The African Continental Free Trade Area (AfCFTA) represents the first opportunity in Africa’s history to economically integrate the continent’s over 50 countries and pursue greater prosperity based on free trade and continued economic liberalisation.
The Lagos Plan of Action of 1980 was the foremost policy plan by African leaders to create an “African Common Market ” but who would have thought that it would take decades and a new policy initiative to reach fruition? The AfCFTA was introduced at the African Union (AU) Summit held in Kigali, Rwanda on March 18, 2018.
AfCFTA became controversial when South Africa and Nigeria, the two biggest economies on the continent, did not sign the agreement at inception. However, in July 2019, these two countries eventually signed, leaving Eritrea as the only country that didn’t sign the agreement of the fifty-five AU member states. The COVID-19 pandemic however delayed the implementation of the AfCFTA agreement but it eventually went into effect on January 1, 2021. Sadly, it has been a slow ride for the economic union as it just commenced pilot trading with seven countries in July 2022.
Nigeria and Free Trade
Obviously, Nigeria has always been at the centre of economic and regional integration in Africa. The country has signed free trade agreements (FTAs) as a member of regional and continental trade integration initiatives including the Economic Community of West African States (ECOWAS), AfCFTA, and international free trade treatise with the World Trade Organization (WTO), amongst others.
However, she has had to deal with negative spillbacks of FTAs such as smuggling, dumping of goods and illegal inflow of small arms and drugs. In August 2019, Nigeria closed its land borders to trade to reduce these spillbacks and protect local manufacturers. This move proved unproductive and the border was reopened in December 2020 amidst the aftershocks of the COVID-19 pandemic.
As much as the border closure highlighted the country’s preference for protectionist economic policies as a way of boosting growth and reducing unemployment, this time, trade officials revealed that the closure resulted in new smuggling routes for illegal produce and arms. Another protectionist policy that Nigeria upholds is the prohibition of about 26 goods from being imported into the country. Also, the Central Bank has denied foreign exchange at official market rates to importers of more than 40 other goods.
The aforesaid positioning has made experts maintain that Nigeria’s trade policies have only grown more restrictive despite signing myriads of FTAs. In fact, President Buhari’s reluctance to sign on Nigeria to the AfCFTA was initially supported by Nigeria’s labour union and local manufacturers, despite its obvious gains. But, these unions made a u-turn following the setbacks from the pandemic and the resulting economic recession that the country had to deal with.
Subsequently, the Nigerian government, stakeholders and experts have opined that the AfCFTA’s full implementation is the country’s best chance to optimise its manufacturing sector and boost the contribution of micro, small and medium-sized enterprises to intra-African trade
Opportunities for Nigeria in the AfCFTA
Establish an African Supply Chain
Research has shown that the absence of information is a huge disadvantage to free trade, especially within the African continent. Victor Asemota, a tech investor explained that Africans have little information about each other and their comparative cost advantage. But an AfCFTA framework that focuses on digital trade and information like the AfCFTA Hub but more encompassing will improve intra-African trade activities tremendously.
Nigeria’s manufacturing output increased by almost 60 per cent to N7.03 trillion in 2021, despite struggling with myriads of challenges. When AfCFTA gets fully implemented and infused with digital technology and information, it will be an opportunity for Nigerian manufacturers to play significant roles in a continental supply chain that caters to manufacturing and effective distribution of goods.
Increased access to raw materials and means of production
Nigeria’s tomato processing factories, for example, are lagging behind due to inadequate storage facilities, insecurity issues, and stringent government policies. This has led to a rise in production costs and retail prices of tomato paste across the country. But, the AfCFTA’s implementation would give Nigerian manufacturers access to tomatoes through importation from neighbouring African countries. Other manufacturing sub-sectors will also have unfettered access to raw material inputs and alternatives to production within the continent.
Create new markets for finished products
The pilot trading of the AfCFTA is being operated using modalities and tariff schedules submitted by participating countries. Tariffs have been eliminated on ninety per cent of goods traded under AfCFTA over a 5-10 year period and 7 per cent of goods with tariff lines will be phased out over 15 years and the remaining three per cent goods will be excluded from tax exemption.
With these progressive tariff cuts, Nigerian manufacturers and entrepreneurs get to move into new markets and increase their market value. Though Nigeria is not participating in the pilot trading, its tariff schedule will be released when AfCFTA is fully operational and will attract business and producers from other African countries to the Nigerian market.
Boost Micro, Small and Medium Enterprises (MSMEs)
The biggest employer of labour in Nigeria remains MSMEs. As of June 2020, a PWC survey revealed that MSMEs account for 96 per cent of the total number of businesses in the country and contribute about 50 per cent to the national GDP. Nigeria has recorded success with signing the Companies and Allied Matters Act (CAMA) 2020 but needs more policy initiatives to boost MSMEs’ contributions.
This is where AfCFTA comes in, when it becomes operational, the Nigerian government will have to show their hands with policies that deviate from protectionism but promote economic growth and provide more employment opportunities.
In essence, AfCFTA has the benefits of positioning Nigeria as a continental trade power but there is a need for the government to follow it up with progressive policy initiatives.
What are the expected challenges?
Low Intra-African trade
Intra-African trade is notoriously low. In 2020, intra-African trade accounts for merely 16 per cent of the continent’s total goods trade. Trade relations between Gambia and Senegal are just beginning to officially open up, while tensions still mar trade relations between Eritrea and Ethiopia. Research has found that Inadequate trade-related infrastructure, lack of financial access, restrictive customs procedures, and extensive political uncertainty plays a significant role.
It should be noted that trade protectionism among some African countries including Nigeria can also be a challenge to realising the full potential of the AfCFTA.
Poor quality of roads and weak transport infrastructure affects trade generally. Inadequate infrastructure in the continent includes a lack of road networks to connect the sixteen landlocked nations and inefficient alternative means of transporting goods between neighbouring countries. The lack of suitable transport infrastructures such as roads and rail networks put pressure on ports which causes port congestion and associated problems.
Conclusively, the AfCFTA presents Nigeria with an opportunity to diversify its trade sector and grow its non-oil exports. However, this can only happen when the government creates progressive policies that will secure Nigeria’s place within the continental union as a major player.
It is no longer a case of low resources for Nigeria but a situation of how to maximise available opportunities like the AfCFTA to ensure that these resources bear positive returns for the economy and its ever-growing population.