Evaluating The Factors Hindering Nigerian SMEs In Lagos From Exporting Under ECOWAS Trade Liberalization Scheme (ETLS)
The questions that the study set out to answer were to identify the factors that are hindering SME manufacturers in Lagos, Nigeria from utilizing the ETLS and also the recommended way out of these factors. The research method was qualitative and data collection was from 24 SME manufacturers and this was done via a one-on-one semi-structured interview with each of the respondents. The data were analyzed using thematic content analysis to effectively communicate the responses obtained from the respondents. The study showed that the major factor hindering the utilization of the ETLS is inadequate information about the scheme and this constitutes about 50% of the factors identified by the respondents. This revealed the reason why Viner’s theory of trade creation and diversion through economic integration did hold as true in Nigerian and West Africa. The recommended way out of this is for the stakeholders like the government, OPS and ECOWAS secretariat is to commence an intensive and continuous sensitization program about the scheme. This author opined that this sensitization program cannot be left in the hand of the government and ECOWAS secretariat who have failed in their responsibilities in the past. It has to be championed by the OPS and SMEs themselves for it to be effective. The type of information about the ETLS required by the businesses includes the existence, endowment, enrolment, expenses, entry, and enforcement right under the scheme. The significance of the research is seen in how the problems of low utilization of ETLS can be solved to alleviate poverty through increased wealth and more jobs orchestrated by trade growth in the subregion.
Introduction
The countries in the West African subregion came together in 1990 to sign a Free Trade Agreement (FTA) called the Economic Community of West African States (ECOWAS) Trade Liberalization Scheme (ETLS). This was done to grow trade volume and development among the member states by removing both tariff and non-tariff barriers (Ken & Aniekan 2013). The export volume of Nigerian businesses to the West African countries has remained very low despite the huge opportunities presented by this FTA signed by members states in the subregion (Nigeria Bureau of Statistics, 2018). This has been attributed to various challenges being faced by Nigerian businesses that have attempted to export products to other countries within the region. The problem that this study is therefore concerned about is the factors hindering Nigerian SMEs from exporting under ETLS and the way out. The research questions, therefore, include the following, what are the factors that are hindering the Nigerian SMEs manufacturers from utilizing the ETLS, and what needs to be done to increase utilization among Nigerian businesses.
In 1950, Jacob Viner used a type of economic integration called the Customs Union, which is usually created through FTA signed by different countries, to propound the theory of Trade Creation and Diversion. This theory stated that both trade creation and trade diversion happen among the member countries who have formed a trading bloc by signing FTA. The FTA induced increase in the volume of trade transactions being done between two countries who are members of the same trading bloc is called trade creation while the FTA induced decrease in the volume of trade transactions being done between a country who is a member of the trading bloc and another country who is not a part of this FTA is called trade diversion (Plummer, Cheong, Hamanaka, 2010). Based on this theory, it is expected that ETLS should create more trade between Nigeria and other countries in the West Africa subregion and decrease trade volume between Nigeria and countries outside this trading bloc, but this had not been the case. (Nigeria Bureau of Statistics, 2018). The reasons why Viner’s theory is not true for Nigeria and many other developing nations have been attributed to the factors that hinder the utilization of FTAs by many different studies around the world.
Various researchers working on FTA utilization across the world have stated in their reports some of the factors that hinder businesses from maximizing the benefits presented to them by the FTAs signed by their governments. The report of the survey done by Tambunan & Chandra (2014) among the SMEs in the Association of Southeast Asia Nations (ASEAN) showed a lack of skill and technology to produce at a competitive rate and the non-availability of raw materials hinders the utilization of the FTA in the region. They went further to state that other constraints include lack of capacity to market their products abroad, lack of information about the peculiar characteristics of the export markets under the FTA, lack of opportunities to network with businesses from other countries that are signatories to the FTA, and lack of technical skills needed to interpret and apply the provision of the FTA in their businesses.
The report of the FTA utilization survey done by Ecorys (2018) for the government of the Netherlands corroborated some of the factors mentioned reported by Tambunan & Chandra (2014). In this report, Ecorys (2018) stated that the factors that hinder businesses in the country from utilizing FTAs signed by the government include the requirements for product modification by FTA, the inadequate information available about the FTA, the documentation required by the Customs, lack of technical know-how to decipher and apply the provisions of the FTA and difficulties in complying with the administrative requirements of the Rule of Origin (RoO).
In the West African subregion, the utilization of the ETLS is very low at around 10% (UNCTAD, 2018) and this has been attributed to various factors that hinder its utilization. Deloitte (2017) reported that lack of information about the FTA is a major hindrance to its utilization. The required information includes profit (benefits of the FTA), products (necessary modification for compliance with RoO), purchasers (export market information), paperwork (certificate of origin, pre, and post export documentation), policy (government plans to support businesses) and the program of implementation of FTA by the government (Ken and Aniekan, 2013). The study conducted by Abiodun, Noah & Abiodun (2012) corroborated the lack of awareness about the benefits of the ETLS and other details required to register their businesses and products to enjoy duty-free access to the West African markets.
Methodology
The research method deployed in this study was qualitative because the data collection and analysis were based on how social realities were understood and expressed by individuals. Therefore, the research method emphasized the experience described by the respondents through words (Jebreen, 2012). The research philosophy was phenomenological because it involves how the Nigerian SMEs manufacturers in Lagos understand and interpret the reasons why they were unable to utilize the FTA in West Africa in their export transactions and hence could not enjoy benefits available to them under the ETLS (Bryman, 2012)
The research design involves data collection from SMEs manufacturers in Lagos and this was done via a semi-structured interview which was conducted on a one-to-one basis with each of the respondents. The sample used for the study was drawn from different SME manufacturers with some of them being members of at least one Organized Private Sector (OPS) organization while others are not. These OPS include the National Association of Chamber of Commerce Industry, Mines and Agriculture (NACCIMA), Lagos Chamber of Commerce and Industry (LCCI), National Association of Small and Medium Scale Enterprise (NASME), and the National Association of Small- Scale Industrialist (NASSI) to mention a few. Also, a few of the respondents were from outside Lagos city. This was done to get divergent views of those who enjoy the value delivered via business support services of OPS and those that do not enjoy such benefits.
As a result of the fact that a limited number of businesses have the experience plus the required knowledge and understanding being researched in this study, the sampling method used for this work was the non-probability purposive sampling method (Hamed, 2016). Luborsky and Rubinstein (1995) recommended a range of 12-26 respondents as a rule of thumb in qualitative research and based on this, the number of respondents used as a sample for this research was 24 SME manufacturers. In addition to this, to ensure flexibility in the way the respondents were asked questions, the data for this study was collected via a semi-structured interview. This enables the respondents to further explain in detail in their answers to the interview questions and this also allows the author to ask further probing questions that are not on the questionnaire (Struwig & Stead, 2001).
A thematic content analysis was done on the data received from the respondents and this involves transcription, checking and editing, analysis and interpretation, generalization, and verification (Sarantakos, 1998). This was done to effectively articulate the feedback received from all the respondents. The collection of data from SMEs that belong to OPS and those that don’t belong to any OPS is to ensure the validity of the data collected. This ensures that the research measures what it was meant to measure, and this makes it possible to generalize the results of the research across different settings (Cooper and Schindler, 2014). To facilitate an audit to check the reliability of the results obtained in this study, and in-depth procedures adopted in this research were provided in this section. The research is not without some limitations which include the inability to work with an equal number of respondents from each of the OPS because of their busy schedule, the results also cannot be generalized across Nigeria because respondents were mainly from the city of Lagos.
Results and Discussion
As shown in tables 1 & 2, the results of the survey showed that the average age of the businesses sampled is 9.25 years while the average staff strength is about 16 personnel. Out of the 24 businesses represented in the study, about 92% (22) of them export either directly or indirectly and only about 30% (9) of the respondents do their shipments to West African countries. The survey also revealed that about 67% (16) of the respondents have heard about the FTA (ETLS) signed by West African countries and only about 4% (1) of the respondents have registered its products for duty-free shipment to West Africa under the ETLS. Out of 22 respondents that have exported before, only 33% (7) of them exported to West African countries while the majority of their export to countries in Europe, America, and Asia. Also, about 33% (8) of the respondents are yet to hear about the existence of the FTA in West Africa called the ETLS. The study also revealed as shown in figure 2, that the channels through which most of the that knew about ETLS are either through general Export seminars (31%) they attended or through programs organized by the Nigerian Export Promotion Council (NEPC) (31%).
Table-1
Table showing Age, Manufacturing Sub-sector, OPS and products of the businesses
Table-2
Table showing Knowledge of FTAs & ETLS, Information Source, and Registration for ETLS
Figure-1
Figure-2
Figure showing Respondents Sources of Information about ETLS
Figure-3
Figure showing Respondents that Export and Their Export Markets
In answering the first part of the research question, the respondents were asked to list the factors that are hindering them from utilizing the ETLS. The respondents raised 25 issues that are hindering them from taking advantage of the duty-free access to the West African market under the ETLS. Out of all the issues raised, about 50% (12) have to do with lack of access to information relating to the existence of the agreement, endowments or profits of the agreement, and the entry process which includes how to register their businesses and products to start enjoying the benefits of the agreement. This is a recurring decimal among the factors that hinder the utilization of ETLS as reported by Deloitte (2017), Ken and Aniekan (2013), and Abiodun, Abiodun, Noah & Abiodun (2012). They all confirmed the fact that their low sensitization and lack of awareness creation about the ETLS among businesses in the subregion is the major reason for the low utilization of the ETLS.
Figure-4
Figure showing Factors Hindering the Utilisation of the ETLS
The next issue raised on the list of factors hindering the utilization of ETLS among Nigerian SMEs in Lagos as shown in figure-4 above is inadequate access to the market and this constitutes about 16% (4) of the feedback from the respondents. This was stated by the respondents as lack of sales contracts from prospective buyers, inadequate export market information, no interested buyers for their products, and high competition result from the presence of producers of similar products in the member states. The report of Ecorys (2018) confirmed this as a challenge that other businesses have regarding the export market under FTAs.
Another challenge that hinders the utilization of ETLS by SMEs in Lagos, Nigerian which about 12% (3) of the issues raised by the respondents is the huge manual documentation and the long processes involved in registering products to obtain the Certificate of Origin (CoO) as evidence of satisfying the requirements of the RoO. The only respondent that has been able to obtain the COO for its products narrated the stress of processing the documents and the huge number of physical papers in multiple copies that need to be submitted for review by members of the National Approval Committee.
In addition to this, the respondents also raised the issue of border and logistics challenge which also constitute 12% (3), and as revealed by the respondents, this is manifested through lack of seagoing vessels for containerized goods within the subregion, high cost of road and air transportation, delay, and extortion by security agencies at multiple roadblocks and checkpoints around the borders of some of the member states. All these costs contribute to the increased export price which makes the products being exported to be uncompetitive in the export markets in the subregion. The high cost of shipment under ETLS created by border agencies and logistics challenges was corroborated in the report of Abiodun, Noah & Abiodun (2012).
The last factor raised by the respondents which hinder the utilization of ETLS by SMEs in Lagos is the local business challenges. This constitutes 12% (3) of the issues raised by the respondents and it manifested through infrastructural deficit which leads to the high cost of production and uncompetitive pricing, inadequate raw materials, and lack of funds to boost capacity to meet domestic demand before looking for markets abroad.
The challenges that hinder the ETLS utilization among the SME manufacturers in Lagos, Nigerian as highlighted by the respondents explain the reasons why Viner’s Theory of trade Creation and Diversion did not completely hold as true in the case of Nigeria under the ETLS. Even though there is a small level of trace creation, however trade diversion is not happening because Nigerian trade with other nations outside of ECOWAS has been on the increase particularly on the import trade (Nigerian Bureau of Statistics, 2018).
Recommendations
To answer the second part of the research question, the survey also asks the respondents to recommend what needs to be done by the stakeholders to reduce the hindrances and increase the utilization of the ETLS. These critical stakeholders that the survey requested recommendations for including the government of the member states, ECOWAS Secretariat, OPS, and the SME manufacturers.
The recommendations made by the respondents to the government on what they need to do to increase the utilization of the ETLS among SMEs are summarized in Figure-5 below.
Figure-5
Figure Showing the Suggestions to Government on How to Increase the Utilization of ETLS
The respondents suggested 30 recommendations (which fall into 5 groups) to the government on what needs to be done to boost the utilization of the ETLS. As shown in Figure-5 above, out of these recommendations, 37% (11) are related to the need to increase the publicity and awareness of the ETLS continuously and aggressively. It was emphasized that the information being passed through this publicity should include the details of the program, the profits of the FTA, the paperwork involved, and the process of registering for the ETLS. With increased publicity comes interest and desire to register products. The respondents want this to be automated, paperless, seamless, and fast. This was the second most important recommendation to the government which is streamlining the registration process for ETLS. This accounts for 33% (10) of the recommendations to the government. Other suggestions to the government on how to increase utilization of ETLS include the creation of enabling business environment to reduce transactions cost, supporting the exporters to facilitate market access in the subregion to increase the volume of export sales, and creation of channels for cheap funding sources to boost production volumes and increase the competitiveness of the Nigerian businesses.
Figure-6
Figure Showing the Suggestions to ECOWAS Secretariat on How to Increase ETLS Utilization
Another important stakeholder in the utilization of the ETLS is the ECOWAS secretariat. The respondents suggested 20 recommendations (which fall into 5 groups) to the ECOWAS secretariat. As shown in Figure-6 above, the need for awareness creation is coming up again and this constitutes about 30% (6) of the suggestions made to the secretariat. Since this was suggested to the government, the secretariat can do this in conjunction with the government of the member states. Another recommendation which also constitutes about 30% (6) of the suggestions made to the secretariat is for them to collaborate with the border agencies of the member state. This will enable the border agencies to be able to easily and quickly validate the CoO presented by exporters at the border and thereby reducing delays at the borders. Other recommendations made to the secretariat which constitutes about 15% (3) of the suggestions include the enforcement of the ETLS protocol. This should be done in such a way that the countries that do not honor valid CoO should also experience retaliatory measures like denial of duty-free entry on their export to member states under the ETLS. The respondents also suggested to the secretariat, the need to organize SME business support program and collaborate with OPS in the member state to gain access to businesses who are their members to deploy the ETLS business support program effectively and efficiently
Figure-7
Figure Showing Suggestions to OPS on Increasing the Utilization of ETLS
The OPS creates a platform where businesses can meet and network for a mutually beneficial relationship. This, therefore, makes the OPS a major stakeholder that is capable of boosting the utilization of FTA. Just like the recommendations to the government and ECOWAS secretariat, the creation of awareness is the topmost recommendation made by the OPS and this constitutes about 32% (6) of the recommendations made them. This is followed by support services to aid market access for their members, and this constitutes about 26% (5) of recommendations made to the OPS. Other recommendations made to the OPS, as shown in Figure-7 above, include advocacy for government to support the business needs of SMEs, support services on business management from OPS to its members, and collaboration with relevant agencies and OPS in the member state.
Figure-8
Figure Showing Suggestions to SMEs Manufacturers on How to Increase Utilization of ETLS
As shown in Figure-8 above, the major recommendations of the respondents to fellow SME manufacturers, which constitutes about 38% (9) out of the 24 recommendations (which fall into five groups) is personal development and self-education on FTAs like the ETLS. The next topmost recommendation to this, which constitutes 25% (6) of all the recommendations in collaboration with other businesses both locally and the member state and this is to foster the synergy for the regional value chain and boost competitiveness. It was also recommended that the SME manufacturers should create time to attend seminars and workshops on ETLS, ensure quality standards for the goods being produced for export and attend international trade fairs and exhibitions held in the subregion.
Conclusion
The study was done to evaluate the factors that are hindering SME manufacturers in Lagos, Nigerian from exporting their goods under the ETLS. The questions that the research set out to answer include the following, what are the factors that are hindering the Nigerian SMEs manufacturers from utilizing the ETLS, and what needs to be done to increase utilization among Nigerian businesses. These questions have been significantly answered via the numerous factors highlighted by the respondents in this study and recommended ways of reducing the impacts of these factors to boost ETLS utilization.
Figure-9
Figure Showing Summary of the Challenges Hindering Utilization of ETLS Among Nigerian SMEs
The study revealed that various factors are responsible for the low utilization of ETLS in West Africa but out of these, the most common one which is also a recurring factor in order FTAs around the world is a lack of information about the ETLS. This is as a result of the low level of sensitization program being done by the government, ECOWAS secretariat, and the OPS. It can be concluded from this study that the low level of utilization of ETLS by the Nigerian SME manufacturers can be improved if it is increased and continuous sensitization among the businesses in the country by the government, ECOWAS secretariat, and the OPS. It can be further inferred that, for this sensitization program to be effective, it must cover the following areas as shown in figure-8 above and these include the Existence, Enrolment, Endowment, Expenses, Entry, and Enforcement.
Existence - many of the respondents are not aware of the existence of the ETLS, therefore the sensitization needs to emphasize the details of the scheme, and this should include the summary of the contents and the implications for businesses
Enrolment - only one of the respondents has been able to enroll for the ETLS and this is because those that are aware of this FTA do not know how to go about registering their products for the scheme. This sensitization program should therefore explain the processes and documentation involved in registering products for the ETLS
Endowments - apart from the lack of understanding of how to enroll for the ETLS, there is no motivation among the businesses to go out of their way to learn how to do it. This is because they are not aware of the potential opportunities presented to them by the ETLS. The sensitization program, therefore, needs to be very clear in communicating the benefits to the business community
Expense - many respondents complained about the cost incurred in the transportation of goods by road in the subregion. This challenge needs to be highlighted in the sensitization program to enable the businesses to do a proper estimation of the cost of delivering the goods to the destination. This will enable them to establish profitability before shipping their goods to the buyers in the member states
Entry - after registering products for the ETLS, the effort will be wasted if the business does not have the funds or know-how to gain access to the buyers in the export market. This is why the sensitization program needs to communicate the program of the government to support SMEs (through funding for production and promotion abroad) that wants to utilize the ETLS in their export transactions
Enforcement - there is the report of demands for bribes and tariffs for goods that have valid CoO by the border agencies of member states, and thus discourage the SMEs from utilizing the ETLS. The sensitization program needs to state what businesses need to do (like a reporting system to ECOWAS secretariat) to be able to enforce their rights under the ETLS.
Author: Bamidele Ayemibo
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