Sub-Saharan Africa has been touted as the new frontier for the palm oil sector, and with good reasons. The region consumed an estimated 10.3 million MT of oils and fats in 2019. In addition, palm oil held a consumption share of 69% in the same year. Furthermore, the region’s population of 1 billion are consuming oils and fats at an estimated 15.3 kg annually which is much lower than the global average of 29 kg. A gradual increase in the per capita consumption can create a huge demand in the region especially when it is expected that 100 cities in Africa would have a population of 1 million and above by 2025.
On the 5th of June 2018, Indonesia and Mozambique formally launched trade negotiations to sign a trade agreement and on the 28th of August 2019 signed the Indonesia-Mozambique Preferential Trade Agreement (IM-PTA). According to the Indonesian Ministry of Trade, Indonesia is set to reduce and eliminate import tariffs for 242 products imported from Mozambique, while Mozambique is set to reduce and eliminate import tariffs for 217 products imported from Indonesia. Under the agreement, Indonesia aims to capitalize on Mozambique’s strategic location and facilities as a hub for re-export of palm oil products to Southern Africa. To achieve this, Indonesia proposed for a total elimination of import tariffs for palm oil and its derivatives. As of the signing date, both countries have yet to ratify the agreement. This move is expected to impact Malaysian palm oil trade in Eastern and Southern Africa, which are relatively price-sensitive markets. Malaysia could experience a major market share decline in the region due to a more competitively priced Indonesian palm oil would be offered should the agreement be implemented.
Trade agreements had a track record of significantly improve Malaysian palm oil export share in certain markets, such as India and Pakistan. However, Malaysia lost the market share in the countries due to Indonesia’s move to secure a level playing field in terms of import tariff through trade agreements and captured the market share through their more competitively priced palm oil. In view of this, as a region that possesses huge potential, Malaysia should consider signing trade agreements with African countries in order to gain the first mover advantage and expand the market share in the region. Nonetheless, a trade agreement should not only benefit the palm oil sector. Thus, it is important to consider a win-win situation for the signatories. One such country that may benefit from a trade agreement with Malaysia is Nigeria.
In 2019, Nigeria and Malaysia’s total trade amounted to RM2.89 billion, the third-largest Malaysian trade partner in Sub-Saharan Africa behind South Africa and Cote d’Ivoire. According to the Department of Statistics, Malaysia had a trade surplus of RM1.12 billion with Nigeria and palm oil being the largest contributor towards the Malaysian exports into the country, valuing at RM709 million worth of exports.
|Malaysian Imports from Nigeria 2019|
|HS Code||Description||Value (RM)|
|2609||Tin ores and concentrates.||475,447,803|
|1801||Cocoa beans, whole or broken, raw or roasted.||227,919,286|
|2709||Petroleum oils and oils obtained from bituminous minerals, crude.||100,365,717|
|2711||Petroleum gases and other gaseous hydrocarbons.||59,834,560|
|4001||Natural rubber, balata, gutta-percha, guayule, chicle and similar natural gums, in primary forms or in plates, sheets or strip.||11,493,163|
|Malaysian Exports to Nigeria 2019|
|HS Code||Description||Value (RM)|
|1511||Palm oil and its fractions, whether or not refined, but not chemically modified.||709,337,132|
|2710||Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic cons||329,546,890|
|5501||Synthetic filament tow.||123,791,101|
|1901||Malt extract; food preparations of flour, groats, meal, starch or malt extract, not containing cocoa or containing less than 40% by weight of cocoa calculated on a totally defatted basis, not elsewhere specified or included; food preparations of goods of headings 04.01 to 04.04, not containing cocoa or containing less than 5% by weight of cocoa calculated on a totally defatted basis, not elsewhere specified or included.||121,450,036|
|3401||Soap; organic surface-active products and preparations for use as soap, in the form of bars, cakes, moulded pieces or shapes, whether or not containing soap; paper, wadding, felt and non-wovens, impregnated, coated or covered with soap or detergent.||108,845,414|
Table 1: Malaysia Import-Export Statistics with Nigeria, 2019
Source: Department of Statistics, Malaysia
In the Nigerian oils and fats sector, Nigeria consumed a total of 3.2 million MT of oils and fats in 2019, the largest in Sub-Saharan Africa. Palm oil accounted for 80% of the oils and fats consumption with the country produced 1.2 million MT and imported 1.3 million MT of palm oil in 2019. Although palm oil has a significant consumption, trade barriers imposed by the Nigerian Government had impacted the imports of the commodity into the country. Palm oil imports into Nigeria are subjected to a 35% import tariff for both crude and refined palm oil. In addition, importers are unable to access foreign currency exchange services for imports of selected items which includes palm oil. This move was announced by the Nigerian Government in the effort to boost local palm oil production, reduce their foreign currency outflow, and deter palm oil smuggling into Nigeria from neighbouring countries. Furthermore, in 2019, the Government of Nigeria announced a 180 billion naira ($500 million) in investments to improve the palm oil sector in Nigeria.
Keeping in view that Nigeria and Malaysia are both important trading partners, a trade agreement between the two countries can be beneficial for the palm oil sector in both countries. As any other trade agreements, preferential tariffs can be accorded between the two countries on their top exports. As Nigeria is aiming to improve their local palm oil industry, a preferential investment environment can be accorded to Malaysia in terms of physical investments in Nigeria through a trade agreement. This “quid-pro-quo” agreement could improve the trade and diplomatic relations through the balancing of trade as well as the advancement of the Malaysian and Nigerian palm oil industry. Taking cue of the IM-PTA, this can be an avenue that Malaysia should explore and consider seriously.
Prepared by Fazari Radzi
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