How To Make A Country Rich With The Right Trade Policy
The growth, success, and failure of nations are highly dependent on a wide number of factors, but one of such which extra attention is duly given as it determines and builds the wealth of every country is international trade.
Depending on how countries choose to handle their trade policies, they could either be successful or dramatic failures.
Over time through history, nations have mostly either employed the use of Free Trade policies or Protectionism. When free trade is implemented, the countries involved encourage importation, exportation, and relocation of businesses from their countries to other countries in forms of branches, but when protectionism is the norm for a country, imports are highly discouraged with high import tariffs imposed on most products, and also, relocation of businesses abroad becomes extremely difficult for them as their nations have laws that frown greatly against it.
Two great examples of nations that impose free trade and protectionism separately are the United States of America and China.
The United States has operated a largely free trade nation for decades, which has facilitated their growth and development, while China has operated protectionism for decades also, and in the process, facilitated their own growth.
But if these two countries operate two entirely different models, which then is right for other nations to emulate?
In Africa, most countries employ the use of free trade, especially Nigeria, but with little to know valuable achievements being recorded. As a result, the populace may accept protectionism because it implies import laws will be put in place to ensure less is imported and more is exported to build the GDP and economic output. It is also expected that with a protectionist model in place, widespread local production would facilitate and accelerate the creation of jobs in the country since all hands would be on deck to constantly prepare mostly refined and processed goods for export to international buyers.
From the above statement, it appears to seem like protectionism is the best route to take, but it’s ultimately not the best for every nation.
Protectionism, formerly used to be known as mercantilism, is widely of the notion that to grow the wealth of nations, almost everything should be produced within its borders in an extreme attempt to induce almost complete self-reliance in a model called economic autarky.
To make this possible, the governments would have to impose several laws that frustrate foreign companies from effectively competing with the local companies.
But achieving almost total economic independence can only get a country as far as a certain extent because no nation can really attain maximum and efficient productivity in every sector.
For instance, most American manufacturing companies build their factories in Mexico because labour there is cheap and highly efficient, causing the final goods sold to be affordable for Americans when imported back to the country. If the factories were to be built and operated in America, the country’s minimum wage law alone would drive the cost of production high. The tax laws would also play a lot in determining the final price of the goods, and there may not be enough people in the country who simply want to follow through a routine based work model.
As Tim Cook, the CEO of Apple simply put it in an interview with regards Apple running their production in China based on the availability of advanced skillset, he said, “In the US you could have a meeting of tooling engineers, and I’m not sure we could fill the room. In China, you could fill multiple football fields.”
When production is run in a free trade model, companies go abroad to produce items based on the quality skill and cost of products available there, which would result in cheaper costs when imported into their own countries, but when manufactured locally they could be extremely expensive.
The advantage that well-managed free trade policies provide is that it enables nations to focus on their strengths and provide jobs within those confines, while they import what would have cost so much more to produce locally and in the process would have created a wide plethora of jobs that the government cannot even pay the salaries for since there’s no financial value gotten from the protectionist model.
My Position for African Nations, Especially Nigeria
While protectionism is what the African people, especially Nigerians, unconsciously clamour for so that there can be a wide array of jobs, position Nigeria as a global trade hub, and build complete independence from other countries, achieving this would be almost impossible.
There’s an extreme vocational skill-set limitation in Nigeria, and potentially Africa. In Nigeria for instance, the most vocationally active people are people from Aba in Abia State and Nnewi in Anambra State. This is so because over 50% of what’s manufactured in China can be manufactured in Aba and today almost every hardware tool can be manufactured in Nnewi with examples of manufacturing companies there like Innoson who manufacture automobiles, engines, and even machinery for the Nigerian military. So many things are fabricated in Nnewi for so many different types of industries.
But the key problem these two locations have is the volume and quality of skillset.
While there’s public knowledge that they may have the technical know-how, most of the production processes are not fully efficient, leading to the manufacturing of lower standard goods, especially fashion items. Most industries that also try to process materials for export do poorly at those, causing their international clients to stop purchasing from them after a while.
Another area to look at the high costs of local production that makes foreign purchases better off to an extent is in the fashion industry. When fashion items are sewn in Nigeria, their prices end up expensive, and as such, can be barely exported to other countries, talkless of even been sold locally. This cost ineffectiveness then creates meaning to the fact that importing fashion items could be better for the Nigerian economy than making them locally.
In the end, the best fashion items that should continue to be manufactured locally should only be traditional attires which foreign countries Nigeria already imports from cannot yet produce at the cheapest possible scale.
To make free trade highly effective and workable for African nations, three things need to be done to facilitate a sustainable long-term plan:
1). Create A Culture Of Vocational Skill Learning:
When acute vocational skill learning programs are introduced into the academic process right from the primary level till after the tertiary level, Africa, especially Nigeria, would grow a new generation of manufacturers who would be highly skilled at key areas and would make the manufacturing industry blossom in their respective countries, thus facilitating exportation.
2). Provide Affordable and Uninterrupted Electricity:
Industries cannot thrive without sustainable and affordable electricity. To put the skills acquired through vocational training to good use, the manufacturing companies they work for must have steady and affordable electricity to power their machinery, so they can meet up to the global demand of international clients for various goods and services.
3). Impose Import Restrictions On Items That Can Be Locally Manufactured Cheaply And Efficiently:
Every nation has its strengths and weaknesses. If manufacturing something locally is going to cost far more money than importing it into the country, its a no-brainer to go ahead to promote local manufacturing of that commodity. The same applies to commodities that can be efficiently and more affordably manufactured locally than if imported.
A highlight on the commodities whose local manufacturing makes economic sense should be promoted and heavy import duties on the foreign counterparts should be imposed. This way, the exponential growth of those industries would not just provide local jobs for the populace but would position the country as a hot global trade spot for the purchase of those items.
To Sum It Up
Deciding to go the free trade route like America or the protectionisim route like China ultimately lies on the economic implications it could have on the country in the long run. While protectionism may seem to be an attractive option, it is a poorer alternative in the long run, and even world-renowned economist, Adams Smith, argued at several points that the best way for any country to grow wealthy was not to try to produce everything by itself, but to instead focus on its strengths and let others supplement its weaknesses affordably.
With properly managed and regulated free trade, Nigeria and other African nations will eventually thrive.
The thought-process that currently drives the people living in these nations towards protectionism or mercantilism is the poor state in which the countries have implemented trade policies and failed to provide the institutions that would make them thrive.
About The Article
This is an opinion and analysis posted by Stan Edom, a Nigerian citizen and Editor In Chief of Startuptipsdaily.com.
The Opinion and Analysis section is committed to nation building efforts through empowering expert writers to air their views on the best ways to solve national issues and move nations forward.
Opinions and Analysis will be published every Friday.
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