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Trade Policy options for Nigeria: a GTAP simulation analysis

Trade Reports

Trade Policy options for Nigeria: a GTAP simulation analysis

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Nigeria is the most populous country in Africa, but a low income country by the World Bank definitions. Fuels and mining products completely dominate exports, and the US and the EU are the destination for 73% of these exports. Nigeria has effectively duty-free access into both of these destinations, but domestically its own tariffs are high by international standards. The oil sector also dominates production in the economy, and recent high oil prices have ensured a strong trade surplus.

The stalling of the talks in the Doha Round of the WTO in Geneva is leading to questions about the value of such a round for Africa, and similarly there are many who question the value of the possible Economic Partnership Agreements (EPA) proposals for the African, Caribbean and Pacific (ACP) countries. To analyse this for Nigeria this paper uses the Global Trade Analysis Project (GTAP) computer model to simulate (a) a likely outcome for Nigeria from the Doha Round and (b) the impacts for Nigeria of going one step past the EPA negotiations and entering into a full free trade agreement (FTA) with the EU.

Nigeria gains some $198 million from a likely Doha Round outcome, with a loss of $59 million from agricultural reform and gains of $257 million from non-agricultural reforms. By sector, the gainers in Nigeria are heavily concentrated in the oil and gas industry. More importantly, the results from Nigeria entering into an FTA with the EU suggest that there will be gains to Nigeria of some $856 million at 2015. These gains come about exclusively through Nigeria's own reduction in import tariffs to zero on EU27 imports, and this increased welfare stems mostly from an increased investment/capital stock as global manufacturing exports increase as they become more internationally competitive. This is a significant result for Nigeria, and contrary to the widely held belief that opening African manufacturing sectors to international competition will destroy that manufacturing base.

This raises the question as to why an oil-rich country such as Nigeria is reluctant to open its domestic market.


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