Project Description

CHAPTER ONE

INTRODUCTION

1.1       BACKGROUND OF THE STUDY

            Nigeria – United States relations was almost insignificant before Nigeria’s independence on 1^stOctober, 1960. This has been attributed to Nigeria’s colonial experience during which the Nigerian market remained the exclusive preserve of the British colonial masters. The year 1961 however marked a remarkable turning point in Nigeria- United States economic and political relations, when on December 12 1961, President John F. Kennedy pledged a long term aid package of $222 million for Nigeria. The aid offer was in support of Nigeria’s first National Development Plan (1962-1968), (Ate 1988: 195).

The economic purpose of the aid offer was particularly significant, the implementation of the aid package which preceded, albeit unevenly, until the outbreak of the civil war, laid the foundation for the later expansion of Nigeria – United States Economic relations. The execution of the United States Agency for International Development (USAID) projects in the country under the frame work of the six year development plan, served as a momentum for increased trade ties; it also provided the avenue for the great influx of American technical assistance and personnel into Nigeria while at the same time stimulating the interest of American companies concerning investment prospects in the country. The implication was that by 1966, the United States had established impressive presence in Nigeria’s economic development, even compared to Britain with its colonial advantage. Capital aid and technical assistance became the centerpiece of Nigeria-US economic ties in the first phase of their relations.

Between 1967 and 1970, Nigeria – United States relations deteriorated following the refusal of the United States government to heed the request of the then Nigerian Head of state, General Yakubu Gowon for the supply of weapons from the United States to prosecute the Civil war raging at the time. Rather than oblige the request, the United States had instead provided humanitarian assistance to Biafra in the form relief materials. Notably, the United States approved more than $600 million financial aid to assist in relief material to Biafra for the eradication of small pox and measles control (Onuoha 2008: 288). Consequently, there was an abrupt decline in the economic ties between the two countries in foreign trade, foreign investment and capital aid. As noted by Ate (1988: 251), US-Nigeria total imports dropped from 16.2 percent to 12.8 percent in the first quarter of 1968; there was no new investment by American companies during the civil war era and the work of USAID virtually came to a standstill.

Towards the end of civil war in Nigeria, Nigeria’s foreign policy took another dimension which had implications on Nigeria-United States’ relations. According to Ate (2000), the first which was the indigenization policy of the Federal government which involved the nationalization of foreign-owned companies operating in Nigeria including American companies, this, as rightly pointed out by Saliu and Aremu (2006) came as result of Nigeria’s growing sense of confidence and worth that flows from the huge foreign exchange earnings of the oil boom era. The second was Nigeria’s support, funding and pursuit of anti-Western (and anti-US) policies on certain issues, especially the decolonization of Southern Africa, following this, the United States began to patronize British, Mexican, Canadian and Saudi Arabian oil at the expense of Nigerian oil. This development pushed Nigeria from second to the seventh major oil supplier to the United States at a time she could least exploit alternative markets. Consequently, the trade balance which in time past had progressively favored Nigeria became unfavorable.

Nigeria’s transition to democracy in 1979 coupled with the adoption of the American style of presidential and federal systems, revived America’s interest in Nigeria which revitalized their relationship, United states had overtaken Great Britain as the major recipient of Nigeria’s exports and Nigeria became the second most important supplier of crude oil to the United States in a period of central oil demand in the world market. Correspondingly, there was expansion of  the United States investment presence in the Nigerian economy though most of the investments were in the oil sector by American companies such as Philips, Exxon Mobil and Gulf. With the crash in the world market price of oil, the foreign exchange accruable to Nigeria began to decline, this plunged Nigeria into borrowing to save its economy, Nigeria had to enter into protracted negotiations with the IMF and World Bank as well as other creditors, for loans to finance the huge shortfall that arose from the trade and balance of payment deficits of the 1980s. In those negotiations, the Nigerian government needed and sought the support and cooperation of the United States. According to Lyman (1988), the United States government offered great assistance to Nigeria by maintaining credit cover for Nigeria into the summer of 1986, through their Export-Import Bank, when almost all other countries had ended it, rescheduling all their official debt on almost exactly the terms requested by Nigeria, and American commercial banks did the same and some other steps were taken to encourage investment in Nigeria.

By late 1999, the United States- Nigeria Joint Economic Policy Council (JEPC) was launched in Washington as a framework to strengthen bilateral consultation on economic reform, debt relief, investment and aid. Subsequently, Nigeria-United states relations have undergone certain trends and changes in different areas and perspectives, new policies made, new trade agreements established in order to facilitate and foster favourable returns on trade and investments between the two countries.

In this study, we shall explore Nigeria-United States trade and investment relations with a view to assessing United States’ investment in the non-oil sector of Nigerian economy, we shall equally assess the success of the African Growth and Opportunity Act on Nigeria’s textile export within the period under investigation.

1.2       STATEMENT OF THE PROBLEM

It is a glaring fact that Nigeria and United States have enjoyed increasing active trade since Nigeria’s independence; corpus literature has since accumulated on the subject matter of Nigeria-United States economic relations. These include; Ate (1987, 1988& 2000); Douglas (2004); Saliu &Aremu (2006); Adoganmhe (2006); George (2006); Onuoha (2008); Ayam (2008); Ojakorotu (2009) amongst several others. These studies observed that Nigeria-United States relations since independence have been raised on a tripod of democracy, trade and foreign investment. They point out that Nigeria is an important trading partner for the United States and is the largest beneficiary of US investment on the continent, and that given Nigeria’s ranking as one of Africa’s largest consumer market and its affinity with United States’ products and American culture, opportunities for increasing United States’ exports to the country and the broader West African region, are considerable. They also point to the establishment in 2010 of the US-Nigeria Bi-National Commission, a strategic dialogue to address issues of mutual concern, as pointers to the robust relations between the two countries.

Nigeria’s vast oil and gas resources have proven a magnet for foreign investors especially the United States. Nigeria has experienced higher FDI inflows during the past (Working Paper Sources Feb,2010) five years driven by a rising global demand for hydrocarbons and Nigeria. The demand and trade for oil still remains the major item in Nigeria-United States trade and investment relations, as a direct result of America’s growing dependence on oil import from Nigeria. According to Energy Information Administration (EIA) of the US Department of Energy (DOF), Nigerian oil production averaged 1-94 million barrels per day (bbl/d) in 2008, although the EIA estimates that Nigeria’s effective oil production capacity was 2.7 million bb/d. of this,990,000bb/d were exported to the United States

The United States thus imported 44 percent of its oil from Nigeria, making the country the fifth largest foreign oil supplier to the United States and this has increasingly resulted in Nigeria’s over dependence on oil sector. This dependence on oil has crowded out diversification into other productions which now form the bulk of Nigeria imports from United States, such products as wheat, vehicles, petroleum products, drilling equipment, industrial engines and machines, plaster material, finished metal shapes (Economic Section, United States Embassy in Nigeria, April 2012). The reports also show that Nigeria is the world’s largest importer of United States’ wheat, with imports worth $1.2 billion in 2011.

The United States government in a bid to boost United States’ trade and investment ties with Nigeria in particular and Africa in general, President Clinton instituted several measures that dealt with investment, debt relief, and trade thus developing a trade and development policy for  Africa in form of African Growth and opportunity Act (AGOA). AGOA extends preferential treatment to imports from eligible countries that are pursuing market reform measures; AGOA was signed into law on May 18, 2000 as title 1 of the Trade and Development Act of 2000. The Act offers tangible incentives for African countries, to continue their effort to open their economies and build free markets. President Bush signed amendments to AGOA, also known as AGOA II into law on August 2002 as section 3108 of the trade Act of 2002. AGOA II substantially expands preference access for imports from beneficiary sub-Saharan African countries. By modifying certain provisions of the African Growth and Opportunity Act (AGOA),the AGOA Acceleration Act 2004 (AGOA III, signed by President Bush on July 12, 2004k) extends preferential access for imports from beneficiary sub-Saharan African countries until September 30, 2015; extends third country fabric provision for three years, from September 2007 until September 2012; adds an abundant supply provision; designates certain denim articles as being in abundant supply; and allows lesser developed beneficiary sub-Saharan African countries export textile articles under AGOA.

Amidst the modification of the AGOA provisions and the extension of preferential access for imports from beneficiary sub Saharan African countries until September 30, 2015, scholars have not adequately addressed in the extant literature comparative analysis of Nigeria- United States trade and investment relations between 2004- 2012 reflecting the dynamics in the Obasanjo and Yar’Adua/Jonathan administrations in Nigeria as well as Bush and Obama governments in United States.

This research therefore finds it pertinent to pose the following research questions for investigation:

1. Has the United States’ bilateral relations with Nigeria enhanced United States’ investment in non-oil sector of the Nigerian economy within the period under investigation?
2. Has Nigeria’s compliance with AGOA’s eligibility clause increased the volume of textile exports to the United States between 2004 and 2012?

1.3       OBJECTIVES OF THE STUDY

The broad objective of this study is to examine the contours of Nigeria-United States trade and investment relations within the period, 2004-2012. However, the specific objectives of this study are:

1. To ascertain if the United States’ bilateral relations with Nigeria has enhanced United States’ investments in the non-oil sector of the Nigerian economy within the period under investigation.
2. To determine if Nigeria’s compliance with AGOA’s Eligibility clause increased the volume of textile export to United States, between 2004 and 2012.

 

1.4       SIGNIFICANCE OF THE STUDY

Nigeria’s relations with the United States are, no doubt of strategic importance in her external trade policy and general economic development strategies. This study therefore has both theoretical and practical significance. Theoretically, this study will help scholars to broaden their horizon for further research on the best approach to further Nigeria-United States relations; the study will also contribute and add to the existing body of literature and knowledge.

Practically, the study by examining Nigeria-United States relations under AGOA, will help policy makers to explore the prospects of the exchange relations between the two countries in eradicating poverty and enhancing the export of agricultural products, it will help Nigerian government in this era where states and nations are devising means for alternative source of energy, thereby reducing their dependence on oil, to re-evaluate an alternative source of sustaining the Nigerian economy by boosting and investing in the non-oil sector of the Nigerian economy.

1.5       LITERATURE REVIEW

This review concentrates on Nigeria-United States trade and investment relations, with a view to identifying the gap in the literature. To this end, a number of studies have attempted to explicate the nature of the bilateral relations between Nigeria and United States. Considering the above, we shall adopt thematic approach on our review of the literature. The literature review will revolve around the following sub themes:

1. Nigeria-United States bilateral relations.
2. African Growth and Opportunity Act (AGOA)
3. Nigeria and African Growth and Opportunity Act.
4. Overview of Nigerian textile Industry

Nigeria- United States Bilateral Relations

If there is anything I have learned in the first several months of my tenure as American Ambassador to Nigeria, it is that US-Nigeria relations are a tremendously rich and varied network of contacts and relationships which span political affairs, economics, trade and commerce, culture and education…(Lyman 1988: 250).

In a review of Nigeria-United States relations, Lyman (1988) started with what he called the fundamental relationship. He noted that the nature of that relationship determines how and indeed how well specific issues are dealt with. Stating also the importance of recognizing the fundamental relationship between Nigeria and United States, this fundamental relationship he stated is determined by several factors, one of which is whether there is any inherent conflict between Nigeria and United States, given their national goals and sense of security. A relationship he observes is always at its worst when on country feels its security is inherently threatened by the ambitions and / or geopolitical strategy of the other. That is basically the nature of relationship between the United States and the defunct Soviet Union. But nothing of that kind exists between Nigeria and the United States. A second factor is the degree of shared values. According to him, although Nigeria has experienced 16 years of military rule, the perception which the United States has of Nigeria is of a society imbued with the values of freedom, democracy and respect for human rights. These values, he remarks, have survived, surfaced and shaped events even during periods of military government. For all its difficult and disappointing experiences with democratic government, the values of the society keep moving Nigeria in that direction. And it is of course, with those values that they are most comfortable.

Thirdly, a fundamental relationship he noted is affected by how rich the peoples are. This he explained is not some abstract or idealistic concept of people-to-people diplomacy, but if the interaction between two people is rich, varied and productive, there is a different way of approaching problems when they arise between the countries. Stating as a matter of fact, that Nigeria and the United States have an extraordinary rich relationship, Lyman observed that over 100,000 Nigerians have studied or are working in the United States, over 5,000 Americans live and work in Nigeria, thousands more Americans have lived, worked, or done business in Nigeria since independence.

Conclusively, Lyman identified economic co-operation as an area where the both country have had the largest and strongest lasting cooperation and which remains one of the most important. He recognized the significant change in economic relations over the years, Nigeria at one time was the highest recipient of United States aid programme in the world, other programmes in health, management training, infrastructure and public administration was also established in Nigeria through this co-operation. Nigeria’s growing earnings from oil phased down the aid programme reducing the co-operation to health sector and family health programme. Subsequently, trade, investment, and international financial community became the centre of the relationship between Nigeria and United States.

Despite the fact that the United States is Nigeria’s greatest trading partner, with the nullification of Nigeria’s June 12, 1993 presidential election, the substantial amount of human right abuses and the failure to embark on a meaningful democratic transition, the United States imposed numerous sanctions on Nigeria. After a long period of increasing strained relations, the death of General Abacha in 1998, and his replacement by General Abubakar opened a new phase of improved bilateral relations (US Global leadership project Report, 2012). As the transition to democracy progressed, the removal of visa restrictions, increased high-level visits of US officials, discussions of future assistance, and the granting of a Vital National Interest Certification on counter-narcotics, effective in March 1999, paved way for re-establishment of closer ties between the United States and Nigeria as a key partner in the region and the continent.

With Nigeria-United States relation oscillating between stability and instability, as a result of Nigeria’s longer portion of her post independence existence under military dictatorship which conflicts with one of the cardinal ideas that drive United States’ foreign relations (Saliu & Aremu 2006) many had expected that with the enthronement of democratic rule in Nigeria in May 1999, Nigeria’s relation with the United States was set for a new course with greater depth and stability. Saliu and Aremu (2006) stated that ample evidence indicates a broad degree of continuity with virtually little or no difference in the pattern of the relationship prior to 1999 and after. To them, one significant aspect of change relates to increased level of high-level official exchanges between Washington and Abuja and a greater intensity of inter – agency collaboration between United States and Nigeria than previously recorded. This was particularly more evident in the fight against transnational crimes such as drug trafficking, money laundering and Advance Fee Fraud. In Nigeria, government agencies like the Economic and Financial Crimes Commission (EFCC) and the National Drug Law Enforcement Agency (NDLEA) became more actively engaged in partnership with relevant institutions in the United States.

Furthermore, Saliu & Aremu (2006) stated that besides the partnership in the combat against global crime network, there was a tendency toward closer military co-operation. The military co-operation agreement was revived in 1999. The agreement has the following objectives:

• To train and retrain the Nigerian military for peace-keeping operations
• To professionalize the Nigerian military; and
• To provide patrol vessels for the Nigerian military to effectively police oil installations (Aja, 2003: 88).

Meanwhile objective (3) clearly points and supports the position that relations between Nigeria and United States are principally informed and sustained by the United States’ interest in Nigeria’s oil. In 2009, for example, Nigeria exported 1.9 million bpd to the United States, out of a total of a total production level of 2.2 million bpd, (US Energy Information Administration 2010). In percentage terms (86 percent), this outstrips production-export ratios from many other oil-producing regions. And President Obama’s National Security Strategy makes clear: “As long as we are dependent on fossil fuels, we need to ensure the security and free flow of global energy resources”.  Hence, the United States has shown much concern in various bilateral trade initiatives between the two countries. This has culminated in the bilateral talks between the two countries and formed the major thrust of the United States- Nigeria Bi-national Commission: good governance, transparency and integrity, energy and investment, Niger Delta and regional security, and agriculture and food security.

According to Gaavson (2007), attracting foreign investment is at the top of the agenda of most countries of the world. Nigeria is also not left out in this process; foreign direct investment appears to be the most crucial component of capital inflows to Nigeria. Generally, FDI involves the transfer and packaging of resources including capital, technology, management and marketing enterprise. Such resources usually have the effect of extending the production capabilities of the recipient country. According to Okomoh (2004), prior to her independence from British colonial rule, Nigeria played host to foreign investment companies like the United Africa Company (UAC), which were involved in the purchase and export of palm oil, which was a major foreign exchange earner for the country. However, the country’s independence in 1960 changed a lot of things politically, socially and economically. Nigeria now had to take her future in her hands and so, various economic policies were adopted to ensure the country’s survival. In the early 1960s, came the discovery of oil and soon major investments started coming into the country in order to tap the huge oil deposits in the country. By 1980s, the country had been reduced to a mono-economy. Budgets were based on estimated revenue from the international sales of crude oil (Okomoh 2004). Nigeria witnessed greater foreign Direct Investment inflows between 1990 and 2001.

Alao (2011) in an analysis of United States investments in Nigeria observed key United States investors in the Nigerian oil sector with its multinational companies: Exxon Mobil, Chevron and Western Geo-physical, other United States multinationals in Nigeria include the British American Tobacco Company, in the tobacco enterprise and Citi Bank in the banking sector. He also identified four main issues underlying Nigeria’s recent relations with the United States, these include United States assistance in military professionalism and security sector reform, global war on terror, politics of debt relief and financial assistance; other occurrence worthy of note is President Clinton’s $100 million aid package to Nigeria, which was aimed specifically at improving primary education and health care, and prior to this period many health-related issues in Nigeria. A survey of foreign direct investment in G.15 countries (working Paper Series 2010) reported some countries with substantial investments in Nigeria and its destruction as follows; Indian firms; Ranbaxy Laboratories (pharmaceuticals), Hyderabad industries (cement products), Karan Chand Thapar (blankets) and skipper Energy (transformers), HMT (machine tools), MECON (steel). RUES (railways) and TCIL (telecom projects), but the leading source country for foreign direct investment is the United States through its oil majors Chevron, Texaco and Exxon Mobil. The Netherlands through shell, France through Total and Italy through ENI are the other investors in Nigeria. This clearly points that Nigeria’s oil and gas sector is the major direction of United States’ foreign direct investment.

African Growth and Opportunity Act

Trade performance in Sub-Saharan Africa has been characterized by weak export growth, declining trade shares in the global market, and low foreign investment levels. The United States has made an attempt to assist in reversing these trends by passing the African Growth and Opportunity Act (AGOA) (Shapouri& Trueblood, 2003). According to Condon and Stern (2011), the African Growth and Opportunity Act (AGOA) was signed into law by the United State Congress in May 2000. The principal objective of AGOA was to facilitate the integration of Sub-Saharan African countries into the global economy by providing preferential access to the United States’ market for exporters from these countries. AGOA was initially due to expire in 2008, however it was extended and it is now set to expire in 2015 (Naumann 2009).

Shapouri& Trueblood (2003) contend that AGOA builds on the United States’ GSP programme, increasing the range of products for which preferential access is granted to include such products as petroleum, clothing, and a range of other agricultural and industrial products. Mattoo et al. (2003) estimate that whereas the United States’ GSP regime covered about 17 percent of SSA exports to the US in 2000, AGOA preferences increased this fourfold to 72 percent.

Condon and Stern (2011) further assert that the Most Favoured Nation (MFN) clause in Article 1 of the General Agreement on Tariffs and Trade (GATT) is a key component of the modern multi-lateral trading system. The central premise of the MFN clause is the principle of non-discrimination, which prohibits countries from discriminating between trading partners. In effect this means that if a country grants a trading partner a special concession (e.g. lower duties on a particular product), the MFN clause compels them to offer the same to all WTO members. The GATT does however allow for exceptions to the MFN rule in the context of reciprocal preferential agreements (e.g. Regional Free Trade Agreements), and also allows for agreements which provide developing countries and LDCs special or preferential access to developed markets (Hoekman et al. 2006) . AGOA falls under the latter MFN exception, granting a select group of Sub-Saharan African countries preferential access to the US market.

In addition, Condon and Stern (2011) observe that the rationale for granting preferential market access to developing countries emerged in the mid-20^th century. Preferences were seen as a way of quickly boosting the industrial capacity of newly independent nations in Africa and Asia and integrating them into the global trading system. Against this background the general framework for the provision of such preferences, the GSP, was established by the United Nations Conference on Trade and Development (UNCTAD) in 1968.

According to Condon and Stern (2011), the United States passed legislation formalizing their GSP regime in 1974. Under the US system of preferences, eligible countries pay zero tariffs on 4,650 tariffs lines or products, with LDCs paying zero tariffs on a further 1,750 lines (Hoekman et al. 2006). In addition to these shallow preferences the US has over the years established additional non-reciprocal or deeper preferences, for a sub-set of what are perceived to be vulnerable countries or regions. Examples of such initiatives include the Caribbean Basin Trade Partnership Act in 1983, the Andean Trade Preference Act in 1991 and, of most relevance to this review, AGOA in 2000.

Condon and Stern (2011) point that the principal motivation behind AGOA was to stimulate exports from SSA by providing qualifying countries with preferential access to the US market, over and above that which is offered to most other LDCs. The theoretical framework below demonstrates the process through which trade preferences boost exports. It follows that if the US were to remove all remaining tariffs and quotas on exports from all LDCs, some of the preference given to SSA would be eroded, and this would likely impact adversely on exports from some SSA countries.

Nigeria and African Growth and Opportunity Act

The African Growth and Opportunity Act (ACT) was signed into law by president Clinton on May 18, 2000 as a part and parcel of the United States Trade and Development Act 2000 and was billed as a historical turning point in United States- African relations. Since then, AGOA has been the center piece of US trade with sub-Saharan Africa. The legislation provides for preferential treatment of exports from Africa in the duty – free and largely quota – free access to US markets. The legislation, which was to expire in September 2008, has been amended a number of times as reflection in section 3108 of the Trade Act of 2002, AGOA Acceleration Act of 2004, and the African Investment Act of 2006(referred to as AGOA,11,111,IV respectively). In addition to making substantial changes to the original provisions, these amendments have also extended the duration of the Act which is now in effect till September 2015. By granting duty free and largely quota-free access to African exports to United States’ market, AGOA was expected to promote exports to the United States, as well as attract investments to Africa thereby helping to stimulate economic growth. Touted as a transition path for development assistance to economic self-reliance, it was hoped that AGOA would unleash a wave of bilateral trade and United States’ investment in the region, exemplifying a ‘trade-not-aid’ approach to fostering long term economic development (Laura, Karingi, Kimaji & Mekalia 2010).

Furthermore, Okolie (2006: 75) remarked that from its numerous provisions, AGOA is designed to do for Africa and sub-Saharan Africa in particular, what Caribbean Basin Initiative did for the economic development in the Caribbean Basin over the past years. To him, AGOA provides greater duty free access to United States’ markets to African countries that adhere to open market reforms. Therefore open market reforms become major criteria for participating in the Acts’ benefits. He added that AGOA requires an annual review of compliance with AGOA’s eligibility criteria for each country. Citing Reiman (2005:2)”the United States’ President may designate countries as eligible to receive benefits of the Act if they are making progress in eight areas”. The countries must:

1. Establish a market based economy
2. Respect the rule of law, political pluralism and the right to due process
3. Eliminate barriers to United States trade and investment
4. Pursue economic policies to reduce poverty
5. Enforce policies to combat corruption and
6. Protect labour rights
7. Not engage in activities that undermine United States national security or foreign policy initiatives; and
8. Not engage in gross violations of internationally recognized human rights to provide support for acts of international terrorism.

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