:
● 1979 to 1991; this is the initial stage of opening-up. The government incubated market
economy initiatives by decentralization, and introducing international competitors by
attracting FDI, developing an export-oriented economy mechanism by regional opening up.
● 1992 to 2001; was the critical stage of establishing an export-oriented economic
mechanism which is based on the market (Zhao, 2009; Ravallion, 2008; Rozelle et al.,
2000).
● 2001 till date; this is a new stage for establishing an open economic mechanism which is
consistent with international trade standards.
In 2010, overall volume of China’s processing trade accounted for 41.1% of its
international trade, with volume of exports by processing trade accounting for 47.3% of overall
exports volume. China’s trade surplus in terms of processing trade was 3313.6 billion USD,
which basically was equal to China’s overall trade surplus.
Table 3.1. China’s international trade (USD 100 Million)
Year Overall
volume
Volume of
imports
Volume of
exports Trade surplus
2005 14221.2 6601.2 7620 1018.8 2006 17606.9 7962.1 9690.8 1774.7 2007 21768.4 9588.2 12180.2 2592 2008 25616.3 11330.9 14285.5 2954.6 2009 26613.6 13526.5 16613.6 3142.4 2010 31652.8 16254.5 19555.3 3313.6 Source: COMTRADE, IPRCC working papers.
Figure 3.1. China imports of Africa cotton and China exports of yarn and fabrics to Africa
The trend in China’s exports to Africa suggests that there are imports substituting
opportunities in Africa for agricultural products. China is the world’s largest producer and
importer of cotton. Africa is a modest producer that exports a large part of its production as it has
not been able to develop a competitive textile industry. According to ICAC, Chinese cotton
imports increased rapidly between 2003 and 2006 and have diminished both in value and in
volume. During the same period, African cotton exports decreased from 1 million tons to 0.5
million tons. China is the largest market for African cotton and these imports are processed into
yarn and fabrics. A significant part of China exports of both yarn and fabrics go to Africa where
they are used by the garment industry and by the informal sector. Thus, while the share of
African cotton diminished from 25% in 2005 to 9% in 2008 of China’s imports, the share of
Africa’s market in China’s exports of cotton yarn and cotton fabrics rose to 26% in 2008. If one
takes a comprehensive view of textile trade between China and Africa shown above, from cotton
production to weaving, Africa’s deficit has considerably increased as in 2008, Africa exported
180,000 tons of cotton to China (300 million USD) and imported 118000 tons of cotton yarn and
fabrics (2 billion USD) from China. The deficit would be more important if one took into
consideration China’s exports of garments (made with cotton) to Africa. The rapid increase of
Chinese exports of textile products to Africa is detrimental to the survival of Nigeria’s textile
industry. The general China- Africa trade patterns have not directly benefited Africa’s industrial
development (Fan, 2010; Chaponniere et al., 2010).
It therefore shows that there exists a potential for import substituting activities by
entrepreneurs in Nigeria and other African countries, rather than importing, foreign direct
investment (FDI) in Africa’s industrial sector would create employment. The dependence of
Nigeria textile businessmen on liberal imports from China and other countries does not
necessarily lead to growth in the Nigeria Textile Industry. It is to the advantage of the foreign
countries’ advanced textile industries. This kind of possibility was not predicted by neoclassical
theory, which assumed that international trade was beneficial to all. However, the gains are not at
“pareto optimum”, the ratio of the benefits is skewed in favour of a more technologically
innovated textile industry like China than Nigeria.
Nigeria’s quantum production in textiles, whether cotton textile, synthetic fibres or
garments systematically declined every year The Nigeria textile industry performance is dismal.
Hence, some form of trade protectionism is needed for the development of the domestic textile
factories. Imports substitution in Nigeria textile industry is highly desirable. Dependency of the
industry on foreign apparels is causing job losses, shrinking revenue and poverty. Policy of self-
reliance and controlled interactions with China and other world textile industries must be
seriously implemented.
Figure 3.2: Africa’s share of China’s cotton imports and exports of yarn and fabrics. From COMTRADE (fabrics made of cotton +85%) in IPRCC (2010) working paper series.
Figure 3.3: Nigeria’s sources of imports 2011.
Analysis of trade flow data in figure 3.3 reveals the increasing share of China in Nigeria’s trade
particularly as a major source of Nigeria’s imports. China has increased its market share in
Nigeria at the expense of the traditional trading partners as seen in the pie chart above.
Traditionally, China was not a major destination of Nigeria’s import, but its share has
dramatically risen. In so far as some of the products exported by China to Nigeria are produced
locally, and given the low level of competition of Nigerian producers due mainly to blinding
infrastructural constraints; displacement of local producers is evident.
Although, information about Chinese activities in Nigeria points to increasing economic
(trade, and investment), social (health and education) and technical relations, the composition of
Chinese FDI into Nigeria is fragmented. China has set up over 30 solely owned companies or
joint venture in Nigeria actively involved in the construction, oil and gas, technology, services
and education sectors (Ogunkola, 2006). The increased Chinese economic interests in Nigeria
can be broadly classified into two; private and public. According to Nigeria Investment
Promotion Commission (NIPC, 2009), Chinese private FDI is composed of agro-allied industry,
manufacturing and communication sectors.
NIPC (2009) recorded that textile industry used to be the main source of employment in
Nigeria. Over 350,000 workers used to be employed in the industry. That time, the industry used
to export fabrics to countries in the West African sub region. Workers worked in shifts in
Aswani, Afprint and other textile industries in Lagos, Kaduna, Kano and Aba. Today, Afprint
has metamorphosed into Kewalram Group, buying and selling the latest Mitsubishi cars in the
country, Aswani Textile has changed to Chellarams Plc, producing nylon and selling bicycles
(NIPC, 2009). In those days, there used to be Kaduna Textiles Limited, Nigerian Textile Mills
Ltd, and Bendel Textile Mills Ltd among others. Chinese and other nationals started
manufacturing in Lagos and Kano. At the end of the civil war, many companies sprang up. It was
noted that from fewer than five companies in 1962, the industry had as many as 150 units (big,
medium and small) in 1975, (NIPC, 2009).
However, companies continued to develop due to the ban on importation of grey fabrics
from 1978 and the banning of importation of yarn as from 1984 led to backward integration into
spinning, ginning and cotton farming. The period was viewed as the flourishing period of the
Nigerian textile industry, (Ogunkola, 2006).
According to Ogunkola (2006), the situation started deteriorating after the mid-80s when
the Structural Adjustment Programme (SAP) was introduced by the government. In 1997, the
government lifted the ban on importation of foreign fabrics. The liberalization opened the
country to all sorts of foreign fabrics from any part of the world. Against this backdrop, the
Director General, Nigerian Textile Manufacturer Association and Nigerian Textile Garments and
Tailoring Employers Association, Paul Olarewaju lamented in Bankole (2005:33) as follows:
Nobody was alerted that it was going to happen. Even in 1996 we had a summit in Kaduna where we asked government to continue to protect the textile industry. A lot of other recommendations were made to the government. Unfortunately, in January 1997, they lifted the ban on importation of fabrics. Within two to three months, the whole country was flooded with foreign fabrics; I don’t know whether government didn’t have that premonition. We told them and they said that there was nothing that they could do. They have signed the World Trade Organization (WTO) agreement and that is it. Within four or five years, a lot of textile companies closed down …In the mid-seventies and eighties, over 175 companies were members of the association. By 1994 it had dropped to124 members companies. By 2002 about 70 companies had closed down. Today, only about 30 textile companies are in Nigeria. The multiplier effects cannot be overestimated. Almost half a million workers lost their jobs.
Bankole (2005:34) added thus:
The government cannot go back to banning importation of fabrics from other countries because the whole world is moving towards trade liberalization. So there is no guarantee that government will come back with any ban on foreign fabrics. What we are asking government to do is to give incentives to local manufacturers as it is being done in other parts of the world. Aba Textile Mills Ltd, Aba General Cotton Mills, Onitsha Nibletex Industries Ltd, Ojike Lane, Aba Niger Garment Industries Ltd and Aba Rosies Garments Ltd were once very active in the East, lamenting that no textile company exists in the East today.
Apparently, Okolie (2009:109) rightly concurred with the above assertion, he highlighted
that “China has continued to flood the Nigerian market with cheap and inferior Chinese goods
like textiles, electronics, toys and household utensils thereby stifling the competitiveness of
domestic production”. He furthered that this practice by the Chinese has adversely affected many
domestic industries in Nigeria especially textile industry and many such textile industries have
closed down as a result of their inability to compete with their more established Chinese
counterparts. The resultant effect of this is the closing of 65 Nigerian textile mills and the laying
off of a total of 150, 000 textile workers over the past ten years, (Okolie, 2009). Taylor (2007)
added that more than one million others whose jobs were linked to the textile industry, such as
traders and cotton farmers, have also lost their means of livelihood because of the closures.
3.3 CHINA’S TEXTILE EXPORTS AND NIGERIA’S VOLUME OF TRADE
China started its formal trade with African countries in the late 1950s. Major partners
were those countries in North Africa, especially Egypt. Now most African countries became apt
to export primary products to, and import consumer and capital goods from China. Although
there had been differences by country and time, this pattern did not change until recently.
Nigeria, for example, exported cocoa beans, rubber, cashew nuts, hide and skin, and some other
agricultural products and oil. China tends to export large amounts of low-cost manufactures
meeting with Nigeria local demands that reflected declining economy. This also resulted in
serious trade imbalances between both sides. Trade imbalance with china has been a structural
problem common to most African countries. For compensation, china utilized her economic
assistance programs. China mainly exported motorcycles, machinery equipment, auto parts,
rubber tires, chemical products, textiles and garments, footwear, cement. China’s increasing
presence in Nigeria, and elsewhere in Africa, has spurred much speculation about the nature of
the emerging partnership model. A national debate across sectors on this partnership will be a
healthy exercise and may drive more rigorous analysis of what best serves African countries’
mostly Nigeria quest for human material advance; friendly, mutually beneficial relations in trade
and politics; and stewardship of the shared heritage of the planet.
Bilateral trade between Nigeria and China has come a long way. Back in 1969 its total
value was recorded at just GDP 2.3million; climbing to GDP 5million in 1970 and GDP 10.3
million in 1971 (See Ogunkola, 2008; Bankole, 2008; Adewuyi, 2008). Right from these early
stages, the terms of trade were heavily in China’s favour, with GDP 4million of the trade
recorded in 1970 derived from Chinese textile exports to Nigeria. By 1994 recorded bilateral
trade had risen to $90 million. Although a significant increase on the trade levels of two decades
earlier, this was still a very low figure. Yet bilateral trade more than doubled to $210million in
1995, and had climbed to $830million by 2000. Some of this increase was due to rising Nigerian
exports to China. Nigerian exports to China were worth $60 million in 1995, but $293 million in
2000, a nearly five-fold increase. Yet the terms of trade still favoured China, whose exports
represented 73% of the bilateral trade total in 1995 and 68% of the total in 2000.
As earlier noted, relations between Nigeria and China intensified after 2000 and there has
been a corresponding dramatic rise in bilateral trade levels since then. Bilateral trade in 2008 was
worth $7.3billion, nearly nine times its level in 2000. But still the trade imbalance has persisted
and, indeed, worsened. Chinese exports represented 93% of the bilateral trade total in 2011
(Ogunkola and Bankole, 2011).
Table 3.2: Nigeria–China bilateral trade, 2001–2011 ($ millions)
Year Nigeria’s exports to
China
China’s exports to
Nigeria
Bilateral trade
value China’s
exports/total (%)
2001 227.4 917.2 1144.6 80.1 2002 121.3 1047.1 1168.4 89.6 2003 71.7 1787.5 1859.2 96.1 2004 462.6 1719.3 2181.9 78.8 2005 527.1 2305.3 2832.4 81.4 2006 277.8 2855.7 3133.5 91.1 2007 537.5 3800.2 4337.7 87.6 2008 509.9 6758.1 7268.0 93.0 2009 622.2 6596.7 6882.7 91.1 2010 658.5 6868.6 7474.9 95.5 2011 6990 8659.3 8177.3 98.1
Source:Tralac,<http://www.tralac.org/cgi-bin/ giga. cgi? cat = 1044 & limit = 10 & page = 0 &
sort = D&cau se_id = 1694&cmd=cause_dir_news>.
Around 90% of Nigerian exports to China are oil products, which is in line with oil
products’ share of Nigeria’s total export value. China, by contrast, has exported an ever-growing
range of goods to Nigeria. In 2010, the single biggest recorded imported items by value were
‘electrical apparatus for line telephony’, closely followed by motorcycles and less closely by
electric generators, for which there is high demand in Nigeria because of its poor electricity
supply (Ogunkola, 2010). By 2005, 7.1% of the country’s total recorded imports by value came
from China (Ogunkola, ibid). Nigerian trade unions have been reported as blaming Chinese
imports for the loss of 350 000 Nigerian manufacturing jobs, chiefly in the textiles sector, and
Nigeria, Ethiopia and South Africa are identified in the literature as being the three countries in
SSA where employment and domestic production have been most negatively impacted by
Chinese imports. In addition to recorded trade, there appears to be a great deal of unrecorded
trade between China and Nigeria, particularly of Chinese imports. According to the publication
titled Imports-Exports trade totals of Nigerian–Chinese Chamber of Commerce (2006:9); it noted
that:
Because of tax issues, companies prefer to keep quiet. It is hard to get the real figures, because most business is through the black market. They avoid the banks. Also, Nigerian companies are importing stuff from China that attracts high tariffs, so they are always under invoicing. Plus we have a liberal forex regime, so money flows in and out easily. This entire means [that] the official trade figures will not be real. The real figures could be three or four times what is recorded. It’s not an exaggeration. Everyone who is going to China is buying $100 000 or $200 000 worth of goods, and people are going every week. They pay cash there and change the invoices.
Much of the unrecorded trade between China and Nigeria appears to travel via
neighboring states, which all have long and largely unpoliced borders with Nigeria. Benin is the
most often-cited country through which smuggled Chinese goods are reported to pass. Benin’s
capital and major port, Cotonou, is just a few kilometres from the Nigerian border, easing the
task of smuggling imported Chinese goods from there into Nigeria.
Unrecorded cross-border trade of Chinese goods between Benin and Nigeria appears to be a
major enterprise, employing thousands on both sides of the border. The unrecorded trade also
presents lucrative rent opportunities for corrupt officials on both sides of the border, which is one
reason why smuggling has continued despite repeated official declarations of intent to bring it to
a halt (See Ogunkola, 2010; Bankole, 2008; Adewuyi, 2008).
Nigeria’s exports to China are spread over many and varied products which have been
classified according to the Standard International Trade Classification Revision 3 (SITC Rev. 3).
These products include food, animals, crude materials, oils, chemical products, and
manufactured products. In 2000, four broad commodities were exported totaling US$307.3
million, with the main export commodity being Mineral fuel and lubricants which represented
US$273.7 million. The next important export in 2000 was crude materials excluding food and
fuel which totaled US$33.3 million. The remaining two broad commodities exported to China
were quite insignificant with values between US$0.1 million and US$0.2 million (Ogunkola,
2008).
Thus, in terms of Nigeria’s exports to China, Mineral fuel and lubricants ranked first,
followed by crude materials excluding food and fuel. Beverages and live animals exports rank
third while manufactured goods rank fourth. In terms of significance of Nigeria’s exports to
China relative to the world, Nigeria exported more crude materials excluding food and fuel to
China as this constituted 61.1%. Mineral Fuel and lubricants which constituted the main exports
of Nigeria to China in 2000 was a paltry 1.4% of Nigeria’s total world exports. In effect, out of
US$20.3 billion total Nigeria’s exports, only 1.5% was exported to China. Nigeria’s exports
position was more impressive in 2010. The country’s exports more than doubled the value in
2000; this accounted for by all the products, from US$20.3 billion in 2000 to US$73.1billion in
2010 (See Ogunkola, 2011; Bankole, 2011; Adewuyi, n.a).
In contrast, though exports to China increased to US$641.8 million in 2010, the increase
was not as much as that of Nigeria’s total exports. The composition of exports to China in 2010
was not very different from that of 2000 but experienced some repositioning of certain broad
products. Thus, mineral fuel and lubricants still ranked first followed in ranking by crude
materials excluding food and fuel. However, manufactured goods, which ranked last in 2000,
displaced food and live animals while two broad products; chemicals, and miscellaneous
manufactures, featured in 2010. Also, exports of crude materials excluding food and fuel reduced
between 2000 and 2010. Ogunkola (2011) furthered that the proportion of Nigeria’s exports
destined for China reduced in 2010 even when the absolute value showed an increase. Nigeria’s
export to China in 2010 was 2.6% of its total exports which represented a reduction compared to
2000. The export destinations appeared to have been more fairly diversified in 2010, as areas
where exports to China was dominant, such as crude materials excluding food and fuel, became
insignificant while China gained positions in such other areas as food and live animals,
chemicals, manufactured goods and miscellaneous manufactures. In other words, even though
Nigeria’s exports to China relative to the rest of the world dwindled in 2010, Nigeria exported
more varieties of products to China compared to earlier periods.
In effect, producers and exporters of those broad categories of products whose exports
increased between 2000 and 2010 are better off as they earned additional incomes. These include
producers and exporters of food and live animals, mineral fuel/lubricants, chemicals,
manufactured goods, and miscellaneous manufactures. Nigerian producers and exporters of
crude materials excluding food and fuel lost export market share in China and thus were worse
off in 2010.
Table 3.3: China’s Share of Nigeria’s Exports (US$ million) 1995 2000 2005 2010 1995 2000 2005 2010
Rev.3 World China World China World China World China China’s Share of
Nigeria’s Exports 0 Food & live
animals 293.9 0.0 205.4 0.0 592.6 1.8 325.6 2.4 0.0 0.1 0.3 0.5
1 Beverages & tobacco
1.7 0.0 1.3 0.0 3.9 0.0 1.9 0.1 0.0 0.0 0.0 0.1
2 Crude matter 262.4 0.0 54.5 33.3 304.0 12.6 339.4 13.6 0.0 61.1 4.1 66.4
3 Mineral fuel 11189.8 0.0 19950.5 273.7 43054.7 503.9 52112.2 592.4 0.0 1.4 1.2 2.6
4 Animal veg. oil/fat/wax
0.1 0.0 2.6 0.0 1.0 0.0 1.1 0.0 0.0 0.0 0.0 0.0
5 Chemicals 38.6 0.0 8.6 0.0 15.6 0.2 41.2 0.2 0.0 0.0 1.5 2.0
6 Manufactured goods
347.3 0.0 10.0 0.1 255.4 8.2 231.4 9.7 0.0 06 3.2 3.3
7 Machinery equipment
185.9 0.0 70.3 0.0 114.7 0.0 167.4 0.0 0.0 0.0 0.0 0.0
8 Miscellaneous manuf.arts
15.7 0.0 9.1 0.0 26.9 0.2 18.6 0.0 .0. 0.0 0.6 0.0
9 Commodities 4.4 0.0 0.0 0.0 0.8 0.0 14.4 0.4 0.0 0.0 0.0 0.8
Total Export 12339.7 0.0 20312.3 307.3 44369.6 526.9 7314.5 641.8 0.0 1.5 1.2 2.6
Source: World Integrated Trade solution (WITS) database, 2011
Figure 3.4: Key African exports by country and by product
Size, Composition and Significance of Imports from China
Nigeria’s total imports increased from US$5.3 billion in 1996 through US$5.8billion in
2000 to US$2300billion in 2010. The dramatic increase of Nigeria’s total imports between 2000
and 2010 was also reflected in the country’s imports from China which rose phenomenally from
as little as US$225million in 2000 to US$2300billion in 2010. Nigeria imports almost all of the
broad categories of products from China. In 2010, imports of machinery and transport equipment
ranked first followed by manufactured goods, miscellaneous manufactures, chemicals and food
and live animals. In trend terms, the composition of Nigeria’s imports has changed quite a bit. In
1996 for example, chemical products imports ranked second only to machinery and transport
equipment while in 2000, manufactured products replaced chemicals in second place. Machinery
and transport equipment imports thus ranked highest in all the reference years.
This picture altered when China’s share of Nigeria’s total import is considered. While
that share rose successively from 1996 to 2010 from 3.5% to 8%, not all broad categories of
goods imported from China maintained such consistent increase. This is especially the case of
mineral fuels/lubricants, and animal/ vegetable oil/fat/wax. Furthermore, when the broad
categories are considered, Nigeria imported more of miscellaneous manufactures from China
relative to the rest of the world. This rose from 7.8% in 1996 to 30.6% in 2010. China’s share of
Nigeria’s imports also rose consecutively in food and live animals, as well as beverages and
tobacco (both minimally); crude materials excluding food and fuel, manufactured goods,
machinery and transport equipment, and miscellaneous manufactures (all four substantially).
Thus, in terms of stakeholders’ analysis, countries which hitherto exported these products to
Nigeria have lost their market share in Nigeria to China as Nigeria increasingly look towards
China for the importation of these products. The below table, graph and charts show the China’s
share of Nigeria’s imports (in US$), China’s exports to Nigeria by products as well as China’s
imports to Nigeria by product as at 2010.
Table 3.4: China’s Share of Nigeria’s Imports (US$ million) 1995 2000 2005 2010 1995 2000 2005 2010
Product Name World China World China World China World China China’s Share of Nigeria’s
Imports 0 Food & live
animals 885.9 3.5 1098.0 12.7 592.6 1.8 325.6 2.4 0.4 0.4 1.2
1 Beverages & tobacco
10.8 0.0 34.2 0.3 3.9 0.0 1.9 0.1 0.0 0.0 0.9 1.8
2 Crude matter 121.9 1.8 94.0 1.8 304.0 12.6 339.4 13.6 1.5 1.5 1.9 66.4
3 Mineral fuel 70.9 0.0 100.8 0.3 43054.7 503.9 52112.2 592.4 0.0 0.0 0.3 2.6
4 Animal veg. oil/fat/wax
37.2 0.0 23.3 0.05 1.0 0.0 1.1 0.0 0.1 0.1 0.2 0.7
5 Chemicals 981.,3 0.0 1176.5 46.3 15.6 0.2 41.2 0.2 6.1 6.1 3.9 2.0
6 Manufactured goods
1031.5 0.0 1095.5 53.8 255.4 8.2 231.4 9.7 3.0 3.0 4.9 6.4
7 Machinery equipment
1876.7 0.0 1955.1 91.8 114.7 0.0 167.4 0.0 3.5 3.5 5.0 8.4
8 Miscellaneous manuf.arts
296.1 0.0 238.4 39.4 26.9 0.2 18.6 0.0 7.8 7.8 16.5 4.5
9 Commodities 0.0 0.0 0.0 0.0 0.8 0.0 14.4 0.4 0.0 0.0 0.0 0.8
Total Imports 5312.1 185.1 5815.8 252.7 5815.8 252.7 17723.5 2300.8 3.5 3.5 4.3 8.6
Source: World Integrated Trade Solution (WITS) database, 2011 Figure 3.5: Key African imports from China (by country and by product)
Source: World Integrated Trade Solution (WITS) database, 2011 Figure 3.6 – China’s exports to Nigeria by products, 2010
Source: UN Comtrade, http://www.comtrade.un.org.
Figure 3.7: China’s imports from Nigeria by products, 2010
Finally, in the light of the above, with the aid of available data, tables, charts and
graphical illustrations, it shows that Nigeria has witnessed high volume of trade from China
since the emergence of the Deng Xiaoping’s and other subsequent reforms in the Chinese
economy which affected almost all policies stirring the activities of the economy. The Chinese
trade policy on textile exportation was also affected by these reforms thereby opening up to the
international communities for transactions. Ever since the reforms, Chinese trade policy on
textile exportation has enhanced the Nigeria’s volume of trade. As a corollary, our first
hypothesis is hereby validated and accepted.
CHAPTER FOUR
CHINA’S INDUSTRIAL POLICY ON STEEL INDUSTRIES AND FOREIGN DIRECT
INVESTMENTS TO NIGERIA
We shall start with the highlights of the Chinese industrial policy with particular
reference to steel industries; thereafter, we shall proceed to explore the interactions and nexus
between the Chinese industrial policy and inflow of foreign direct investment (FDI) to Nigeria;
the trends and challenges of Nigeria-China trade and investment relations shall be dealt with at
the latter part of this chapter.
4.1 CHINA’S INDUSTRIAL POLICY: AN OVERVIEW
A growing number of people regard industrial policy as an important instrument of
private sector and economic development. One of the main arguments behind this is that
“development is fundamentally about structural change: it involves producing new goods with
new technologies and transferring resources from traditional activities to these new ones”
(Rodrik, 2007:5). In the same vein, it is argued that developing countries can never emerge from
aid dependency, "if they are unable to use the industrial policies (which) they will need to
transform their domestic industries, diversify their economies and build up their own tax bases
over time" (Rick, 2011:13). Against this background, we shall look at the meanings of industrial
policy.
UNCTAD (2006) defines industrial policy as a concerted, focused, conscious effort on
the part of government to encourage and promote a specific industry or sector with an array of
policy tools. The World Bank (2005:1) considers industrial policy as “government efforts to alter
industrial structure to promote productivity-based growth”. Pack and Saggi (2011:31) provide a
more detailed definition: “any type of selective intervention or government policy that attempts
to alter the structure of production toward sectors that are expected to offer better prospects for
economic growth than would occur in the absence of such intervention, i.e., in the market
equilibrium.” Industrial policies can apply to manufacturing as well as agricultural or service
sectors. For example, Rodrik (2007:5) states that industrial policy “is not about industry per se”,
but that “policies targeted at non-traditional agriculture or services qualify as much as incentives
on manufactures”.
Industrial practices and policies of China’s central government provided differential
treatment to different industrial sectors. Development of Industrial policies involves the use of
government policy decisions rather than market forces to determine the country’s industrial
structure. These policies include favorable treatment to promote certain industries, as well as
policies directed at phasing out industries deemed less desirable. China uses policy tools such as
price controls, tax incentives or disincentives, and preferential lending to implement its industrial
policy decisions. China also classifies industries as “encouraged,” “restricted,” or “to be
eliminated” to determine the preferential financial and tax incentives they receive (Rodrik,
2004).
Industrial Policy Instruments
As the World Trade Organization (WTO) reports, there has been an important change in
the government’s implementation of industrial development policy, as China has instituted
market-oriented reforms. China now relies much less on direct intervention by the state, and
much more on indirect policy tools. These tools include trade taxes, domestic policies such as tax
incentives or disincentives, “guidance prices,” and credit guidance to implement its industrial
development policy. The NDRC stated in its November 2007 report that: “when implementing
the adjustment of industrial structure, the government should make a full play of the fundamental
role of the market in resource allocation. At the same time, the government is to provide
guidance through economic, legal and necessary administrative measures.” The State Council
classifies industries into three groups: “encouraged,” “restricted,” or “to be eliminated.”
However, the “encouraged” category includes industries that generate domestic R&D,
show high expected demand growth, are technology intensive, meet the requirements for
environmentally sustainable development, reflect China’s comparative advantage, and increase
employment opportunities. The “restricted” category includes industries using production
processes or making products that are obsolete, or are not conducive to human safety, energy and
resource conservation, and environmental protection; and industries exhibiting redundant
construction or significant excess production capacity. The “to be eliminated” category
comprises industries using production technologies or making products that are seriously
environmentally damaging, waste resources or energy, endanger human safety, fail to meet
minimum quality standards, or are obsolete (http://www.chinaindustrialdevelopment.org/).
The State Council stipulates that financial institutions are to grant loans to support investment
projects in the “encouraged” category that are in line with credit granting principles.
In addition, these institutions are to refuse examination or approval of any new
investment projects in the “restricted” category, and to prohibit any investment in the “to be
eliminated” category. China provides credit guidance (also referred to as indicative, or directed,
lending) to carry out its industrial development policies. The WTO reported that in 2004, China
sought to slow the growth of investment in certain sectors by reducing the lending capability of
commercial banks via higher lending rates, open market operations, and lower bank deposit
rates. Chinese officials also sent guidance to banks to reduce lending to industries deemed to be
at higher risk of failure, including, “major measures to promote the adjustment of industrial
structure” (http://www.chinaindustrialdevelopment.org/).
Official Chinese documents in 1989 provided and classified industries. The
“Encouraged” industries at that time included agriculture and agriculture-service industries;
selected light industrial and textile products; infrastructure, energy, and raw materials; machinery
and electronics industries; other high-tech industries. “Discouraged” industries included those
producing low quality and/or energy-intensive products, and industries which used old
technology, pollution intensive technologies, or inputs in shortage
(http://www.chinaindustrialdevelopment.org/). Industry classifications were revised in the
December 2005 Interim Regulation, and the supplementary Guiding Catalog for the Adjustment
of Industrial Structure. The NDRC stated that both these documents were important measures in
meeting China’s current needs to upgrade its industrial structure and to achieve the goals in the
11 Five-Year Plan (2006–2010).
Investment projects in the “encouraged” category are also to be supported by preferential
tax policies. Existing investment projects in the “restricted” category are allowed to continue, but
industries are given a fixed time period in which to upgrade their production processes and/or
products. In contrast, existing investment projects in the “prohibited” category are actively
discouraged - e.g., by subjecting firms to increased electricity prices or other taxes in order to
eliminate them. Other institutions, such as land management, environmental protection,
firefighting, and quality inspection are also directed to cease any relevant procedures for projects
in these prohibited categories. The current objectives of the Interim Regulations are reflected in
the 2007 Catalog for the Guidance of Foreign Investment Industries. The catalog lists industries
for which FDI is “encouraged,” “restricted,” and “prohibited.” The industries for which FDI is
currently encouraged includes, among other things, entries for various types of farm products,
fossil fuel-related activities, food processing, many basic chemicals, medicines, artificial fibers,
machine-building, telecommunications equipment, automobiles, civil aircraft, electronic
equipment, precision instruments, power supply, transport services, residential housing, and
environmental technologies (http://www.chinaindustrialdevelopment.org/).
The Interim Regulations also have an impact on preferential treatment under China’s
processing trade regime. Processing trade involves the importation of inputs to be used in the
production of semi-finished or finished goods solely for export. This type of trade is typically the
result of global production chains, in which production processes are split into discrete sequential
activities that take place in different countries. China’s processing trade policies grant
exemptions from duties on imported inputs, and rebates of VAT upon export, to firms involved
in processing exports. Additional incentives are given to foreign-invested enterprises located in
certain incentive zones and involved in processing trade. China has recently begun rescinding
some of this preferential treatment for processing trade. The general tendency of these policies
has been to grant the most favorable treatment to high-technology products and the least
favorable treatment to natural resource intensive and polluting goods. Adjustment of processing
trade and export tax policies is seen by Chinese officials as a way to promote greater value added
in exports, to minimize environmental damage, and to restrain the rapid growth of the trade
surplus (Rodrik, 2004).
Underlying all of China’s industrial development policies is the restructuring of China’s
economy to reduce state ownership of firms and allow the growth of the private sector. China has
simultaneously continued with reforms that strengthen the private sector and equalize treatment
between private enterprises and SOEs. In February 2005, the State Council issued “Guidelines
on Encouraging and Supporting the Development of the Non- Public Sector including Individual
and Private Enterprises” (http://www.chinaindustrialdevelopment.org/). According to the WTO,
these new guidelines increase access for private firms in industries that were previously
restricted, including public utilities, financial services, social services, and national defense.
They also call for equal treatment of private firms and SOEs, and for a strengthening of property
rights. China has a number of policies that favor high-technology products or new products. In
addition to most favorable processing trade treatment and the encouragement of certain types of
technology-intensive FDI (mentioned above), these policies include government R&D initiatives
directed at certain technologies and the continuation of corporate income-tax preferences for
high-technology firms that are being phased out for other firms.
4.2 CHINA’S INDUSTRIAL POLICY AND FOREIGN DIRECT INVESTMENT TO
NIGERIA
An agreed framework definition of foreign direct investment (FDI) exists in the literature.
That is, FDI is an investment made to acquire a lasting management interest (normally 10% of
voting stock) in a business enterprise operating in a country other than that of the investor
defined according to residency (World Bank, 1996). However, our task here is to interrogate the
relationship between China’s industrial policy and inflow of FDI to Nigeria, most fundamentally
the impacts of the former on the latter.
Historically, Nigeria’s traditional development partners are mainly from Europe and the
Americas (U.S. A. and Canada). Indeed, these groups have dominated the flow of trade,
investment (in terms of foreign direct investment – FDI) and grants and financial as well as
technical aid to the country over the years. Although Nigeria and these countries have come a
long way in their relationship, it is contestable if such has in any significant way assisted the
country in its quest for development. The relationship appears to be exploitative at least from the
trend in the structure and pattern of FDI inflow to the country. This is based on the fact that oil
and gas sector dominates the country’s exports to the tune of about 98% and FDI inflows to the
oil and gas sector accounted for about 40% (Ogunkola, Bankole and Adewuyi, 2008).
Although China-Nigeria relationship dates back to 1971 (more than three decades), recent
dimension and nature of economic interactions between the two countries demand a careful and
detailed analysis of this relationship with a view to establishing its potential impact on the
economies. Interestingly, the growing relationship between China and Nigeria is induced by the
fact that the two countries have economic complementarities. On one hand, a major development
challenge in Nigeria is infrastructure deficiency, with huge investment need. Complementarily,
China has developed one of the world’s largest and most competitive construction industries
with particular expertise in the civil works considered critical for infrastructure development
coupled with its ability to provide the necessary financial assistance to the countries in need
including Nigeria. Again, China’s industrialization drive and massive inflow of FDI into the
Chinese economy led to fast growing manufacturing economy which requires oil and mineral
inputs that are outstripping the country’s domestic resources, hence the need to source them from
abroad including Nigeria which is well endowed with these resources.
Lately, positive developments have been recorded in respect of the net FDI inflow from
China to Nigeria, as it has doubled from US$3 billion in 2003 to more than US$6 billion in 2005.
However, the share of the oil and gas sector was about 75% indicating the expressed and explicit
desire of China in Nigerian oil and gas resources. It further reinforces the prevalence of a link
between Chinese FDI and trade in the context of China-Nigeria investment relations. In order
words, Chinese outwards FDI has been in a negligible amount prior the industrial reforms. No
wonder, Heiden (2009) noted that over the first three decades after the founding of the People’s
Republic of China (PRC), outward investment was practically non-existent crippled not only by
political considerations but also by the absence of an adequate institutional framework and a
severe shortage of foreign exchange (Heiden, 2009). One year after initiating the reform and
opening policy in December 1978, the Central government introduced the “Fifteen Measures for
Economic Reform”. This concept addressed the establishment of Chinese companies’ overseas
and outward investment in general for the first time (Heiden, ibid).
In the past three decades since China’s economic opening to the world, the country’s
integration into the global economy has progressed by leaps and bounds especially after joining
the WTO in 2001, international trade and investment flows have been on a steep upward
trajectory, (Heiden 2011). This process was not only driven by market forces but heavily
influenced by government intervention in commodity and financial markets.
In recognition of the potential influence of the steel industry, the Chinese government is
dedicating substantial resources to the monitoring and micro-management of China’s steel
industry’s interaction with the global markets. In the light of the above, Bruce (2001) took the
analysis in broader terms. He made reference to Chinese Industrial Policies as the major source
and determinant of policy on steel industries. He noted that Chinese Industrial policies (CIPs)
include such varying practices as production subsidies, export subsidies, and import protection,
and are commonly used to promote targeted sectors, (Bruce, ibid). However, such policies can
have significant impacts on sectors other than those targeted by the Industrial policies (IPs),
particularly when the target sector produces goods that are key inputs to downstream sectors (See
Blonigen, 2010; Alan, 2009; Price, 2007) .
Nonetheless, the Chinese “opening up” policy of 1978 and other subsequent reforms
(1998/1999 industrial reform) furthered the outflow of FDI to Nigeria in particular and Africa in
general.
Nigeria’s investment incentives, along with its massive reserves of oil and gas, appear to have
succeeded in attracting the attention of Chinese investors. According to China’s Bulletin of
Overseas Investment (CBOI, 2010), Nigeria occupied the second position (after South Africa)
among the ranks of African host countries for Chinese Foreign Direct Investment (FDI) between
2003 and 2011. Chinese FDI stocks in Nigeria totaled USD 1.03 billion in the period, while FDI
stocks for the continent were USD 9.3 billion. Chinese investments are concentrated in the oil
industry, manufacturing, construction and telecoms. A study from the African Economic
Research Consortium (AERC) reports that China has established more than 30 solely-owned or
joint venture companies in the construction, oil and gas, technology, services and education
sectors of the Nigerian economy. The report also found that FDI from Chinese private investors
is mainly in the agro-allied industries, manufacturing and communications. By contrast, Chinese
public FDI targets natural resources and infrastructure, particularly in power and transport.
Between 2000 and 2011, Nigeria was a top destination for Chinese Foreign Direct Investment on
the continent, second only to South Africa.
Thus FDI has increased over the past 10 years in tandem with increased Sino-African
trade, although China’s FDI to Africa remains marginal in terms of China’s total outward FDI
flows (0.2% in 1991 and 5.9% in 2007—Kaplinsky and Morris, 2011) and total FDI received by
Africa from the rest of the world (6% in 2012). According to the Chinese Ministry of Commerce,
China’s FDI to Nigeria and other African states have increased by 46% per year over the last
decade. The stock of foreign investment stood at $4.46 billion in 2011 compared to $56 million
in 1996, the dramatic increase was attributed to the 1998/1999 Chinese reforms in industrial and
other sectors. During the first half of 2010, Chinese FDI flows into Africa increased by 81%
compared to the same period in 2008, reaching over $0.5 billion. However, it is difficult to be
certain about the level of China’s FDI outflows, as estimates from different sources vary widely
and Chinese investments are often channeled through off-shore entities registered in places such
as Hong Kong, Cayman Island and others.
Similarly to trade patterns, China’s outward FDI to Africa in general is dominated by a
few resource-rich countries, plus South Africa (figures 4.1 and 4.2). From 2003 to 2011, over
half of Chinese FDI flows into Africa were absorbed by three countries: Nigeria (20.2%), South
Africa (19.8%) and Sudan (12.3%). Algeria (oil) and Zambia (minerals) was at 4th and 5th,
respectively. FDI to Nigeria is set to rise: according to the Financial Times, China National
Offshore Oil Company (CNOOC), a State-owned enterprise and one of the three major energy
players in China, is negotiating the acquisition of rights to 1/6th of Nigeria’s oil reserves.
Figure 4.1 China’s FDI flows into Africa by Destinations (2003-2011)
Figure 4.2 China’s FDI stocks in Africa by location (2011)
Source: China Ministry of Commerce, 2011.
Most Chinese enterprises investing in strategic sectors, such as oil, minerals or
infrastructure, are State-Owned by either the central government or local governments (Chen and
Jian, 2011) and receive government grants or loans from State-owned banks. These enterprises
often manage large investment projects (Kaplinsky and Morris, 2009). For instance, the State-
owned China National Petroleum Corp is the leading foreign investor in Sudan. Chinese
medium- to large-sized enterprises are found mainly in the manufactured goods,
telecommunications and wholesale trade sectors. Small firms are found mostly in the light
industry and retail sectors. Although the small firms certainly play an important role and are
present in most African countries, they are not properly captured in official statistics.
In 2006, the bulk of FDI flows involved the mining sector (40.74%), business services
(21.58%), finance (16.4%), transport and telecommunications (6.57%), wholesale and retail trade
(6.57%) and manufactured goods (4.33%), with the other sectors being only slightly represented.
For instance, agriculture, forestry and fisheries attracted less than 1% of Chinese FDI (Kiggundu,
2008:22). In terms of stocks, the three leading investors in Nigeria are State-owned oil
companies: China Petrochemical Corp., China National Petroleum Corp. and China National
Offshore Oil Corp (Kiggundu, 2008). The case of infrastructure is particularly important because
the sector is a driver of economic growth; the Africa Infrastructure Diagnostic (AICD) study
estimated that Africa (Nigeria undoubtedly inclusive) needs $93 billion per year to address the
deficit in this sector.
Historically, infrastructure was one of the first sectors in which China invested in Africa.
Over 35 African countries are engaged with China in infrastructure financing arrangements; the
largest recipients are Nigeria, Angola, Sudan and Ethiopia (see Figure 4.3 & 4.4). China’s
commitments to infrastructure in Africa rose from $1 billion annually between 2001 and 2003 to
$1.5 billion between 2004 and 2005, reached $7.5 billion in 2006 and ultimately 13.3billion in
2011(AICD, 2012). For example, China financed 3 hydroelectric power projects in 2007, to the
tune of $3.3 billion, which increased Nigeria’s hydroelectric power production capacity by 30%.
In Africa at large, China also has financed $4 billion in investments in road and railway network
projects, including the rehabilitation of existing railway lines and the construction of new lines.
The main beneficiaries of such projects are Nigeria, Gabon and Mauritania.
Figure 4.3: China’s financial commitments in infrastructure projects in major countries (2001 - 2011)
Source: World Bank, 2011
Figure 4.4: Confirmed Chinese infrastructure financing in Sub-Saharan Africa per country (2001- 2011)
Source: World Bank, 2011
While China’s FDI in Nigeria is likely to continue to be linked to trade; Kapinski and
Morris (2011) consider that future FDI will focus more on the private sector and the
development of small and medium size enterprises (SMEs) in sectors such as
telecommunications, business services and manufactured goods.
Nonetheless, the share of the oil and gas sector was about 75 percent. The developments
in the non-oil FDI is also significant as this component increased from about $0.3 billion in 2003
to about $1.7 billion in 2011. Three related types of efforts explain the observed positive
developments: change in FDI regime; second, privatization programme of the government; and
third, the aggressive drive of government in attracting FDI into the country. The recent
developments notwithstanding, there is a huge investment gap in the development of the
Nigerian economy and the required investment can only be expected after the investment climate
has improved.
In pursuit of practical evidence regarding impacts of Chinese FDI to Nigeria, five case
studies were captured, namely, Kajola Specialized Railway Industrial Free Trade Zone, Ofada
Vee Tee Rice Limited, and Ogun Guangdong Free Trade Zone (OGFTZ), China Town in Lagos,
and Lekki Free Trade Zone (LFTZ). Major findings from the case studies are presented below:
OGUN STATE:
Kajola Specialized Railway Industrial Free Trade Zone is a strategic move by the Ogun State
government to take maximum advantage of the Railway Modernisation Programme and the
proposed Inland Container Terminal Project of the Federal Government. The aim is to attract
specialized industries and businesses offering complementary services to these two projects of
the Federal Government. Some of the investors expected in the zone include: Railway industrial
park, Locomotive workshop, Railway related Service, Foundries, Metal fabrications,
Haulage/Logistics, New Towns development, Mega Mart and shopping Centres, Commerce &
Industries (Fruit Juice Processing, Ceramic Making, Diary Production, Furniture Making, Attire
and Garment production and Kola Processing. Various activities ranging from acquisition of
2000 hectares of land to sourcing of environmental baseline data to identification of resettlement
sites for affected people to design of infrastructural development plan have culminated in the
launch of the Zone. The zone is a joint venture of the Ogun State Government and the Chinese
Civil Engineering Construction Company (CCECC). The company’s investment was estimated
at about N115.8 billion. The government envisaged that the project will facilitate rapid
industrialization of the State and deepen foreign direct investment inflow to the state. It is also
important to note that since this is one of the three free trade zones established in the State, it is
meant to serve as a growth pole. This is within the larger concept of simultaneous development
of all parts of the state. (See http://www.chinainvestmentsinnigerianeconomy_ng+ksriftz.com)
Ofada Vee Tee Rice Limited is another project involving Ogun State and a Chinese firm.
Indeed, the company’s equity shares are to be owned by the Ogun State government, the Federal
Government and Vee Tee Group with the latter holding the majority of the shares. The company
has a designed capacity of 225, 000 (9000 bags) tons of rice per day and the capital out lay is
estimated at about $2 billion. The company is to produce quality rice that will compare
favourably with those from anywhere in the world. The local farmers are to supply paddy rice to
the company that will be processed (de-husking, de-stoning, parboiling, sorting, polish,
packaging and marketing) by the company. The large volume of rice imported into the country,
is an indication of the huge potential demand for the commodity and thus market should not be a
constraints to the effective performance of the company. The contribution of the company to self
sufficiency in food production and foreign exchange savings is commendable. Optimal benefits
from the establishment of Ofada Vee Tee Rice require proper integration of rice farmers into the
plan of the company. The company’s promise of provision of seeds and extension services may
not be sufficient. The market for the paddy rice must be guaranteed. Hence a contingent plan for
over- as well as under-supply of paddy rice to the company is required for effective response by
the farmers.
However, the backward linkage of the company is important for the economy in terms of
employment and rural livelihood. The current projection is that about 30,000 farmers are to
supply paddy rice to the company. Other beneficiaries which include transporters and traders of
the raw materials and the finished products, technological capabilities of Nigerians through
learning by doing is necessary and this can be achieved by ensuring that qualified Nigerians man
the company. Currently, only three Chinese are on ground out of about 100 people employed and
the company plans to hire about 5000 hands when fully operational.
(See http://www.chinainvestmentsinnigerianeconomy_ng+ksriftz.com)
Ogun Guangdong Free Trade Zone (OGFTZ) is a tripartite project of two Chinese companies:
Guangdong Xinguang International of Guangdong Province in China and China- Africa
Investment Limited; and the Ogun State Government. The FTZ, located in Igbesa in Ogun State
is one of the three free trade zones being established in the state. The zone which is being
established at the instance of the Chinese consortium with the support of the state in the area of
land acquisition, processing and securing various approvals especially from the Nigeria Export
Processing Zone Authority (NEPZA) has about 30 Chinese currently working on the site. The
cost of the project estimated at about $500 million is to be financed by the Chinese consortium.
The First Bank of Nigeria plc is collaborating with the consortium in the areas of investment
banking, project financing, business advisory services and correspondent banking relationship.
When completed, the FTZ will consist of about 100 firms mainly engaged in the light to medium
manufacturing activities including footwear and rubber production, ceramic processing, furniture
production, hardware and household appliances, real estate development, and light and heavy
manufacturing plants. These activities promised to generate direct and indirect employment to
different categories of Nigerians. In addition, the development of the host community is expected
to be positively enhanced. At least two related projects are in this direction:
• A $700,000 primary school project; and
• Dualisation of the road linking Igbesa (the FTZ site) to Badagry express way. Dredging
to the zone to allow for free movement of new materials and finished products to and
from the zone is under consideration.
The benefits from these projects involving Chinese firms have not been consistently and
systematically evaluated neither is there any attempt at matching the cost of citing the projects in
a particular community with the benefits. The cost-benefit analysis on the part of the Chinese
consortium is not equally available. It will be interesting to compare the streams of costs and
returns on investment over the life span of the project. An analysis of the employment structure
is required in order to strategically position Nigerians for the projects. It is not sufficient to state
that the project will generate employment without rigorous analysis of the nature of employment.
The categories of skills to be employed, the qualification and experience of the Chinese
counterpart must be within the Nigerian laws on the expert quotas.
The establishment of the project also presents various government agencies with
challenges of monitoring and evaluation with a view to ensuring that the zone and the firms
operating within its jurisdiction conform strictly to Nigerian laws. Agencies such as Nigerian
Customs, Immigrations, Ministry of Labour, and NEPZA have significant roles to play in this
regard. For example, it was alleged that some Chinese who are engaged in one of the projects
entered the country with a wrong type of visa. There may be need to empower these and other
related organisations in discharging their duties given the specialized nature of free trade zone.
There Committees of various stakeholders (especially of the host communities) in place and this
phenomenon is commendable. However, there is the need to empower the technical capabilities
of the committees in order to ensure its effectiveness. Rigorous analysis and follow-up activities
are required. For example, the local farmers’ capacity for the supply of paddy rice as input for
Vee Tee Rice should be carefully analyzed and appropriate measures should be taking that over
supply and under-supply are minimized
(See http://www.chinainvestmentsinnigerianeconomy_ng+ksriftz.com).
LAGOS STATE
China Town in Lagos
The market is managed by International Cooperation Industry Nigeria Limited with its
office located at Surulere area of the state. Going through the market, it was observed that the
market consists of 120 shops shared between Nigerians and Chinese. Further investigation shows
that three-quarters of the shops are acquired by the Chinese who were physically present at their
various shops and employ an average of 2 Nigerians as shop attendants. Traders in the market
deal in products such as textiles and apparels, lace materials, baby wears and toys, foot-wears,
handbags, household utensils, personal effects, items for decorations, electrical appliances, art
works, among others. These are light manufactures. Investigation revealed that some of the
products are produced by Chinese firms in Nigeria, while majority of them are imported from
China. The market receives daily, relatively high potential participants with various missions.
Apart from the fact that the products and sellers are readily available at the market, relatively
high potential buyers patronize the market. Other participants in the market are the transporters,
food sellers and the market management. There is a branch of the Intercontinental Bank (PLC.)
at the market and this is expected to facilitate financial transactions of the market participants.
Lekki free trade zone (LFTZ)
The signing of a Memorandum of Understanding (MOU) between the Lagos state Government
(represented by Lekki Worldwide Investment Limited-LWIL) and the Chinese Government
(represented by Nanjing Jiangning Development Zone in the Jiangsu Province and the China
Railway Construction Corporation) in 2007 marked the beginning of the Lekki free trade zone.
Prior to the signing of the MOU, the Lekki Free Trade Development Company was incorporated
in Lagos in April 2006 as a joint venture among CCECC, the Lagos State Government and the
LWIL. It was registered by the Nigerian Export Processing Zones Authority (NEPZA) as the
developer, operator and manager of the LFTZ. The main missions of the LFTZ include the
following:
• To develop an offshore economic growth zone,
• Attract foreign investment,
• Promote export,
• Create job opportunities,
• Minimize capital flight, and
• Establish a one-stop global business haven.
In an attempt to provide infrastructure in the zone, construction of roads into the zone
began in October, 2007. Other infrastructure put in place is dedicated power plant which is
independent of the national grid to ensure regular supply of energy, and also water and sewage
treatment plants. The LFTZ featured at international trade fairs including the one held in South
Africa in September 2007 and World Conference of Free Zones held at Kualar Lumpur,
Malaysia in November 2007. Abundant land is available for industrial projects and the first
phase consists of the development of 3,000 hectares. There are opportunities and access of
investors to supply raw materials particularly for activities such as agro-processing, clothing and
textiles, food and beverages, forestry, mining and pharmaceuticals. The incentives available to
investors in the LFTZ include:
• 100% foreign ownership of investment,
• One-stop approvals,
• Zero import and export licenses,
• Tax holidays; and
• Unrestricted remittances of capital and duty-free importation of raw materials.
(See http://www.chinainvestmentsinnigerianeconomy_ng+ksriftz.com)
4.3 TRENDS AND CHALLENGES OF NIGERIA – CHINA TRADE AND
INVESTMENT RELATIONS, 1999 – 2012
With reference to the previous sections and points we have established, available
information points to a general upward trend in the inflow of FDI from China to Nigeria. Table
4.2 presents a global picture of FDI inflow to Nigeria from different regions and China from
1999 to 2006. All the regions showed significant increase in FDI inflow from the 1999 level.
Thus, the upward increase in the aggregate FDI flows to Nigeria from about $190.61 million in
1999 to about $4169.14 million in 2011 is a joint increase in the levels of FDI by all the regions.
Composition of Chinese FDI in Nigeria
Although, information about Chinese activities in the country points to increasing
economic (trade, commerce and investment), social (health and education) and technical relation,
the composition of Chinese FDI into Nigeria is fragmented. According NIPC (2010), China has
set up over 30 solely owned companies or joint venture in Nigeria actively involved in the
construction, oil and gas, technology, services and education sectors of the Nigerian economy.
Indeed the increased Chinese economic interests in Nigeria can be broadly classified into two:
private and public. According to information obtained from the Nigerian Investment Promotion
Commission (NIPC), Chinese private FDI is composed of agro-allied industry, manufacturing
and communications sectors. On one hand, some of these investments are joint venture mainly
between Chinese and Nigerian investors. On the other hand, some are wholly foreign owned
either wholly by the Chinese or in partnership with other foreign investors. Some of the Chinese
investments have also benefited from investment incentives in the country such as pioneer status
and expatriate quotas have been granted to some of these companies (see Table 4.3).
Thus in 2005, the official record by Nigeria was $1.88 million FDI inflow from China.
This seems to be at variance with the impression created in the media. Various explanations can
be adduced for the seemingly paucity of observed figure: First, the upsurge in Chinese FDI
inflow to Nigeria occurred only in the recent time i.e. between 2006 and 2008, a period that is
not covered by the available data. Second, there is also the possibility that the promises and
declarations captured by the media did not eventually materialize. A case in point is the sales of
Kaduna Refinery that was announced in January 2006. It was meant to be a $2.3 billion worth of
investment by the Chinese state controlled energy company, CNOOC. By March 2007, the
government was considering a review of the deal. The “public” investment and economic
activities of Chinese in Nigeria have also gained prominence in recent time. This is not
unexpected given the high profile witnessed at the political level (see the introduction to this
study).
This type of investment spanned different areas of the Nigerian economy and prominent
among them are those in oil and gas, construction especially building of infrastructure. Table 4.3
lists some of the Chinese investments and projects in Nigeria. For example, a further probing of
the deal to refurbish the Nigerian railways by the Chinese reveals that it has a soft loan
component. FDI has a host of advantages including augmentation of domestic capital; transfer of
technology, knowledge and skills; promotion of competition and innovation; and enhancing
export performance. These must be weighed against other issues such as anti-competitive and
restrictive business practices; tax avoidance and abusive transfer pricing; volatile flows of
investment and related payments deleterious for balance of payments; transfer of polluting
activities and technologies; and excessive influence on economic affairs with possible negative
effects on industrial development and national security.
Table 4.3: Some Characteristics of Chinese Companies
A country desirous of hosting FDI must of necessity institute policies aimed at
maximizing the direct and indirect benefits as well as in minimizing the possible negative
impacts. A litmus test for gauging the motive of FDI is to classify such investments into
resource-seeking, market-seeking or efficiency-seeking. Efficiency-seeking FDI is preferred to
other forms at least from the perspective of the host country. However, for a country to attract
efficiency-seeking type of FDI macroeconomic stability must be ensured and distinct, predictable
and easy-to-access policy environment including incentives must be instituted. Giving the list of
private FDI and the sectoral concentration, efficiency motive may not be the driving force of
inflow of Chinese FDI in the Nigerian economy. From the list of public FDI, resource-seeking
motive cannot be ruled out. However, there are other categories of FDI that cannot neatly fit into
resource-seeking class. These include those in the area of building infrastructure. A veritable
channel for optimal benefit is in the involvement of indigenous entrepreneurs in the affairs of the
particular firm. A joint venture has higher potential of positive impact in the host economy.
Beyond, the involvement of indigenous entrepreneurs at the management level, local expertise
and other work force are the channels through which technology is transferred and technological
capacity is developed. Chinese firms in Nigeria have been criticized for being “closed” as they
hardly employ local experts. There are even submission that they mal-treat their workers.
According to a report, the conditions of employment of Nigerians in Chinese firms
neither conform with the Nigeria Labour Laws nor to that of the International Labour
Organization (ILO). The Report also alleged that technology transfer from Chinese FDI is
insignificant because most of the Chinese firms bring into the country finished products and
complete equipment with Chinese technicians. In a nutshell the expected benefits may not be
realized. The lesson is for the country not only to design appropriate policies and regulations but
also to ensure that these are implemented. Although some of the Chinese investments are in
critical areas of the Nigerian economy especially in infrastructure (telecommunications, water,
electricity, housing, etc.) hence they have high social contents. However, there are reservations
about the activities of Chinese investors especially those who are engaged in manufacturing.
Such complaints include sharp practices such as importation and production of sub standard
products, and lack of respect for their workers.
However, the quest for oil and gas by the Chinese seems to be of importance in the resurgence of
the current wave of relations. Consequently, Chinese nationals are not immune from the spate of
social unrest in the Niger Delta (the area where oil and gas are located in Nigeria). Some of the
Chinese oil workers were recently abducted by militants who are agitating for a more equitable
distribution of resources in the country.
Table 4.4: Some of the Chinese Investments and Projects in Nigeria
Source: Based on data from Nigeria Investment Promotion Commission (NIPC)
Challenges of Nigeria-China Trade and Investment relations
Okolie (2009:97) noted thus:
There are complex and multifaceted dynamics and challenges in Sino-Nigeria bilateral relations. This is however expected in a relationship involving two countries that have different orientations relationship involving two countries that is however expected in a relationship involving two countries that have different orientations despite the Chinese constant talk of having the same political experiences with Nigeria. It might be in the light of this that some scholars have argued that Nigeria and China share a lot in common with possibilities for mutuality, cooperation and the sharing of with possibilities for mutuality, scholars, both countries have experiences. According to these scholars, both countries have strategic and geopolitical importance in population and economy; have ancient traditions manifested in artifacts treasured all over the world; and both share the national trait which promotes self reliance even in matters of political development and social engineering. These scholars also argue that both countries fought feudalism, imperialism and colonialism prior to independence; that both imperialism and colonialism prior to independence; that both countries have a lot in common as both support south-south cooperation, are third world nations; Nigeria supports the “one China” policy while China supports Nigerian’s “Non Alignment” policy (Agbu, 1994:217: Chibundu, 2000:18; Ezirim, 2007:65, Akinterinwa, 1994; Bukarambe, 2005; Niia, 2005 as cited in Okolie, 2009:97).
However, despite Nigeria and other African country’s increasingly trade and investment
with China, many scholars have observed sadly that the balance of trade has remained and will
continue to remain in favour of China. According to them, the trade imbalance will increase as
China tries to achieve a greater surplus in her African trade in order to balance the heavy imports
from the industrialized countries. Thus, there is a visible determination by the Chinese to offset
their trade deficit with the west, by striving to maintain trade supplies with their non western
trading partners. Moreover, African countries trade regime still remains post-colonial with very
little attempt being made to change the situation fundamentally. This is why Africa’s trade with
China has continued to be in deficit (Ezirim, 2007; Onuoha, 2008).
In addition, Onuoha (2008: 307) succinctly remarked that:
China has engaged in arms deal with African governments as a foreign policy tool. China does not have the same human rights concerns as the United States, and European countries. So she will sell military hardware and weapons to nearly anyone. Indeed, Beijing sees Africa as a growth market for its military hardware. China’s active exploration of oil sources in Africa also leads to a need to ensure security around them, and this has led Beijing to send Chinese military trainers to help their African counterparts. What this suggests is that Africa will for long remain bedrock of arms conflict and crisis region. It is also a negation of African union’s efforts in reducing the spread, or proliferation of small fire arms within the region. The consequences are political instability, military insurgence, militancy, and poverty.
Another area of concern to African scholars, commentators and human rights
communities is China’s value for human rights, and democratic principles. It is now well known
that China does not have a good human rights record, and this is why she does business with
many African nations, irrespective of their poor human rights, in the name of “non interference
in domestic affairs”. Chinese leaders say human rights are relative and each country should be
allowed their own definition of them, and timetable for reaching them. The Chinese perspective
is that, unlike the United States and European countries, they do not mix business with politics.
In fact, China has argued that attempts by foreign nations to discuss democracy and human
rights, violates the rights of a sovereign country.
Nonetheless, another bane in the Nigeria-China trade and investment relations is the issue
of flooding the Nigerian market with substandard products. Many imported Chinese goods were
often substandard; this informed the Standards Organization of Nigeria in October 1996 to
threaten China that a formal complaint would be lodged with the World Trade Organization if
the situation was not immediately corrected. The Chinese responded by explaining that they had
not deliberately engaged in the dumping of inferior goods in Nigeria and that it was often
Nigerian businessmen of dubious disposition who were ordering products of questionable
quality. It was mentioned that customs officials had to shut down a Chinatown in Lagos because
many contraband items were being sold openly. In this instance the shut down did not last long,
because the city’s first lady, facing pressure from shoppers who appreciated cheap Chinese
goods, sometimes at a third the going rate, agreed to revoke the suspension. Problems with
corruption and unethical conduct by Nigerian businessmen and public officials are key obstacles
in the Sino-Nigerian relationship when the Chinese blamed these forces for contributing to the
ineffectiveness of a Chinese project to revive the Nigerian Railway Corporation.
Public officials outside the foreign affairs sector explained that although Chinese
businesses are more attractive partners because the development gap is less daunting than with
the West, actual technological transfer and job creation is low because the Chinese import in
their own labour. They also complained that when Africans have an opportunity to gain
employment in Chinese industries, labour conditions do not meet African standards. Some
referred to “slave-like” conditions, citing the example of the September 2002 fire at a Chinese-
owned factory in Lagos in which at least 37 Nigerians were trapped after a factory foreman
reportedly locked the building doors.
Nigerian officials suggested that kidnappings could affect China’s disposition to
investing in some states in Nigeria. Proximity to the high-risk operating environment of the
Niger Delta is said to be behind a Chinese decision to terminate a major industrial park
agreement with Imo State and relocate it to Ogun State. Even though some expressed the views
that political pressure from former Nigerian president Obasanjo, who is from Ogun State, led to
the decision to relocate the project, the official Chinese position is that Imo is a neighbour to the
trouble spot of Rivers State in the Niger Delta.
Apparently, China also has complains over doing business in Nigeria. Firstly, the
problem of insecurity arising from armed robbery and pronounced social proclivity towards
violence and lawlessness. And secondly, the high cost of operations due to inadequate power and
water supply; the bad state of telecommunications and infrastructure; poor police work such as
when reported crime investigations do not yield any results and corruption. These are however
familiar views of typical investors seeking share of the local market in a weak recipients state
(Bukarambe, 2005: 252-253 as cited in Okolie, 2009).
Finally, despite the challenges in the Sino-Nigeria trade and investment relations, from
the foregoing in the previous sections, suffice it to state that there are numerous Chinese
investments in Nigeria in recent times, the debate if these FDI to Nigeria has translated
fundamentally to improve the country’s economy and standard of living remains contestable in
the literature; as the issue lies beyond the scope of this study. Thus, our hypothesis that Chinese
industrial policy has enhanced the inflow of FDI to Nigeria will as well be validated (true, useful
and of an acceptable standard).
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATIONS
Summary and Conclusion
The study analyzed the Nigeria-China trade and investment relations. Indeed we strived
to provide plausible answers to the following questions:
(a) Has China’s trade policy on the exportation of textiles enhanced the volume of trade
with Nigeria within the period under study? and
(b) Has China’s industrial policy on steel industries enhanced the inflow of foreign direct
investment from China to Nigeria within the period under study?
The questions adduced to give focus and direction to the study helped us to formulate the
following hypotheses:
(a) China’s trade policy on the exportation of textiles has led to the increase in the
volume of trade with Nigeria within period under investigation and
(b) China’s industrial policy on steel industries has enhanced the inflow of foreign direct
investment from China to Nigeria within the period under study.
However, the study has five chapters, chapter one focused on general introduction.
Therein also, we analyzed Nigeria-China trade and investment relations within the period of
study, while other specific objectives were:
(a) To ascertain whether the China’s trade policy on textile exportation has enhanced the
volume of trade with Nigeria within the period under study and
(b) To determine whether the China’s industrial policy on steel industries has enhanced
the inflow of foreign direct investment from China to Nigeria within the period under review.
In the findings, the study noted that Chinese FDI inflows to Nigeria have been on the
increase in recent years. A ten-fold increase in the flow of Chinese investment into Nigeria
between 1999 and 2011 was recorded. Compared with other sources of FDI inflows to Nigeria,
Chinese FDI inflows are in the range of about 0.13% of the total inflow of FDI in 2006 and
0.69% in 2011. The investments from China are into manufacturing, oil and gas,
telecommunication, building and construction. Thus, while some of the Chinese investments and
activities in the country are directed at addressing critical gap in the provision of basic
infrastructure, these are not comparable to the level at which the Chinese are seeking Nigeria’s
oil and gas and other raw materials.
In the area of trade relations, similar recent upsurge was captured by the available data
and pieces of information. Nigeria’s export to China is dominated by crude oil to the tune of
about 87%. In terms of relative share of market, China constitutes only about 1.5% of the value
of Nigeria’s exports in 2000 and 2011. Nigeria’s import from China is more diversified than the
imports. Three product groups: electrical machinery equipment; vehicles and nuclear reactors,
boilers machinery and mechanical appliances jointly accounted for over 50% of Nigeria’s
imports from China. The observed structure of trade pattern is inconsistent with the Nigeria’s
quest to export manufactured or processed products. The need to diversify export products may
be an uphill task given China’s preference for raw materials, fuel and gas. More worrisome is
skewed balance of payments position which has consistently been in favour of China. This
suggests the need to examine the structure of tariff and non-tariff barriers facing Nigeria’s
exports to China. Perhaps more importantly is an analysis of constraints facing producers and
exporters in responding fully to market openings.
Recently, it appears that Nigerians have an acceptance and positive impression of China’s
growing impact on their nation, to a certain extent. However, public perceptions of the Chinese
presence may possibly turn negative if the Nigerian government, like other African governments,
handles the relationship poorly by not ensuring legitimacy for Nigerians. China has promised
billions of dollars in loans and assistance for Nigeria’s crumbling infrastructure, which by all
means could enhance possible job prospects and economic development. There has been a lack
of extensive progress on these projects thus far, which has heightened fears that much of the
monies have been stolen and disappeared to Nigeria’s notoriously corrupt political officials.
Africa can unquestionably derive vital trainings from China’s success in healing itself
from an inherent cycle of poverty (Rotberg, 2008). The challenge posed is for African
policymakers and a strong civil society to recognize the fundamental teachings from China’s
experience and to adapt accordingly to the specific circumstances of their individual African
states. China’s role in Africa is escalating and Nigeria will be a central player in determining the
setting and capacity of that role. If China’s upswing is peaceful, careful management on all sides
is necessary to underscore that China’s augmentation occurs justifiably and human rights
developments are respected in Africa and do not hurt Africans (Rotberg, 2008).
However, the Chinese commitment with Nigeria differs from other actors’ involvement
as Chinese interests stretch beyond the offshore oilfields and into the core of Nigeria, laying
down long-lasting assets. China can be acknowledged as a potential agent of change in Nigeria
which can be developed by those interested in improving the country’s portion (Taylor, 2007). If
China continues to participate in Nigeria’s infrastructure, both domestic and foreign investment
will continue to soar. Beijing recognizes that it has to engage with the issue of governance and
economic management in Nigeria as a means to uphold Chinese investment interests. In short,
the undertaking of the West is to take on Beijing in respective regions where reciprocated
interests congregate as a way to advance the interests of the Nigerian inhabitants as a whole,
rather than the corrupt elites (Taylor, 2007).
In conclusion, the Chinese have been involved in Africa as capitalists, comrades, and
immigrants. China has engaged in Africa’s territory and strengthened ties in quests for natural
resources and new markets. China’s new foreign policy towards Africa expounds on tactics that
date back to the mid-1950s. China attempts to exert its diplomacy on the African continent to
gain access to its natural resource wealth. The question as to whether China is a development
partner, economic competitor, or colonizer is contested; however, China has established
partnerships with Nigeria and other parts of Africa to gain control of resources to better their
own economy and assist with the re-building of the Nigerian economy. As a result of China’s
characteristics and involvement in Nigeria, there has been a “new” scramble for Africa.
Developing nations are rich in raw materials and natural resources. As a result, foreign
investments and monies are now being moved and reinvested in developing countries, like China
and Nigeria, as opposed to Western economies.
RECOMMENDATIONS
With regards to Nigeria-China trade and investment relations, there exist numerous
recommendations proffered by different scholars and researchers to improve the trade and
investment atmosphere between the two countries. Some of these cases as noted by Marchi,
(2008); Amadasun, (2008); Large, (2008); Ampiah & Naidu, (2008) are as follows:
1. Nigeria must continue to build, maintain and embrace a mutually trusting and respectful
alliance with China. The partnership will continue to pave the way for structural
engagements to the greatest extent between the two countries (Marchi, 2008).
2. Both Nigerian and Chinese foreign policy should represent the full capacity of both
nations’ values and insights. A foreign policy focused on a particular issue, such as trade or
human rights, might run the risk of never establishing the kind of relationship in which
complex questions can be posed and experiences voiced. A balanced partnership is key,
opening the door for meaningful discussion. Concerns and implications must be pursued in
proximity with one another and not seen as a matter of either/or (Marchi, 2008).
3. China is irrefutably an active participant in both the global economic and political system.
Thus, Nigeria should continue to accelerate China’s integration into the global system and
encourage China to participate fully in international human rights institutions and civil
society organizations (Marchi, 2008).
4. With careful research drawn to international best practices, both Nigerian and Chinese
officials will demonstrate increased awareness of the challenges accompanied by economic
development. They will be forthcoming about finding innovative responses to human rights
violations (Marchi, 2008).
5. Both Nigerian and Chinese foreign policy makers must be cognizant that though political
change has preceded more slowly than economic development, an understanding of human
rights must advance in both nations. Considerable progress must be made in both nations.
The lessons learned by Nigeria are important to share with China as it develops its own
human rights system (Marchi, 2008).
6. Nigerian foreign policy development must note that the Chinese community in Nigeria is
versatile with views ranging over a wide scope. The perceptions of the Nigerian-Chinese
community cannot be summed up in a singular and unified voice. Certain issues can be
divisive amongst Nigerians of Chinese heritage. Therefore, Nigerian foreign policy should
be conscious of diversity (Marchi, 2008).
7. Nigerians and Chinese should ensure and employ the use of policy instruments at their
disposal and in this context, seek in a systematic way the highest possible degree of
coherence between trade, economic and development policies, and other polices of both
countries with an impact on their trade, agricultural, national security, environment, social
and physical infrastructures, in addition to research and technology (Amadasun, 2008).
8. The linkages between poverty reduction, development aid, bilateral trade, adjustments and
humanitarian policy fields are all fundamental to ensure poverty alleviation for the
vulnerable populaces in ethnic communities and locales (Amadasun, 2008)
9. Nigerians and Chinese should be acknowledged where economic development policies are
discussed in international forums, enabling both nations’ presence as active participants at
the forefront of the international agenda (Amadasun, 2008).
10. In order for Nigeria to benefit effectively from its engagement with China, several steps
must be taken. Nigeria needs to:
(a) Assemble comprehensive data on the financial, commercial, social and environmental
impact of Chinese investments;
(b) Establish the development goals and set priorities to be identified;
(c) Articulate strategies on how the priorities will be met;
(d) Make provisions of institutional arrangements to implement the mechanisms; and
(e) Ensure that all stakeholders are included, especially the less privileged, in the policy
planning phases.
If these steps are taken, Nigeria will be able to:
(a) Attract Chinese foreign investment, which in return will significantly reduce its capital
deficit;
(b) Invest in its infrastructure sector with attention placed primarily on transportation,
energy, and agriculture;
(c) Ensure a major increase in the competitiveness of their goods and value added towards
natural minerals produced in their country (Ampiah & Naidu, 2008).
Nonetheless, this study has been able to note that Nigeria’s first priority lies in
developing the capacity to better manage its own policies toward China’s engagement. Nigeria
needs to realize that China’s engagement gives it a unique opportunity to significantly expand its
development and articulate a comprehensive strategy that addresses its long-term needs. The
Nigerian government should avoid short-term fixes and front-loaded deals with the Chinese and
move beyond arrangements that focus solely on the petroleum sector. High commodity prices are
only a temporary vehicle that can be utilized to drive Nigeria’s economy into a more
economically diversified state, the true mechanism for sustained growth.
Prognosis
Nigeria should focus on how China’s engagement in Africa fits into the broader picture
of international engagement. In particular, Nigeria has an opportunity to diversify its
development by balancing Western assistance with that of China but needs to better understand
how each type of aid can be beneficial, and to what sectors, in order to implement a successful
strategy. For instance, China’s experience as a more disciplined society has the potential to curb
corruption in Nigeria, while the United States’ commitment to human rights and transparency
restrain an abuse of power. Nigerians should learn from the successes and failures of other states’
relations with China and their policies toward development, while also learning from their own
experiences. Nigeria should undertake a thorough review to investigate what policies have been
beneficial for Nigeria’s long-term development and what areas need improvement.
Nigeria should also more closely examine the United States’ relationship with China and
replicate successful policies. The United States has a long history of trade disputes with China,
challenging it in such multilateral institutions as the World Trade Organization. Nigeria appeared
successful in its ability to confront China when it was being inundated with inferior goods by
threatening a WTO complaint. Whether they learned anything from the U.S. experience is
unclear, but Nigerians could certainly tap into the vast array of Western expertise on how to
better manage a difficult economic relationship and how to protect important sectors of the
economy against foreign competition Nigerians should be pragmatic as they strive to “build
institutions.” Past attempts to build institutions in Nigeria particular and other African countries
have shown that just uprooting and transplanting institutions does not work. The process is
evolutionary in nature and dependent on political will and strong leadership to make the
necessary changes. Most importantly, there needs to be transparent oversight, largely monitored
by a large middle class. Since a large middle class is dependent on sustained economic growth, it
will take time to build credible institutions, but small steps can be taken.
One of the most critical elements in institution building is support for civil society
organizations and social enterprises that enable the emergence of market institutions, transparent
and accountable governance, and budget-monitoring mechanisms. Nigerian civil society
organizations should press the Nigerian government to make their processes more transparent
and to join such programs as the Extractive Industries Transparency Initiative (EITI). Greater
emphasis should be placed on building human capital and overcoming language and cultural
barriers to facilitate the transfer of business knowledge and technology to a wider array of the
Nigerian population. Exchanges between Chinese and Nigerian businessmen in the
manufacturing sector seem to be a first step, but Nigerian businessmen need to develop the
capacity to become leading entrepreneurs independent of the Chinese. World class business
schools and public administration institutes focusing on building competences, leadership skills,
and values need to be more greatly supported in Nigeria. Advances in entrepreneurial skills need
to be accompanied by similar advances in building a culture of leadership that is not only
concerned about enriching themselves but about enriching their country as well. The fact that
Nigerian businessmen have been accused of ordering the same inferior products that Nigerian
citizens have complained about demonstrates that stronger values are needed. Nigeria needs
business leaders who are willing to press for reform and advocate the added value of transparent
business practices. The limited success of the Lagos Business School in its passionate emphasis
on business ethics shows the possibilities for considerable support of such initiatives.
Lastly, in order to meet all of these important needs, Nigerians should utilize their own
talent by pooling together leading officials, scholars, businessmen, and civil society
representatives to form a committee dedicated to prescribing ideas on how to optimize Western
and Chinese engagement. At the same time, an inter-ministerial implementation committee
drawn from the ministries of foreign affairs, industry, trade, agriculture, and investment
promotion, should be set up to reduce all the protocols, using a critical path analysis of action
plans, with civil society as monitors. On specific “accelerator” infrastructure interventions, like
energy and transport, a project team with people seconded from the private sector, Diaspora
experts, and key government technocrats will be required to drive some key timelines.
Attempts to compromise the benefits of FDI should be persistently resisted by the Nigerian
Government through active engagement and negotiation with the Chinese government and
investors. Good governance and stable macroeconomic environment in Nigeria is a necessary
tool to promote productivity and sustainability of investment. Nigerian Government needs to
institute policies aimed at maximizing the direct and indirect benefits as well as in minimizing
the possible negative impacts. A litmus test for gauging the motive of FDI is to classify
investments into resource-seeking, market-seeking or efficiency-seeking. Efficiency-seeking FDI
is preferred to other forms, at least from the perspective of the host country.
Furthermore, there is need to ensure implementation of laws and regulations in Nigeria and
to ensure compliance by the Chinese investors. Such laws include labour law, social
responsibility law and local content requirement. The Nigeria Labour Congress and its
counterpart in the private sector should ensure the Nigerian labour law Chinese-owned firms.
Similarly, the Raw Material Development Council (RMDC) should see to compliance of local
content requirements (in terms of human and physical materials) by all firms especially the
foreign ones. The Nigerian Investment Promotion Council (NIPC) and other relevant
organizations such as the Nigerian Extractive Industry Transparency Initiative (NEITI) should
ensure compliance with the social responsibility law in Nigeria.
Again, given that the positive revenue effect of Chinese FDI may not be realized by the
Nigerian Government, there is need to generate in a scientific manner, a number of scenarios on
the level or number of incentives that can be given to foreign firms without jeopardizing the
economy. Accurate data on the number, location and tax liabilities of all firms including the
Chinese firms should be generated by the Federal Inland Revenue Service in collaboration with
the NIPC and the Corporate Affairs Commission, while tax offenders should be sanctioned.
It is important to note that widespread investment and contract awards to Chinese firms
can cripple domestic contractors. Thus, the Nigerian Government must be conscious of the high
level of unemployment prevalent and thereby give local contractors some considerations in the
award of contracts with a view to creating jobs for Nigerians. Local contractors can equally be
encouraged to partner with Chinese firms. The issues of negative externalities associated with
investment including those of Chinese in Nigeria are worth mentioning. Oil exploration and
production as well as manufacturing activities have been known to be associated with a series of
environmental problems. This is a major cost of Chinese investment to be borne by the host
communities and producers in which such activities are carried out. There is therefore the need to
ensure compliance of all firms including Chinese firms with social responsibility laws in Nigeria
(if any).
Thus, Nigeria can establish a body or an agency that will audit the performance of the
organizations in terms of social responsibility. This will enable it to reward those that are
performing well and sanction those that are not. The importance of data for the purpose of
periodic and continuous monitoring and evaluation of the impact of Chinese FDI in Nigeria
cannot be overemphasized. Hence, the government has the responsibility to enforce the relevant
law that will enable government agencies that gather data such as the National Bureau of
Statistics (NBS), Nigerian investment promotion Council (NIPC), Federal Ministry of Finance
and Central Bank of Nigeria (CBN) have access to important and necessary information for the
evaluation of the benefits and costs of investment relation between Nigeria and China. It is on
record that Chinese firms have the tradition of trying to hoard information on their activities in
the host countries. The relevant ministries and departments should be supported financially to
gather information including those on China-Nigeria relations. China-Nigeria investment relation
just like any bilateral relationship has some advantages and disadvantages. This suggests that
optimal outcome of the relationship will depend on the policies and institutions that are put in
place particularly by Nigeria to maximize the complementary effects and to minimize the
competing effects. China is virtually everywhere in Nigeria but information about its
engagement and activities are fragmented.
There is therefore, need to establish a coordinating body on China. This body, preferably
a technical arm of an existing body, should be empowered to scrutinize and evaluate agreements,
memoranda and any other articles of association between Nigeria and China. The ultimate
objective of the proposed body is to spell out the cost as well as the benefits of Chinese-proposed
projects and/or programmes. This is similar to what a legal department would do to an agreement
before initializing/signing. The proposed technical committee in its assignment must have taken
into consideration domestically available resources including skills and ensure that as much as
possible, the local content of the agreement is high enough not only for the purpose of generating
employment for Nigerians, but also to develop their technological capability.
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