Enhancing Malaysian Palm Oil Trade with ECOWAS

In 2019, Malaysian total trade with countries in Sub-Saharan Africa totalled RM26.780 billion. The trade favoured Malaysia with a trade surplus of RM3.846 billion last year. South Africa, Nigeria, Ivory Coast, and Ghana are among Malaysia’s top trading partners and export destinations. According to Malaysia External Trade Development Corporation, Malaysia’s main products exported to Africa were “palm oil and palm oil-based products, petroleum products, chemicals & chemical products, processed food and machinery, appliances & parts.” (Matrade, 2016)  Malaysia’s main imports from Africa largely consist of LNG, crude petroleum, petroleum products, metals, and ores.

In addition to the high cost of doing business with African countries due to the distance between Malaysia and the African continent, trading with African countries is also not easy as the region has various trade regimes and many trade barriers that need to be overcome. Some of the trade agreements that exist between African countries now are “The Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), Economic Community of West African States (ECOWAS), and Southern African Development Community (SADC).”(USTR, 2020)   Based on the past five years of trade data, Malaysian trade with ECOWAS carries significant importance as the trade between Malaysia with ECOWAS accounted for more than one-third of the total trade between Malaysia with all the countries in the Sub-Saharan region.

Table 1: Malaysian Trade with ECOWAS Countries (RM Billion)

2015 2016 2017 2018 2019
Malaysian Total Export 8.698 7.033 8.093 6.006 6.030
Malaysian Total Import 2.457 2.419 4.462 4.245 4.492
Total Trade 11.155 9.452 12.555 10.251 10.522
Palm Oil Export 6.860 6.411 6.145 5.308 5.243

Source: Dept. of Statistics Malaysia

Palm Oil Export is based on Harmonized System classification codes: HS 1511

Trade figures differ considerably between Malaysia and ECOWAS countries. Top trading nations with Malaysia include Nigeria, Ghana, Ivory Coast, Togo, and Benin primarily due to large imports of Malaysian palm oil. In 2019, Ivory Coast was the largest importer from ECOWAS to Malaysia with an import value of RM2.7 mostly in the form of cocoa, cocoa preparations, and rubber products. Nigeria and Ghana occupied and the second and third largest importer from ECOWAS to Malaysia with import volumes of RM887 million and RM733 million respectively.

ECOWAS

The Economic Community of West African States (ECOWAS)is“a 15-member regional grouping with a mandate to promote economic integration in all fields of activity of the constituting countries.” (Ecowas, 2016)

 The members are Benin, Burkina Faso, Cabo Verde, Cote d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. Primary export of the ECOWAS countries include raw materials, industrialised products and, increasingly, food items. ECOWAS imports on the other hand are quite varied, with industrialised products which include refined petroleum, vehicles, ships, telecommunications equipment and significant volume of food products such as palm oil, rice, and wheat. Despite having huge arable land, Africa is still dependent on food imports to satisfy the needs of its increasing population.

ECOWAS countries as a region consumed the most palm oil in the African continent. Even though palm oil originated in West Africa and is cultivated all over the region, the production is insufficient to cater to domestic requirements. Based on the Oil World estimate, the region consumption of palm oil has increased from 3.76 million MT in 2015 to 4.16 million MT in 2019. In terms of local production, the region produced 2.673 million MT of palm oil last year. In the past 5 years, the average import of palm oil into ECOWAS was about 2.66 million MT per annum.

Figure 1: ECOWAS Palm Oil Production, Import & Consumption (000 MT)

Source: Oil World

Barriers to Palm Oil Trade in Africa

In 1990, the ECOWAS launched “the Economic Trade Liberation Scheme (ETLS) among its member states with the primary objective of establishing a Customs Union aimed at total elimination of customs duties and taxes of equivalent effect and removal of non-tariff to protect goods produced in member states.” (Vanguard, 2015)

While intra-African trade agreements have gradually facilitated a large reduction in tariffs on goods, trade barriers and non-trade barriers remain high to most products imported to the region from non-member states. Tariffs are foreign trade policies measures undertaken by the government to protect domestic production by restricting foreign competition. They are also used as a means for revenue generation, as well as for implementing government policies relative to the development of domestic industries and national exports.

Edible oils including palm oil that originating from outside the region are imposed with import taxes. In palm oil producing countries in West Africa such as Nigeria and Ghana, tariffs are levied on palm oil trade are extremely high. Under the Common External Tariff (CET), “Nigeria levies a 35 percent tax on imports of crude palm oil, palm olein, and palm kernel oil not originating from ECOWAS countries. Under the CET tariffs, these products are subject to a 5 percent ad valorem import tax and a value-added tax of 5 percent.” (Intracen, 2012)

 Ghana imposed a 20 percent tariff on imported CPO, while Togo, Benin and Ivory Coast imposed 10 percent duty on imported CPO. Despite high import duty imposed by most ECOWAS countries, the volume of imported palm oil keeps increasing year after year as the demand for palm oil outweighs supply in all ECOWAS countries except for Ivory Coast. In spite of all that, imported palm oil is still cheaper than locally produced palm oil.

Facilitating Malaysian Palm Oil Trade with ECOWAS

Trade facilitation with palm oil importing countries is essential for Malaysian palm oil export market development; this is particularly true for trade in palm oil with ECOWAS countries. According to World Trade Organization, trade facilitation measures “include removing trade barriers such as lowering tariff rates, support in simplification of trade procedures and the increase in product competitiveness through the facilitation of exports include access to better storage and port facilities, etc.” (Wikipedia)

Trade reforms need to be viewed favourably by both trading partners, exporters and importers alike. The ECOWAS countries must admit that despite having local production of palm oil, the increase in demand necessitates imports from other producing nations from South East Asia. Protectionism policies practiced by ECOWAS countries to encouraged higher local production have not been able to yield the desired results. This is because the region’s palm oil industry is dominated by smallholder farmers, who are still using basic and outdated facilities and methods in the cultivation, harvesting, and milling processes, which leads to lower yields compared to Malaysian or Indonesian productivity. This accounts for the supply-demand gap of palm oil in the ECOWAS as illustrated by Figure 1 above.

Trade facilitation can be used as a tool to enhance food security for the ECOWAS region. Based on Oil World data, in 2019 ECOWAS average per capita oils and fats consumption was only 15.4 kg compared to a world average of 30.8 kg. Trade facilitation aim is to ease border procedures and to facilitate the movement, release, and clearance of goods, to allow traders to move their goods across borders more quickly and easily which will be resulted in reduced cost to exporters and buyers. It also has the objective to make palm oil available to the consumers at a more affordable price. Based on market information, currently, the price of locally produced palm oil sold in the local market in West African countries are more than double than the international price. ECOWAS members should see the facilitation of palm oil trade as an opportunity to achieve their food security objective and to increase per capita consumption of oils and fats.

In the past, especially in the early part of this century, Malaysia stood out as a trailblazer into new markets and industries. Africa at times can be perceived as a more complicated option due to its distance and higher cost of doing business when compared to other immediate opportunities within Asia Pacific markets or other nearby regions. Nevertheless, Africa’s potential to consume and import more palm oil is simply cannot be ignored. ECOWAS countries have the highest overall market attractiveness for market entry for palm oil products given its large population size and growth rates. Existing palm oil demand volume in the region is high and the projected demand growth forecast is also favourable. Palm oil market share constituted more than 80% of total vegetable oil consumed in the ECOWAS.

Now it is the appropriate time for Malaysia to seize this opportunity by maintaining and developing this market further by strengthening cooperation and advocating a greater focus on trade with African countries. Exploring trade agreement with ECOWAS would be a good start towards achieving that goal. Both parties must acknowledge the diverse opportunities in the ECOWAS region which can be tapped by Malaysia and vice versa. Building strong partnerships with African countries is a vital step to achieving greater resiliency for the Malaysian palm oil market diversification.

Reference:

  1. Matrade (2016) http://www.matrade.gov.my/en/jp/archive/3391-matrade-connects-malaysian-companies-with-potential-business-partners-from-africa
  2. Ustr.gov  https://ustr.gov/countries-regions/africa/regional-economic-communities-rec/common-market-eastern-and-southern-africa-comesa
  3. Ecowas (2016)   https://www.ecowas.int/member-states/
  4. Vanguard (2015)   https://www.vanguardngr.com/2015/11/forex-policy-ecowas-and-threats-to-nigerias-economy/
  5. Intracen  2016  https://www.intracen.org/uploadedFiles/ intracenorg/ Content/ About ITC/ Where are we working/Multi-country programmes/Pact II/ Palm Oil Report 2012.pdf
  6. Wikipedia  https://en.wikipedia.org/wiki/Trade_facilitation

Prepared by Iskahar Nordin 

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