AFCFTA

BY EMEKA EJERE

The African Continental Free Trade Area (AfCFTA) agreement will unlock significant growth opportunities on the continent but the benefit derivable from the single large market will depend largely on how well the business communities in individual member nations position themselves.
The African trade pact aims to bolster intra-regional commerce by lowering or eliminating cross-border tariffs, facilitating the movement of capital and people, promoting investment and paving the way for the establishment of a continental-wide customs union.
Nigeria, on account of productivity deficit, does not stand a good chance of reaping more benefit than cost from the project, at least for now. But the government, not oblivious of the reality, is making efforts to step up production of goods and services in terms of quality and quantity, though with no clean-cut timeframe.
Besides, the huge population and large economy that give Nigeria advantage over other member nations, ironically also make it vulnerable to the downsides of the agreement.
On January 1, trading under the AfCFTA officially commenced after years of planning and negotiations, and after facing delays due to the COVID-19 pandemic. While the AfCFTA has great potential to support economic development on the continent, because of internal inefficiencies within businesses or suboptimal business environments, many Nigerian enterprises may not be able to take advantage of the agreement or compete with an influx of new competitors from other countries within the free trade area.
These potential challenges for businesses had sparked some opposition to the AfCFTA in Nigeria, making the country to be one of the last countries to sign the agreement.
In order to analyze the potential impact and challenges of the AfCFTA for Nigerian businesses, the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), in 2020, released the report “Impact of the African Continental Free Trade Area on Nigerian Micro, Small, and Medium Enterprises.” Micro, small, and medium enterprises (MSMEs) employ about 75 percent of the Nigerian workforce and are thus vital to the Nigerian economy.
The report surveyed 1,804 MSMEs across Nigeria in four core sectors—agriculture, manufacturing, services, and wholesale/retail—in order to better understand the costs and benefits of the AfCFTA to these firms.
The survey revealed that Nigerian MSMEs that were aware of the AfCFTA were most concerned about the threat posed by imported cheaper goods competing with local products due to the AfCFTA, with more than 50 percent of the surveyed MSMEs reporting this as a perceived threat.
Similarly, more than 40 percent of firms perceived threats from increased foreign competition and reduced demand for local goods due to the AfCFTA.
In a focus group discussion conducted by NACCIMA as a follow-up to the survey, respondents further emphasized these concerns, with one CEO stating that “Nigerians are not loyal to brand but … favor cheaper goods.”
The report concluded by emphasizing the importance of ensuring that the AfCFTA benefits Nigeria’s MSMEs, as these firms are crucial to the Nigerian economy and for job creation. Moreover, the authors argue that, without an active strategy to ensure that MSMEs are aware of the AfCFTA and put in a position to capitalize on the agreement, the AfCFTA’s positive impact on the Nigerian economy will remain minimal.
According to “The FDC Afriscope Volume 2, Issue 6, December 23, 2020” published by the Financial Derivatives Company Limited, the AfCFTA is capable of boosting Africa’s economy to $29 trillion by 2050 from the current size of $2.6trn if properly implemented and executed across the continent.
The report reads in part: “The agreement has a huge potential as it would create the world’s largest single market of about 1.2billion consumers and workers, thereby increasing opportunities for African manufacturers and businesses, especially those constrained by the size of their domestic markets.
“Integrating Africa into one trade area provides significant opportunities for entrepreneurs, businesses and consumers across the continent. It could also rapidly support sustainable development in the world’s least developed region.”
The hurdles
However, analysts are of the view that to take full advantage of the opportunities the AfCFTA has to offer, Nigeria must overcome a number of obstacles, biggest of which is the decline in tariff revenue as a result of the elimination of tariffs and duties on imported products, which has long been a considerable source of income for the government. The implementation of new tariff regime on imported vehicles in Nigeria, which is scheduled to take off this week, is a step in that direction.
Considering Nigerian’s high dependency on imported goods, other signatory countries may afford to import goods into Nigeria and sell at prices lower than Nigerian made goods. This could result in local businesses being unable to compete with the low prices as Nigerians may eventually settle for the cheaper foreign alternative.
They also observe that the country’s over dependence on one resource (crude oil) has caused the manufacturing sector to be weak, saying that government’s inability to transform the primary/commodity-based economy into a secondary/manufacturing economy is a major reason why Nigeria may not benefit much from the AfCFTA.
“Nigeria would simply remain a market for other member State producers rather than being a competing producer”, Felix Ibe, an economic analyst, told Business Hallmark.
“Consequently, member states with a stronger manufacturing sector will experience significant economic growth, whilst Nigeria will face substantial fiscal revenue losses.
Smuggling and dumping of goods that may hurt local businesses and infant industries are also expected to constitute a big obstacle as influx of sub-standard goods into the market would cause a loss of revenue for businesses.
“Although the protocol in trade in goods makes provisions for anti-dumping provisions which would allow Nigeria to adopt countervailing measures to prevent the dumping of goods, the government would need to fortify its borders and thoroughly inspect imported products before they are admitted into the market”, Ibe further cautioned.
“They must also ensure that the Rules of Origin are obeyed such that trans-shipment and under-declaration of added value addition and local content do not occur.”
On his part, Peter Adeniyi, a business analyst observed that lack of adequate infrastructure (ports, roads, transportation system, tariff policy among others) to allow goods to be exported smoothly outside the country would affect local businesses.
“The lack of access to electricity and access to credit would mean that companies would need to source and generate their own energy, which raises the cost of production to uncompetitive levels”, Adeniyi also argued.
Raising concerns about tough Nigerian business environment last week, Director-General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, had queried, “When you begin to run a business or run a manufacturing firms using diesel generator or petrol generator, how competitive can you be, especially now that they are talking about AfCFTA when we are going to be competing with other countries in Africa?”
The Organised Private Sector (OPS), has consistently charged the federal government to address the poor state of infrastructural facilities in the country if Nigeria is to benefit from the AfCFTA.
At the third edition of the AfCFTA Dialogue Series with OPS, the Director-General, Manufacturers Association of Nigeria (MAN), Segun Kadir, explained that if Nigeria must benefit from the agreement, greater attention must be paid to improving the operating environment and infrastructure for locally-produced goods to compete with foreign goods.
“The fund allocated for new projects can be diverted to develop infrastructure that will connect economic hubs in Nigeria and connect Nigeria’s economic hub to economic hubs within the West African region and connect Nigeria’s economic hub within the ECOWAS region to the continental region”, he suggested.
“We can do this by partnering with economies within the corridor to improve infrastructure to ease businesses and reduce the cost of doing business.