Project Description

CHAPTER ONE

INTRODUCTION

 

1.1       Background to the Study

Development, the well-being of the citizens, the building of more equitable societies, united, in open dialogue with the environment, with solid institutions that not only set goals for countries within the framework of their national policies, but also guarantee good governability, can all be strengthened through international cooperation (Colacrai, 2010). According to this position, different agreements and global agendas promote joint action between developed and developing countries but South-South cooperation plays a decisive role in those global initiatives to eradicate poverty, stimulate economic growth and promote sustainable development. Colacrai (2010: 2) argued that;

in the past 50 years we have observed an endless number of definitions and ideas related to North-South issues, while at the same time seeing the development of the notion of South-South relations.

She further observed that this scenario of international cooperation appears to be taking an important turn, emphasizing the notion of giving new value to South-South cooperation, within which developing countries learn how to better apply the policies and best practices of other developing countries, taking into consideration their national priorities.

Landsberg and Moore (2013) similarly noted that there is a need, with the growth of new, large and influential economies in the Global South, to craft an understanding of South-South Cooperation not just in relation to the Global North, but also by way of defining or establishing ideal relations between countries of the Global South, through South-South cooperation. They noted that the primary elements of South-South cooperation began to crystallize at Bandung in 1955, at the Asian-African Conference. The realization of their common concerns in international affairs led African and Asian leaders to start meeting in the late 1950s, and to begin to constitute a common identity distinct from the world of imperial powers. This position gave rise to the formation of the Non-Aligned Movement (NAM) in 1961. The movement was based on the principles of peace and disarmament, independence and self-determination, economic equality, cultural equality, and universalism and multilateralism. Landsberg and Moore (2013) stated that Southern’ or ‘Third World’ solidarity began as an amorphous concept related to the support (mainly political and economic) offered to countries lacking in industrial development, with a shared colonial experience and a perspective of marginalization in international affairs, by countries sharing these qualities. From the 1960s on, however, ‘South-South cooperation’ gained momentum from the analytical lens known as Dependency Theory, advanced in large part by a number of South American economists, namely Raul Prebisch, Fernando Henrique Cardoso and EnzoFalleto. It was evident in the desire of developing countries, recognizing a subservient role in relation to the advanced industrialized economies, to de-link from these economies and forge stronger economic ties among themselves, which they assumed would be less exploitative and more relevant to their development. According to them, over the years, South-South co-operation has taken the form of capital flows and trade contacts, though these are only now beginning to eclipse the established contacts with traditional Northern economic partners.

Meanwhile, the immediate past Brazilian President, Lula da Silva had countered that the South is not an amorphous complex of underdeveloped and dependent countries that have nothing to offer other than raw materials to wealthy countries. According to him:

Together we can become stronger, not only through the growth of our trade, but also by participating more actively in economic and political forums, such as the World Trade Organization and the United Nations, where questions of great interest to humanity are discussed … Now, a more intense, more creative and a stronger relationship between countries of the South, does not mean that we will abandon our relations with developed countries, which are also important to all of us. Let’s do what developed countries do; take advantage of all opportunities and make our union our strength (Press conference given by President LuizInácio Lula da Silva to media organizations in Algeria-Algiers, February 7, 2006).

 

It has further been noted that in the past decade South-South trade has expanded more quickly than North-South trade. South-South investment too has shown unprecedented dynamism. Investors from the South often have important regional know-how, use appropriate technologies and prove more willing to take business risks in a difficult political environment. A further indicator of the increased importance of South-South cooperation is the fact that countries in the South have become an additional source of official development assistance (ODA) (German Development Institute, 2007). The report noted that data on the actual scale of South-South development cooperation are still fragmentary, and that while the positive sides of the current South-South dynamism are to be seen primarily in the increased inflows of resources, especially to the benefit of poor developing countries, many African states face major challenges because of increased dependence on raw materials and the greater pressure of competition from Asian countries in the case of light manufactures. The high-level dialogues between the G8 and the five leading anchor countries (Brazil, China, India, Russia and South Africa) announced during the Heiligendamm process may help considerably to ensure that benefits are derived from closer South-South cooperation and that conceivable risks are discussed openly. Of late, South-South cooperation has grown rapidly in importance. This is as true of the trend in trade and direct investment as it is of credit relationships between developing countries and of development cooperation (low-interest loans, grants and technical cooperation) (German Development Institute, 2007).

It observed further that over the past decade South-South trade has expanded more quickly than North-South trade. In absolute terms, it rose from US$ 222bn in 1995 to US$ 562bn in 2004. While South-South trade grew by 17.6% from 2000 to 2004, South-North and North-South exports increased by 12.6 and 9.7%, respectively. Total South-South trade accounted for 26% of world trade in 2004. According to the report, the growing importance of countries in the South (especially China, Brazil, India and South Africa) and the concomitant increase in South-South cooperation are also plain to see at the level of global governance, and especially of the World Trade Organization (WTO). There are also many signs that the emergence of the G-20 (agricultural export countries) has transformed the WTO from an organization dominated by the West to a multipolar-oriented institution. South-South foreign direct investment (FDI) has similarly experienced unprecedented dynamism in the past decade. While it reached US$ 14bn in 1995, its value had more than tripled to US$ 47bn by 2003. The increased FDI flows in the South have thus partly compensated for the decline in FDI from the industrialized countries, which, having amounted to US$ 130bn in 1999 had fallen to US$ 82bn by 2003 (German Development Institute, 2007).

As much of the FDI from developing countries has recently been confined to the investors’ own regions, it is becoming more important for countries at the same or lower level of development. In terms of sectoral distribution, the available data indicate that South-South FDI is largely concentrated on the extractive industry and infrastructure/services. Many transnational businesses in developing countries, however, are also investing in other sectors. South-South FDI is often encouraged by various government measures. Besides the extensive removal of restrictions on capital exports, governments of developing countries offer tax incentives and other privileges for investment in other developing countries. In some regional arrangements, such as SADC, ASEAN (Association of South-East Asian Nations) and the Andean Community, provision is also made for special incentives, such as low taxes, tariff reductions and favourable profit-transfer conditions.

The rise in South-South FDI brings new opportunities, but it also poses problems for the recipient countries. A particular advantage is that businesses in developing countries usually have considerable know-how about their region. This is especially true of regional distribution networks and appropriate local technologies and inputs. Developing countries also benefit from the fact that geographical proximity and cultural similarities facilitate the coordination of operations in other countries, and their businesses also tend to be more willing to take the risk of investing in a difficult political environment or in post-conflict situations. However, the actual significance of these favourable opportunities can be assessed only on a case-by-case basis, since by far the most South-South FDI goes to the extractive industry and to infrastructure projects, where linkage and spillover effects that benefit general development tend to be less pronounced.

A further indicator of increased South-South cooperation is the fact that not only the rising powers, but other developing countries too, have become a greater source of ODA flows.

It would seem however that a large proportion of these financial resources are provided by only a few countries and that there is considerable variation from year to year. From 1994 to 2002, for instance, almost 60 per cent of concessionary loans were granted by China. Turkey, Russia and Mauritius accounted for a further 30 per cent in that period. Of these concessionary loans, some 70 per cent went to only 15 countries, foremost among them low-income countries. The sub-Saharan African countries received the largest share of the resources (47%), while Latin America and the Caribbean benefited from about 26.5%.

In the modern world, manufacturing sector is regarded as a basis for determining a nation’s economic efficiency (Amakom, 2012). However, after the discovery of crude oil in Nigeria in the late 1950s, the nation has shifted from its preeminent developing industrial production base and placed heavy weight on crude oil production (Englama, et al. 2010); not only has this jeopardized its economic activities, it also aggravated the nation’s level of industrial growth and unemployment. Nigeria has for long been regarded as a nation blessed with abundant human and material resources; however, the underutilization of these potentials has amplified widespread poverty, low standard of living at individual level and rising unemployment in the country as a result of incessant mono-economic practice and drastic neglect of other sectors of the economy such as agriculture, tourism, mining and the manufacturing industry.

In spite of the country’s vast oil wealth, the World Bank Development Indicators (2012) has shown that majority of Nigerians are poor with 84.5 per cent of the population living on less than two dollar a day. The United Nations Human Development Index (2011) also ranks Nigeria 156 out of 179 countries, which is a significant decrease in its human development ranking of 151 in 2004; and World Bank Development Indicators (2012) have placed Nigeria within the 47 poorest countries of the world. The issue of poverty can be easily traced to mono-economic practice and underutilization of the nation’s endowed resources, especially in manufacturing sector, which could have opened up windows of opportunity in job creation and economic development.

Brazil has come a long way since its days as home to the Western Hemisphere’s lowest GDP per capita. The prudent leadership of Presidents Fernando Henrique Cardoso and LuizInácio Lula da Silva has resulted in quick growth, declining poverty, and an increased international affairs. However, Brazil’s engagement in Africa goes beyond the economic realm. Its profile in Africa has been significantly shaped by its commitment to Africa’s development challenges. Building on its own successful development experiences, Brazil has pledged to assist African partner countries in their efforts to fight hunger and poverty, provide healthcare and attain energy security. By transferring its experience and technical know-how in the implementation of social promotion programmes, Brazil has presented itself as a partner for the continent’s social and economic development and has tried to gather support for its pursuit of a seat at the United Nations Security Council. While Brazil’s strategy of South–South cooperation has contributed to its growing economic foothold in Africa and has been used as a trump card in the competition with China, the benefit of Brazil’s Africa policy goes far beyond pure economic profit. By providing technical assistance, Brazil has raised its profile as a leading power of the South and champion of developing nations. By underpinning its quest for a ‘new multilateralism of the South’ with cooperation projects in Africa, Brazil has gained credibility among developing nations and an international voice as a speaker on their behalf (Williams, 2011).

Brazil’s rapprochement with the African continent over the past decade evolved within this significant foreign policy shift. By fostering strategic alliances with the developing world, Brazil aims to first promote the global South agenda within the current transformation of the international system into a more inclusive and equitable architecture. In the words of Lula: ‘A new global political and economic geography will only be possible if actors with similar interests chose direct dialogue and joint action in international fora’ (da Silva, 2008). Second, Brasília aims to boost its international stature internationally to better reflect its demographic and economic weight. Africa may not yet stand as an important stakeholder in the southern hemisphere, but it surely represents a key constituency. This is of critical importance for Brazil’s pursuit of its international political agenda that includes a permanent seat in the UN Security Council (Alves, 2013).

Brazil’s economic interests in the African continent are equally strong. The emergence of a more stable and dynamic Africa in the 2000s coincided with the globalisation of Brazilian economy. The geological, climatic, economic and social similarities between Brazil and Africa present endless opportunities for Brazilian investors. These include Brazilian technology and expertise in infrastructure construction, tropical agriculture and agribusiness, biofuels, hydrocarbons exploration, mining and telecommunications. The exponential growth in Brazil-Africa trade and investment flows over the past decade clearly reflects this (Williams, 2011).

A closer look at bilateral trade flows highlights a number of distinctive features. Since the late 1990s, trade balance has presented a persistent healthy surplus for Africa as a whole. In 2012, bilateral trade registered a deficit of -$2.05 billion for Brasilia. This is largely explained by Brazil-Nigeria trade flows, its largest trade partner in the continent, with which it has a trade deficit of -$6.95 billion, a result of heavy of oil imports. Brazil has a surplus with most other countries. Another telling feature is that Brazil-Africa trade is very concentrated in a handful of countries. In 2012, four countries alone accounted for nearly 60 percent of Brazil-Africa trade: Nigeria ($9.1 billion), Egypt ($3 billion), South Africa ($2.6 billion) and Angola ($1.2 billion). Brazil’s exports to the continent are relatively balanced by aggregated value: 42% manufactured, 27% semi-manufactured, and 31% basic (Central Bank of Brazil). As for imports, there is a high concentration on natural resources: 66% fuels (oil, natural gas and liquefied natural gas — mostly originating from Nigeria) and 34% raw materials.

It is against the backdrop of the increasing importance of South-South economic cooperation and the divergences in the economic performance of Nigeria and Brazil economic development that this study seeks to examine the economic relations of both countries with respect to trade, cooperation and the participation of Brazil in the Nigerian oil industry and its effect on industrial growth and indigenous capacity development in Nigeria, between 1999 and 2012, as this period marks the emergence of a civilian administration in Nigeria which initiated the process of economic reforms in an attempt to redeem the country’s image in the international system that was battered by many years of military interregnum.

 

1.2       Statement of the Problem

Arthur Lewis (1977) was among those who expressed great faith in a strategy based on South-South trade and co-operation, stating that the LDCs have within themselves all that is required for growth. Vilas-Bôa (2013) countered that this might be true, but that it is a regrettable fact that none of the major co-operation efforts have given any substantial results. According to him, lack of support from the industrialised countries and difficulties overcoming the logic of the existing economic order can, to some extent, explain these failures. One serious obstacle to South-South trade, he said, is transportation. Most international communication lines are North-North or North-South. Following Folke et al. (1992: 232), he stated that ‘This implies that it is often easier and cheaper to send goods long distance South-North and North-South than much shorter distances South-South’. He noted that there are also financial problems, notably the widespread scarcity of foreign exchange. Counter-trade and regional clearing arrangements have tackled this difficulty with some success, but the problem is exacerbated by development aid from the North tied to procurement in the donor countries. A related obstacle is the generous state-sponsored credit terms often offered by exporters from the North.

Despite these structural problems, it is recognised that most Third World co-operative initiatives have neither been thwarted by difficulties with the existing economic order, nor by a lack of support from industrialised countries. A World Bank study by Erzan (1989) concludes that ‘the structure of tariff and non-tariff protection in most developing countries discriminates against products which could be competitively supplied from other developing countries.’ As stated by Cizelj (1983:17), then, there is obviously ‘a substantial gap between the declared common interest of all developing countries on one hand, and their everyday operational policies on the other’. He considers lack of solidarity among partners and a preference for domination rather than interdependence to be one important explanation for the failures. As is stressed by many writers, the Third World is not ‘one world’ but a large number of different countries with different history, culture, level of income, security needs, conditions in the world markets and with different goals. Obviously then, conflicting interests exist, and there is no reason to expect solidarity. A simple illustration is the fact that big and small producers of the same commodity do not easily keep together.

While such broad sweep discussions of the South-South cooperation abound in extant literature, systematic examinations of South-South bilateral co-operations are not as commonplace. Studies on Nigeria-Brazil relations for instance have not adequately articulated how Nigeria-Brazil relations with respect to trade, cooperation and the participation of Brazil in the Nigerian oil industry and has impacted on industrial growth and indigenous capacity development in Nigeria, between 1999 and 2012. Brazil has been a state that has a strong-will leadership that is focused on developing the country and placing her in a position of a medium power within the New International Economic Order. The elite, after the collapse of the military rules, initiated some economic reforms which though faced some hitches, but was still able to launch the country into a new developmental trajectory that placed her as the sixth largest economy in the world.

However, it has been observed that Nigeria is a vibrant country with a lot of economic opportunities, but the Nigerian State remains one that is in constant quest for development as it has always enjoyed the unenviable status of one of the least developed states in the world. Nigeria’s infrastructure is ineffective; transportation is weak, even by Third World Standards; electricity is epileptic and medical services are poor. Despite its wealth, Nigeria’s GDP remains below $3,000 as most of her exports to Brazil are made up of raw materials. The history of industrial development and manufacturing in Nigeria is a classic illustration of how a nation could neglect a vital sector through policy inconsistencies and distractions attributable to the discovery of oil (Adeola, 2005).

Studies by scholars such as Winniefridah (2011); de Silva (2009); Stolte (2012); World Bank (2012); Alves (2013); Alao (2011); Baer (2008); Kirk-Greene (1981); Onwuka and Alike (2014); and host of others have examined the trade and investment relations within the South-South cooperation on one hand, and on the other the technical cooperation between Nigeria and Brazil; and the participation of the Brazilian oil firm and the development of indigenous capability in the Nigerian oil industry. Studies on industrialization see it as a veritable channel of attaining the lofty and desirable conception and goals of improved quality of life for the populace, and discussion and examples of renewed industrial policy initiatives in some countries. Scholars have eminently commented on Nigeria’s industrial policies especially since 1960(Ikpeze, Soludo and Elekwa, 2004; Adejugbe, 2004; Ayodele and Falokun, 2003; Anakom, 2008; Ugbor, 1988; Dare-Ajayi, 2007; Ishiola, 2004; Iwuagwu, 2011).  However, majority of these works reveal an obvious bias for some of the policies, while others in most cases simply criticized without properly analyzing the policies.

It is within the context of the above convergences and divergences that this study seeks to provide answers to the following questions:

1. Did trade and investment within south-south cooperation fail to enhance Nigeria-Brazil economic relations?
2. Has the Nigeria-Brazil relation on technical cooperation enhanced industrial development in Nigeria?
3. Does Participation of the Brazil National Oil Company (Petrobras) in the Nigerian oil industry fail to enhance indigenous capability for oil exploration and production?

1.3       Objectives of the Study

 

The broad objective of this study is to examine Nigeria-Brazil economic relations within the general purview of South-South cooperation. It specific objectives however are:

1. To ascertain whether trade and investment within south-south cooperation failed to enhanced Nigeria-Brazil economic relations;
2.  To examine whether Nigeria-Brazil relations on technical cooperation has enhanced industrial development in Nigeria; and
3. To determine whether the Participation of the Brazil National Oil Company (Petrobras) in the Nigerian oil industry failed to enhance indigenous capability for oil exploration and production

 

• Significance of the Study

 

This study is of two fold significance; theoretical and practical. At the theoretical level, the study seeks to contribute to the gamut of theoretical literature on South-South cooperation generally and on Nigeria-Brazil economic relations in with particular reference on how these relations has impacted on Nigeria’s development. Also, the study will enable us to fully understand how the differing levels of external economic relations and oil import dynamics between Nigeria and Brazil as well as Nigeria-Brazil technical cooperation in the areas of health, education, agriculture and energy interact to impact on the outcome of the bilateral relations between the two regional powers in the areas of trade; implementation of industrial policies; and the development of indigenous capability in the oil industry in Nigeria.

At the practical level the study seeks to provide the intellectual compass and the practical guide that would enable Nigerian policy makers gain greater understanding of the complex web of interactions that constitute international economic relations and equip them to better navigate the creeks, canals and crannies of that relationship. Specifically, it is hoped that the findings of this study would directly or indirectly filter into the policy process and build up the capacity of Nigeria’s policy making apparatus to engage more meaningfully and productively with the global economic system which is capitalist through and which is driven essentially though not exclusively by the enlightened and sometimes not so enlightened self-interest of the member states.

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