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‘There is no pure protectionism’: Benedict Oramah, president of Afreximbank

By Nicholas Norbrook
Posted on Tuesday, 6 February 2018 12:05

With the slump in African trade fin­ance caused by the collapse in exports of oil, metals and other commodities, the need for a robust Afreximbank is more acute than ever. The bank’s president, Benedict Oramah, wants to do more than just finance trade, however. He wants to help African countries build up their export capacities. And while he does not hold with old methods like protectionism, he is a believer in certain kinds of ‘smart’ interventions, including active management of export-processing zones to help them meet market needs.

TAR: It seems as though the global conversation on free trade has arrived at a point where the economic nationalism of Brexit and US president Donald Trump’s supporters has had an impact – and that while maintaining their stance on the sanctity of free trade, international organisations like the World Trade Organisation are saying that there is a role for the state in mediating the impact of free trade on jobs. Is that right?

Benedict Oramah: Yes, because there is no pure protectionism. In fact, if you want to pursue what economists call laissez-faire policy, that would be the purest form of free trade – with governments just sitting by and watching. But nobody ever does that. The role of government is to be an enabler; an enabler means providing infrastructure at the right price to make certain activities competitive globally. That’s where I think the state has a role to play.

And that role would differ from country to country, from one level of development to another level of development. Because you’ll find something different in, say, Nigeria than you’ll find in, say, Sierra Leone because they are at different levels of development. They have different issues.

The important point is for the government to know where they have to step back. I don’t expect the government to go and say we would be the ones producing A, B, C and D to that project. We are not going to ban the export of cocoa because we want to build cocoa-processing plants. You cocoa producers must sell your cocoa to the plant. We tried it in Nigeria – I was there – it didn’t work. Cocoa is a tradable item, so we saw smuggling.

So would you advise Nigeria to revive the Ajaokuta Steel Company today if it wanted? Because it seems to be serious about wanting a car industry.

I think they should, for the simple reason that first of all they’ve invested a lot of money already. Because Nigeria is also at the entry level of trying to industrialise, and with big infrastructure investments steel consumption will grow.

This is where you may talk of smart intervention because we may then decide [to impose] a kind of a tariff [on] imports. The production of steel to some extent is actually the conversion of energy. So Nigeria should really be competitive. But if they are not, because of all sorts of things – they haven’t got the pipeline to bring gas, they haven’t done this, they haven’t done that – then you put a tariff. But it’s essentially the conversion of energy, it’s less [about] the availability of iron ore than [of] cheap power […].

They have huge gas [reserves] that can be very competitive in aluminium. They can be very competitive in steel even if they don’t have ore – even if you import iron ore.

How do African countries build their own competitive industries in light manufacturing, given the intense pressure from other low-cost producers from around the world?

This is part of the Afreximbank strategy, to promote export manufacturing. I’ll give you an example. Out of the $108bn in exports from China to Africa in 2015, about 40% was light manufactures, about $43bn. And it has been over 40% for the past 10 years. Now China is trying to delocalise. And unless Africa creates a capacity to receive those industries, they will go elsewhere, so Africa will continue to import those $40bn from wherever.

But it can be done, you can ­create export-processing zones. You can import fabric from China and make garments, import electronics components and assemble, and all that. It takes about 18 months to build an industrial park of 200ha.

We have seen some built in Nigeria – they have been a relative failure, no?

Because they were built by government. The government just woke up and said: ‘We’ll do export processing zones,’ you get it? They woke up and then they just go and build the infrastructure. They don’t even have a programme for investment promotion. They have not even done the studies to know whether it will be competitive or not.

You don’t do industrial parks just because you can. In China, if you’ve been to the parks, you see some are specialising in this, some are specialising in that. They are not just industrial parks where any­thing goes, as we have in Nigeria and elsewhere. So, because of that, it will fail. Take the first export-­processing zone in Nigeria. They did it. The port they were supposed to use was silted up, boats can’t come. You had to dredge every time, and we were not dredging it. And it’s more a park, not even an export-­processing zone. There’s no focus on what that processing zone would do.

That’s the difference today, and it’s a priority for us. The approach we’re taking for our own industrialisation is port-linked manufacturing hubs. And we’re doing it in partnership with the Chinese. We have entered an arrangement with China to provide $1bn to support us [in this project].

As we speak today we are ­moving – in Nigeria, in Côte d’Ivoire, in Togo. And there is an expansion project we’re considering in Kenya. The Ivorian government gave us 2,000ha of land. And the government of Togo told us they will make 100ha available near the port.

It seems that industrialisation is a particularly complicated recipe to get right…

You know, people think with industrialisation the problem is to build factories. That’s why people say that the constraint to intra-African trade is infrastructure. I don’t think its infrastructure, it is market.

Because today total African trade is about $1 trillion. That is what the infrastructure in Africa is able to carry. Why is it that intra-African trade is only 15% of that? Why can’t intra-African trade be 40%of that within the constraints of the infrastructure?

This article first appeared in the October 2017 print edition of The Africa Report magazine

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