The recent developments in West Africa, including the withdrawal of Mali, Niger, and Burkina Faso (Sahelian 3) from the Economic Community of West African States (ECOWAS), paint a picture of regional instability with significant implications for businesses across the region. It is therefore imperative to examine the potential impact on Nigerian businesses, and analysing the risks and opportunities occasioned by the development.
Exit from ECOWAS: A Double-Edged Sword
ECOWAS’s original objective is economic cooperation; though has now evolved into political and military cooperation. Established by the signing of the treaty in May 1975 in Lagos, Nigeria remained the powerhouse of ECOWAS leading in military interventions, financial contribution, and as well taking the larger share of commerce across the region. This has made many Nigerian corporations invest in the countries across the region; fostering cross-border trade. The departure of Mali, Niger, and Burkina Faso from ECOWAS represents a significant fragmentation within the regional bloc. While this may raise concerns about reduced economic cooperation and trade barriers, it also presents potential opportunities for Nigerian businesses.
Counting the Cost
Undoubtedly, the implications are enormous for cross-border trade, and other businesses which are directly or indirectly linked with these countries. Two of the challenges such businesses may face are highlighted below.
The exit of the three Sahelian countries from ECOWAS jeopardizes the free movement of goods and services, a cornerstone of regional economic integration. According to a record by the ECOWAS Trade Information System (ECOTIS), the trade volume in the region is more than $277B. Nigerian businesses exporting to these markets could face increased tariffs, delays, and administrative hurdles. This could particularly affect sectors like manufacturing, agriculture, and Fast-Moving Consumer Goods (FMCGs), heavily reliant on regional trade.
Businesses with established supply chains spanning the affected countries might face potential disruptions due to border closures, transportation delays, and potential instability. This could impact access to raw materials, finished goods, and critical manpower, leading to production slowdowns and increased costs.
Another concern is the potential disruption is international flight routes. Niger Republic being the route to Europe from Nigeria poses a threat of increased airfares if she closes her air space to Nigeria-bound flights and out-bound flights from Nigeria. This will significantly impact aviation industry operations, loss of manpower hours if flights are re-routed and consequently pass the cost to the passengers.
Also, the current political climate creates uncertainty for foreign and domestic investment in the region. This could deter Nigerian companies from expanding operations or exploring new ventures in the affected countries, impacting economic growth and job creation.
The political turmoil and growing presence of extremist groups in the Sahel region could spill over into Nigeria, exacerbating insecurity and potentially increasing security risks for businesses. This could lead to increased security costs and operational disruptions.
Also, companies can have reputational risks operating in regions with political instability and security concerns which can negatively impact their reputation and brand image, potentially affecting consumer confidence and investor sentiment. Additionally, the short-stay/service workforce especially the ones from ECOWAS countries with a 3-month visa moratorium are at risk of being illegal immigrants as their ECOWAS Visa-free will be rendered invalid.
Amidst these challenges are opportunities waiting to be taped. While trade with these Sahelian countries might face challenges, Nigerian businesses can explore alternative markets within the remaining ECOWAS member states or look beyond the region for diversification.
Nigeria, with its economic and political clout, can also play a crucial role in mediating the crisis, promoting regional stability, and advocating for a peaceful resolution. This could enhance its leadership role and influence within the region.
More so, the current situation might encourage Nigerian businesses to focus on the vast domestic market, exploring opportunities for import substitution, local production, and value addition. This could foster domestic economic growth and create new employment opportunities.
In this complex scenario, Nigerian businesses need to adopt a cautious and proactive approach. Some of these approaches are shared below;
Risk mitigation strategies: Businesses operating in the region or planning expansion should develop robust risk mitigation strategies, including contingency plans for supply chain disruptions, security protocols, and insurance coverage.
Diversification: Diversifying markets, product offerings, and supply chains can help businesses reduce dependence on any single country or region, making them more resilient to external shocks.
Regional Collaboration: Building strong partnerships with local businesses and stakeholders in the region can provide valuable insights and support in navigating the complex operating environment.
Engaging with Policymakers: Actively engaging with Nigerian and regional policymakers to advocate for policies that promote regional stability, trade facilitation, and investment security can contribute to a more conducive business environment.
Focus on Compliance: Ensuring adherence to international trade regulations and ethical business practices is essential for maintaining good standing and reputation.
Encourage Peacebuilding: Nigerian businesses can contribute to regional peacebuilding initiatives, fostering long-term stability and creating a more conducive environment for economic growth.
This development may pose a challenging environment for Nigerian businesses. However, by understanding the risks and opportunities, adopting a proactive approach, and leveraging their resilience and adaptability, Nigerian businesses can sail through the turbulent waters and emerge stronger in the long run. The key lies in diversification, risk management, strategic partnerships, compliance, and active engagement in promoting regional stability. As the situation unfolds, continuous monitoring and adaptation will be crucial for Nigerian businesses to thrive in this precarious time.
Research & Advocacy Department,
Chartered Institute of Directors (CIoD), Nigeria
28, Cameron Road, Ikoyi, Lagos.