The Nigeria and India Trade and others Relationship

ABSTRACT

The establishment of the Diplomatic House in Nigeria in 1958 (two years prior to Nigerian independence) by India laid the foundation for what was to become solid, warm and concrete bilateral relations between India and Nigeria. The subsequent diplomatic and commercial visits between officials of the two countries crystallised and concretised their cooperative ties regarding political, economic and socio-cultural issues. This paper examines the politico-diplomatic, socio-cultural and economic relations between India and Nigeria. Using a historical approach, the paper argues that although in economic terms the balance of trade is in favour of Nigeria due to increasing importation of Nigeria’s crude oil into India, Indian investment activities in Nigeria have exemplified what might be termed an unequal relationship in which India has an edge over Nigeria. Nevertheless, in view of the magnitude of the cordial relations between the two countries, their development potentials and some socio-political and cultural commonalities, they stand a very good chance of further solidifying and enriching their interactions with regard to several important issues, such as the development of democratic institutions and the redefinition of economic relations between the two states. This, the paper argues, would not only strengthen their political and economic relations, but also bring mutual benefits.

CHAPTER ONE

INTRODUCTION

The bilateral relations between the Republic of India and the Federal Republic of Nigeria have considerably expanded in recent years with both nations building strategic and commercial ties.

Oil-rich Nigeria stated recently that India has replaced the United States as its largest crude importer 20 – 25 percent of India’s domestic oil demand. India, however, now purchases some 30% of Nigeria’s daily crude production which currently hovers around 2.5 million barrels. With bilateral oil trade valued at US$10 billion, Indian oil companies are also involved in oil drilling operations in Nigeria and have plans to set up refineries there.

1.1 Background Of The Study

Trade between Nigeria and India nowadays is strategically becoming important and of global considerations because of the increasing need of Nigeria’s crude oil by India and India’s pharmaceutical products by Nigeria. This has significantly boomed bilateral trade relations between Nigeria and India and again expected to further and enhance trade relations between the two countries. Nigeria is now the largest trading partner of India in the whole African continent, because it is the largest market for India’s exports and India also is Nigeria’s second largest trading partner in the whole world (Kabiru & Dilfraz, 2014). The Nigeria’s exports is mostly covered by crude oil which constitutes 95% of the total exports of the country, out of which India patronized 11% of these crude oil exports (Rupa, Saikat, & Aayush, 2010). In addition there are so many agreements that are still been put in place in order to increase supply of crude oil to India from Nigeria in order to help India meet its energy security (requirements). In 2000 there was an agreement between India and Nigeria as per the content of the agreement, Nigeria will be supplying crude oil to India at the rate of 1 20,000 barrels per day and hydro-carbon of 6 MT (Harshe, 2002). In addition to this Nigeria exports cotton, wood, cashew nuts, gum Arabic, pearls, rubber to India while India’s exports to Nigeria is made up of Pharmaceuticals and drugs, wood products, transport equipment, textiles materials, chemicals, plastic and machineries. Trade between Nigeria and India have since 1999 been increasing with trade balance in recent years been in favour of Nigeria (Sulaiman, 2009). Presently now the nature of Nigeria and India trade relation is dominated by commodity trade. India as a country with the growing service sector will now look for other areas to trade with Nigeria in order to boost their trade relation, and help India narrow the current trade imbalance/deficit with Nigeria. (Rupa, Saikat, & Aayush, 2010), have identified the service sectors in Nigeria that requires immediate Foreign Direct Investment (FDI) attention, these are Oilfield services, Health care, Information technology, and Agro based. These sectors of the Nigerian economyif properly look into with huge amount of investment by India as one of the worlds leading service provider will help India in narrowing it trade deficit or imbalance with Nigeria. The rationale behind this study is to establish trade complementarily and similarities between Nigeria and India in order to explore, establish and investigate the commodities of their trade having comparative advantage and those having comparative disadvantage. The study of Nigeria and India trade complementarily and similarities is very much important because of the just recent booming commodity trade between the two countries. Over the last one and half decade the trends in Nigeria and India trade for both import and export has risen which again necessitate the rise in their total trade, and with increased in the number of group of commodities that are being traded between the two nations, the intensity of their trade has become very much significant, as their import, export and total trade intensities are found to be high in these days (Kabiru & Dilfraz, 2014[1]). As a result of the recent rise in India and Nigeria trade with accompanying increase in the number of commodities or sectors traded and the high trade intensity the study centred on exploring complementarily and similarities of trade among them.

1.2 Objective of Study

1. To examine the trade relationship and other relation between Nigeria and India.

2. To examine the relationship between International Trade and Economic Development.

3. To evaluate the disadvantages of International Trade.

4. To study the importance of International Trade in the World.

1.3 Significance of Study

The study reviews bilateral trade relation and other relation between Nigeria and India and how it led to improved and economic growth of the both country. However this study will contribute to the growing body of knowledge in globalization and its linkage with trade policy and will therefore aid researchers who might want to carry out research in related areas.

1.4 Scope and Limitation

The study examines the linkage between Nigeria and India trade relationship It is also limited in part to the information available from books, journals, books and internet resources.

1.5 Research Methodology

For the development of this work and its relevance or contribution to existing works, Articles, text books were consulted. Data which contributes to the development of this research was also gathered.

This research work will make use of historical research method. Hence, findings from secondary sources are sourced; the secondary sources include written documents such as government publications, documentaries and newspapers. Added to these are descriptive accounts of experts on bilateral trade relation and  other relation between Nigeria and India. Desk study will also be made with those considered authorities in the field of history, political science and international relations to complement the other sources. Furthermore, this research work depends largely on archival materials both online and offline. Official publications cited on the websites will also be used. Books, journal articles, conference proceedings, seminar papers and finally other related publications will be used in gathering secondary information for this research.

1.6 Literature Review

Detailed and historical validation has proved that international trade affects economic growth positively by stimulating capital accumulation, industrialization, technological progress and institutional development specifically increased imports of capital and intermediate products, which are not available in the domestic

market may induce the productivity of the manufacturing sector (Lec, 1995).

More active participation in the international market by promoting exports will lead to competition and trade improvements in terms of productivity (Wagner, 2007).

Before the 1960s, research in trade effects was actually limited to a few specific countries, with the development of econometrics, however, many complicated methods based on a mathematical model were introduced to analyse the impact between trade and economic growth. So far, opinion has been divided into two categories. One focuses on the causality relationship between international trade and economic growth to examine whether economic growth is propelled by international trade or the other way round. The other mainly discusses the contribution of foreign trade to economic growth.

The OECD (2003) studies the impact of trade on the average income per population. The result revealed that elasticity of international trade was 0.2 which was statically significant Maizel’s (1963) investigated the impact of international trade on economic growth using a rank correlation analysis among developed countries. The results of the study showed a positive relationship between international trade and economic growth.

Kavousssi (1984), after studying 73 middle and low income developing countries found out that the higher rates of economic growth was strongly correlated with higher rates of export growth. He revealed that there exist a positive correlation between exports and economic growth for both middle and low income countries but the effects tend to diminish according to the level of development. Balassa (1986) and Dollar (1992) argued that outward oriented developing economies achieve more rapid growth than inward oriented developing ones. Sachs and Warner (1995) construct a policy index to analyse economic growth rate and found

that the average growth rate in the period after trade liberalization is significantly higher than in the period before liberalization.

Baldwin (2003) demonstrated persuasively that countries with few trade restriction achieve more rapid economic growth than countries with more restricted policies. As poverty will be reduced more quickly through faster growth, poor countries could use trade liberalization as a policy tool. Trade liberalization reduces relative

price distributions and allows those activities with a comparative advantage to expand and consequently foster economic growth. Poor countries tend to engage in labour – intensive activities due to an over abundance labour supply.

Thus the removal of trade openness measures seem to be positively associated with GDP growth – the more open the economy, the slower the growth rate. On the other hand, trade restrictions or barriers are associated with reduced growth rates and social welfare and countries with higher degree of protectionism, on average, tend to grow at a much slower pace than countries with fewer trade restrictions. This is because tariffs reflects additional direct cost that producers have to absorb, which could reduce output and growth.

Oyejide (1997) also points out the impact of restrictive measures was to produce a large anti-export bias in the African countries. More specifically, restrictions on imports translate effectively into a tax on exports by making import substitution effectively more profitable they increase barriers in these countries by promoting intense economic activity via employment and income to many impoverished people.

Ann Harrison‟s (1991) study makes a synthesis of previous empirical studies between openness and the rate of GDP growth comparing the results from cross section and panel estimations while controlling for country effects. The study concluded that on the whole, correlations across openness measure seem to be positively associated with GDP growth – the more open the economy, the higher the growth rate or the more protected the local economy.

Khan and Zahler (1985) assert that trade can promote growth from the supply side, but if the balance of payments cost reduces the availability of imported inputs which enter the product of exports, thus forcing exporters to use expensive imports of doubtful quality.

In a 1998 study of the role of trade and trade policy in achieving sustained long term growth in African countries, Dani Rodrik (1998) concluded that high levels of trade restriction have been an important obstacle to export performance and growth. He contends that the reduction of these restrictions can be expected to result in significantly improved trade perofamcance in the region.

Fraikel and Roman (1999) and Irwin and Tevio (2002) in their separate and independent studies suggested that countries that are more open to trade tends to experience higher growth rates and per capital in income than closed economy Klanow and Rodriguez – Clare (1997) need used general equilibrium model to

establish that the greater number of intermediate input combination results in productivity gain and higher output, despite using same capital and labour input which exhibit increasing return to scale.

Ghezakos (1973) examines the effect of export instability on economic growth in18 developed and 50 less developed countries separately. The growth rate of export proceeds has a positive effect in explaining the growth rate of real per capita income. Michaely (1977) focuses attention on correction between the rate of growth of export and GNP. Michaely finds that the correlation between rates of growth of the economy is particularly strong among the countries with successful growth experience. Balassa (1978) in his study of eleven countries that have an established industrial base discovers that the positive correlation between export growth and the GDP growth will provide indication of the total effects of exports on economic growth. Shuchin Yang of the World Bank Development institute also maintains that exports are the major dynamic factor in determining

the level of general economic activity in most primary exporting countries. He also argues that if the developing countries do not develop their export, it might mean slow economic growth (Shuchin 1979). Similarly, Bairam (1988) estimates the model for a large sample of developed countries and arrived at the conclusion that the growth performance of a country is a function of the values of its income elasticity of both export and imports.

In the same vein, Perraton (1990) solves the model for 59 developing countries for the period between 1970 and 1984 and report that the model provides a good fit. For almost one half of the sampled countries. This study also suggests that a country growth performance depends on income elasticity of both exports and imports.

Lin and Li (2002) examined the contribution of feign trade to China‟s economic growth and found that the previous studies on this subject underestimated the contribution of exports to GDP growth by over looking the indirect impacts of exports on domestic consumption, investment, government expenditures and imports. They proposed a new estimation method and found that a ten percent increase in exports resulted in a one percent increase in GDP in the 1990s in China, when both direct and indirect contributions are considered. In another study, Wah (2004) reported for the past four decades (1961-2000), the Malaysian economy grew at an impressive average rate of 6.8% per annum. The rapid growth was attributed, in part, to the tremendous success in the export-oriented industrialization policy.

In Nigeria some authors had examined the performance of foreign trade and economic growth. For instance, Oyejide (1974), using Nigeria, as a laboratory test ground that an increase in export proceeds could lead to an expansion.

Ogbokor (2001), investigated the macroeconomic impact of oil exports of oil exports on the economy of Nigeria. Utilizing the popular OLS technique, he observed that economic growth reacted in a used in the study. He also found that 10% increase in oil exports would lead to 5.2% jump in economic growth. He

concluded that export-oriented strategies should be given a more practical support. Oviemuno (2007), looks at international trade as an engine of growth in developing countries taking Nigeria (1960-2003) as case study, he uses four important variables which are export/import, inflation and exchange rate. The results shows that Nigeria exports value does not act as an engine of growth in Nigeria.

(Atoyebi, Adekunjo, Edun and Kadiri (Sep-Oct. 2012), “Foreign Trade and Economic Growth In Nigeria An Empirical Analysis”, IOSR Journal of Humanities and Social Science (JHSS) ISSN: 2279-0837, ISBN: 2279-0845. Volume 2, Issue 1 (Sep-Oct. 2012), PP 73-80 www.iosrjournals.org. Department of Economics, Lagos State University, Ojo, Lagos)