Soludo, US Inflation Reduction Act and Anambra’s industrial development    

The relatively recent Anambra Investment Summit 2023, which commenced on September 7 with the theme ‘Laying the Foundation for a Prosperous and Smart Mega City’, highlighted the drive for increased international investment opportunities by the government of Anambra state. The presence of multilateral and international stakeholders at the summit, such as the Resident Coordinator of United Nations in Nigeria, the World Bank Country Director, the Chinese Ambassador to Nigeria, the African Export-Import Bank (Afreximbank), and other stakeholders, further demonstrates the economic aspirations of the government of one of the most industrial-based subnational government in Africa, in an increasingly competitive global environment.

There are however policies by certain foreign governments, and geopolitical trends, that can serve as leverage for such economic aspiration, if strategically managed. The manufacturing potentials of the United States (U.S.) Inflation Reduction Act of 2022, is one of such policies that Governor Chukwuma Soludo of Anambra State of Nigeria can harness, for the mutual benefit of industrial organisations in Anambra state, with appropriate leadership.

What does the U.S. Inflation Reduction Act entail for industries?

The Inflation Reduction Act of 2022 (IRA), officially ‘An Act To provide for reconciliation pursuant to title II of S. Con. Res. 14.’, was passed by the 117th United States Congress and signed into law by President Joe Biden on August 16, 2022. Though designed to reduce inflation by possibly reducing the federal government budget deficit, lowering prescription drug prices, and investing into domestic energy production while promoting clean energy, the law has certain provisions that affect investment and manufacturing activities, with international implications.

Among the objectives of the U.S. IRA 2022 is to boost economic competitiveness of the U.S. made products, including vehicle manufacturing and other forms of clean technologies. The Act therefore provides subsidies and tax credits worth up to $1 trillion across the climate economy, with compliance with Local Manufacturing Requirements (LCR) as a key condition for accessing the benefits of the Act. Electric vehicles and other green technologies may access up to $369 billion of subsidies and tax credits, as part of the Act.

The provisions of the U.S. IRA 2022 have raised significant concerns among major countries and governments of the world, who value their economic relationship with the U.S., the world’s largest economy. The Act comes across as protectionist, and potentially hinders the competitive access of products from other countries to the U.S. As a result, responsive governments such as the United Kingdom (UK) and the European Union (EU), have engaged the U.S., in attempts to protect the economic interests of their countries.

The UK Prime Minister, Rishi Sunak, met with President Biden and the U.S. government, as part of negotiations to ensure British firms and automotive sector can be eligible suppliers for US companies, seeking tax credits under IRA. This culminated in ‘The Atlantic Declaration for a Twenty-First Century U.S.-UK Economic Partnership’ on June 8, 2023, otherwise called the ‘Atlantic Declaration’. The Atlantic Declaration includes commencement of negotiations on a Critical Minerals Agreement (CMA), which covers cobalt, graphite, lithium, manganese, and nickel- which are among the most important minerals required for the production of electric vehicles. These minerals are extracted or processed in the UK, and are therefore eligible toward sourcing requirements for clean vehicles that qualify for the Section 30D clean vehicle tax credit of the U.S. IRA 2022. The UK automotive industry is therefore a potential beneficiary of the Act, as the UK is a net exporter of these materials for EV batteries to the US. With the CMA, companies in the U.S. that source or process those materials from UK firms in the UK, qualify for tax credits and subsidies under the IRA. As such, incentives are provided to U.S. firms that buy these minerals from firms in the UK.

The EU raised similar concerns about the implications of the U.S. IRA 2022 on EU firms. And this was further discussed during 27th U.S.-EU Summit on October 20, 2023. Similar to what obtains in the Atlantic Declaration for the UK, the negotiations on the Critical Minerals Agreement are expected to address some of the economic concerns that the EU has about the Act. Negotiations on the CMA should potentially make batteries produced in the EU eligible for IRA subsidies for electric vehicles, for more mutual market access.

Essentially, countries and governments with the right leadership are engaging the U.S., to create means of better and continuous access to the U.S. market.

That type of leadership is fundamentally what is expected of Governor Chukwuma Charles Soludo. A professor of economics, Soludo had prior to becoming Governor of Anambra State, had working stints with major multilateral organisations such as the International Monetary Fund (IMF), World Bank, United Nations, University of Cambridge, University of Oxford, Brookings Institution, among others. He has also been Governor of the Central Bank of Nigeria (CBN), Presidential Economic Adviser and Chief Executive of National Planning Commission of Nigeria.

Soludo therefore has the worldview and capacity to attempt this challenging task of engaging the U.S. on the IRA as a subnational government, in a manner that facilitates Anambra-based companies such as Innoson Vehicle Manufacturing (IVM) at Nnewi, and their production supply chain, access to the U.S. market and subsidies under the IRA. IVM has since 2021 commenced the manufacturing of vehicles that run on compressed natural gas (CNG), and has announced plans to begin the manufacturing of electric vehicles (EV). The CNG-run vehicles and EVs of IVM align with the environmental objectives of the IRA, and provide a framework for access to the U.S. market, for vehicles and technologies produced in Anambra. This will be very beneficial to Anambra-based vehicle manufacturers, given the higher purchasing power in the U.S.

The decision of IVM to commence EV manufacturing in Nigeria is because major components, materials and minerals for EV manufacturing, are available in Nigeria. Therefore, Nigeria as a whole is a beneficiary, with the opportunity for increased valued-added mineral export from Nigeria, in line with government objectives for the mineral sector, as promoted by the Ministry of Solid Minerals.

And the proposition for Soludo to engage with the U.S. on IRA as a subnational, is not unrealistic. The Anambra state government had on November 10, 2023 at the recent 3rd Intra-African Trade Fair (IATF) 2023, held in Egypt, signed financial advisory mandates worth two hundred million dollars ($200 million) with Afreximbank, for a number of economic initiatives in the state. Among the trade expansion platforms available from Afreximbank is the African Sub-Sovereign Governments Network (AfSNET). AfSNET is a dedicated mechanism that subnational governments can leverage to promote trade, investment, industrialisation and development. Therefore, the negotiations of Anambra state with the U.S. regarding the IRA, can come with multilateral institutional support from Afreximbank, if need be.

The agreement between Anambra state government and Afreximbank bank also includes the establishment of bankability for key projects, that include the Ikenga Mixed-Use Industrial City, the Anambra Export Emporium, the Akwaihedi Unubi Uga Automotive Industrial Park, as well as any other project agreed upon by the parties. Soludo and Afreximbank should ensure that these economic projects, especially automotive products from the Uga Automotive Industrial Park and industrial products from the Ikenga Mixed-Use Industrial City, are structured in a way that also make them eligible for benefits of U.S. IRA, in addition to creating pathways for existing companies such as IVM to export to the U.S.

With an industrial city at Nnewi, a commercial city at Onitsha with one of the largest markets in West Africa, a river port along the River Niger at Onitsha, a capital city at Akwa, crude oil production in the state, and the Chinua Achebe Airport that is on course to commence international operations, Anambra is well positioned to harness emerging opportunities in the international economic system, with a leader that has the desired worldview.

As such, Soludo should be able to go beyond the opportunities in U.S. IRA 2022, and facilitate pathways for manufacturing firms in the state, to become key parts of the value and supply chain of U.S. companies. The geopolitical trend that has seen U.S. firms seeking alternative manufacturing and supply chain locations away from Chinese and Russian influence, provide strategic opportunities for the manufacturing sector in Anambra. With a demography that is traditionally pro-western, similarities in education, affordable production, innovative human resource, and a significant diaspora in the U.S., manufacturing firms in Anambra can indeed secure expanded U.S. market access, if Soludo can continue to provide the required leadership. It is no mean feat, but Soludo has the training and skill set to actualize such propositions. Indeed, the financial agreements and partnership with Afreximbank which he inspired, is some demonstration of Soludo’s ability to successfully deliver on international investment deals.

In addition to the IRA 2022, there is the African Growth and Opportunity Act (AGOA), and the U.S.- Africa Leaders Summit, which provide institutional platforms for businesses and leaders in Africa such as Soludo, to facilitate access to the U.S. market. Nigeria has been an eligible country since the commencement of AGOA, and automotive components have been among exports to the U.S. by some eligible countries. Automotive products from Anambra can strategically fit this objective. The geopolitical interests of the U.S. in Africa, which its tries to manage through platforms such as the U.S.- Africa Leaders’ Summit, is an additional strategic option for such economic aspiration by Soludo.

At the last Summit in December 2022, there was the U.S.-Africa Business Forum (USABF), hosted by the U.S. Department of Commerce, the U.S. Chamber of Commerce, and the Corporate Council on Africa, in partnership with the Prosper Africa initiative, as a major step in strengthening commercial ties between the U.S. and Africa. USABF focused on advancing two-way trade and investment partnerships that bolster Africa’s role in the global economy, scale innovation and entrepreneurship, and drive advancements in key sectors. Soludo can therefore leverage on the objectives of the USABF in boosting Africa’s role in the global economy with automotive sector exports to the U.S., through IRA eligibility for IVM and other firms.

Soludo has to make the effort to negotiate, as the objectives of these partnerships do not just come by. As the title of Chester Karrass 1996 book goes, ‘In Business As in Life, You Don’t Get What You Deserve, You Get What You Negotiate’. Therefore, Anambra’s industrial sector will get what Soludo can negotiate, not what it deserves from these bilateral platforms. Rishi Sunak negotiated U.S. IRA market access for UK businesses, while EU political leaders negotiated U.S. IRA market access for EU businesses.

Soludo’s policy visions for Anambra have been premised on attaining comparable development with Taiwan and Dubai. The Asian tigers, and what we may now categorise as ‘Arab Tiger’ economies of United Arab Emirates (UAE), Qatar, Oman, found ways of negotiating better positions for themselves and their economies, in the international economic system. It remains a dynamic process, with the Kingdom of Saudi Arabia and UAE, both traditional U.S. allies, now also maintaining good relationships with Russia, China, Iran and Israel. Soludo should find Solutions.

Olusegun Obasanjo, former President of Nigeria and Soludo’s political mentor who appointed him as Central Bank Governor and Presidential Economic Adviser, had mentioned that he was disappointed when Soludo informed him of his desire to become state governor at subnational level. For Obasanjo, Soludo belonged to national and international governance, not sub-national. Perhaps, Soludo’s ability to effect partnerships such as with the U.S. for enterprises in Anambra, will further assure Obasanjo that his mentee is still on the desired national and international pathway. On the question of feasible markets for IVM and other Anambra made products in the U.S., Ndi-Anambra diaspora in U.S., that include Nikolas Ajagu, and Americans increasingly desirous of products with African input, will to be encouraged to purchase IVM and other technologies, with IRA making them more affordable.

Facilitating strategic cooperation between manufacturing firms in Anambra and U.S. firms, will sustainably enhance the development of advanced technologies by Anambra, Nigerian and African firms. This is essential, given how poorly firms from the African continent have fared in contemporary technology development.

Negotiating opportunities for automotive and processed mineral export to the U.S. market for Anambra-based firms via IRA 2022, will be similar to concessions granted to UK and EU firms, due to adroit leadership. Soludo is not only a beneficiary of the University of Nigeria, promoted by Dr. Nnamdi Azikiwe (Zik of Africa), ‘to restore the dignity of (black) man’, he is also Governor of Anambra, Zik’s home state. He can therefore through this effort designed to secure an economic place for Anambra-based firms in the U.S., restore some dignity for the continent beyond the need for aid, in contemporary technology development driven partnerships, while also providing inspirational leadership. Innoson Vehicle Manufacturing started vehicle manufacturing with scores of expatriate engineers, but today, all those tech roles are done by Nigerians. A testament to what is achievable. And in cementing manufacturing and economic relations between Anambra and the U.S. through the U.S. Inflation Reduction Act 2022, Soludo would have been able to ‘cement all cementables’, as Kingsley Ozumba Mbadiwe, the U.S. educated legendary Nigerian politician will put it.

Dr. Uwanaka writes from African University of Science and Technology, Abuja. [email protected]