AfCFTA: Mapping Nigeria’s foray into Africa’s single market

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Buhari, 9 other presidents, others receive AfCFTA awards

Buhari, 9 other presidents, others receive AfCFTA awards

By Yinka Kolawole

The African Continental Free Trade Agreement, AfCFTA, is a continent-wide trade pact aimed at tearing down barriers to commerce among African countries. It is focused on trade liberalisation across the continent and provides for progressive elimination of tariff and non-tariff barriers and development and promotion of regional and continental value chains.


The agreement which came into effect on the 1st of January, 2021, is expected to encourage trade activities by removing tariffs of over 90% of goods traded between member countries.

AfCFTA is expected to drive the integration of African countries into the global economy and enhance their bargaining power in international trade negotiations.

When fully operational, it will constitute the largest trading bloc since the World Trade Organisation, WTO was formed in 1994.
54 nations of the African Union have signed to join the bloc with only Eritrea yet to join, 36 have ratified the accord and 34 have deposited their instruments of ratification, while 41 countries/Customs unions have submitted their tariff offers, including the East African Community, EAC and the Economic Community of West African States, ECOWAS.

Background

According to the African Development Bank, AfDB, intra-African exports amounted to only about 16 per cent of total trade on the continent.

By contrast, internal shipments accounted for 52 per cent of total trade in Asia and 72 per cent in Europe and about 50 per cent in North America in 2019.

AfCFTA is meant to lower or eliminate cross-border tariffs on the majority of goods, facilitate the movement of capital and people, promote investment and pave the way for a continent-wide Customs union.

Participating countries can withdraw from the agreement after five years.

Timeline

The idea of a single African market was first mooted in 1963 by then Nigeria’s Prime Minister, Abubakar Tafawa Balewa. In pursuant of this, in 1980, the Lagos Plan of Action was adopted by leaders of African countries.

Further in 1991, African Heads of State signed the Abuja Treaty leading to the formation of the Africa Economic Community, and in 2018 in Rwanda, they signed the treaty for the establishment of AfCFTA.

African context

The AfCFTA will cover a market of 1.2 billion Africans with a combined Gross Domestic Product, GDP, of $2.5 trillion. It would increase intra-African trade by up to 52.3 per cent; and enable all AU countries to share in the welfare gain, which is estimated at 2.64 per cent of continental GDP – roughly $65 billion in 2018 terms.

It is also expected to double the continent’s share of world trade from three per cent to six per cent over the next 10 years.

AfCFTA will boost wages for unskilled workers in the agricultural and non-agricultural sectors, as well as for skilled workers, with a small shift in employment expected from agricultural to non-agricultural sectors.

It would also be accompanied by additional dynamic benefits, notably, export diversification, durable sustained growth, an enlarged regional market that better attracts FDI, with wider economic space for industrialisation and catalytic effects for structural transformation.

The pact will expand the size of Africa’s economy to $29 trillion by 2050, as estimated by the United Nations’ Economic Commission for Africa, ECA.

The general view is that no African country is fully ready for trade liberalisation. Most plan to use the AfCFTA as a driving force to enhance their global trade competitiveness.

Nigerian context

Nigeria is among the countries that are seemingly competitive within the African context but require additional work to optimize the benefits of AfCFTA. Others are South Africa, Morocco, Kenya, Egypt and Botswana.

All other countries require material work to be competitive within the AfCFTA context, according to Yewande Sadiku, Executive Secretary, Nigerian Investment Promotion Commission, NIPC.

The African giant has a land size of 983,213 sq km out of the continent’s land size of 30,365,000 sq km, with a population of 201 million, accounting for 15 per cent of the total African population of 1.3 billion people.

Nigeria also has a productive population, 20 – 59 years old, of 85 million which is 15 per cent of the continent’s total viable population of 588 million, with a labour force of 61 million – 12 per cent of Africa’s 500 million labour force.

And of course, Nigeria boasts of the continent’s largest economy with GDP of $477 billion, accounting for 19 per cent of Africa’s $2.5 trillion GDP.

But a report by the African Export-Import Bank, Afreximbank, noted that out of Africa’s total merchandise trade of about $1 trillion in 2019, Nigeria accounted for only 6.4 per cent of the intra-continental trade, the third largest in the continent.

South Africa with the largest share accounted for more than a fifth of intra-African trade at 21.5 per cent. Other countries in the top ten include: DR Congo 8.2%; Algeria 5.2%; Namibia 4.9%; Botswana 4.0%; Egypt 3.8%; Zimbabwe 3.7%; Ivory Coast 3.4% and; Angola 2.5%.

Potential opportunities

Trade experts believe that AfCFTA will enhance Nigeria’s potential for business growth. Already, many Nigerian companies, particularly in the service sector, have long developed the capacity to serve the rest of Africa.

The large domestic market makes Nigeria the ideal gateway economy. There will be an expanded market for Nigerian goods and services, creating jobs and economic growth. It will also provide opportunity for many informal enterprises to formalise operations.

Nigeria’s key competitive advantages are its strategic location; strategic time zone (GMT +1); favourable weather; large growing population – expected to be world’s 3rd largest by 2050; growing middle class population; young, energetic, tech-savvy entrepreneurial population; optimistic mobile population with resilient, hard-working “can do” spirit.

Other advantages are a large population of consumers; huge unfilled demand; abundant natural resources; abundant economic opportunities; sophisticated financial markets and; two decades of political stability, amongst many others.

The country also boasts of key comparative advantages such as four international airports and major seaports in Lagos, Calabar and Bonny Island; 3,798 km of railway tracks and 168,000 km of road network and; land borders with Benin, Cameroon, Chad and Niger and a natural hub for the continent.

On the potential benefits of the Agreement for the country, Secretary, National Action Committee on AfCFTA, Francis Anatogu, said from the trade pact, Nigeria aims to double its export trade to $50 billion within the decade.

According to Yewande Sadiku, Executive Secretary/Chief Executive Officer, Nigerian Investment Promotion Commission, AfCFTA is expected to expand market access for Nigeria’s exporters of goods and services, spur growth and boost job creation; eliminate barriers against Nigeria’s products; stimulate increase in Nigeria’s total exports, with a small structural shift in Nigeria’s economy towards manufacturing and services.

She added that this will lead to a total increase in Nigerian economic welfare by 0.62 per cent – equivalent to around $2.9 billion in 2018 terms. Changes would result from tariff reduction, ease of doing business, and trade facilitation.

MSMEs

AfCFTA will provide an expanded market for Nigerian products and services; ensure remedy actions against injurious practices by foreign companies and countries; contribute to the formalisation of operations in the informal sector; enhance the potential for Nigeria’s business growth and create opportunity for those in the services sector to serve the rest of Africa.

It will also provide a platform for Small and Medium Enterprises, SMEs integration into the regional economy and accelerate women’s empowerment; provide an expanded platform for Nigerian manufacturers and service providers for connection to regional and continental value chains.

Potential threats

But if not properly managed, Nigeria, under the trade pact, can become a target economy. There are challenges with power supply, route to market infrastructure (road, rail, ports), and security, that hinder the competitiveness of Nigerian goods and services. Also, urgent reforms are needed to improve the country’s ease of doing business and competitiveness

Revenue loss

Trudi Hartzenberg, Executive Director of South Africa-based Trade Law Centre (Tralac) said: “The negotiations are pretty complex because the countries that are negotiating would lose tariff revenues. Reducing the tariffs means the import duties are lower so they would be gathering less revenue than before.

“For some countries, the tariff revenues they get from trade taxes amounts to 25 per cent or more of their total fiscal tax revenues. The easiest taxes to collect are import duties.”

Put in perspectives, the projected non-oil revenue in Nigeria’s budget for 2021 is N1.49 trillion, out of which N508.3 billion (34 per cent) is expected from Customs duty, signifying the potential revenue loss for the country.

In a statement, Chairman, Nigerian Economic Summit Group, NESG, Asue Ighodalo noted: “Despite the considerable benefits the agreement would offer to Nigeria, it would affect tax revenue as the country would no longer collect import duties from member-states.”

Government efforts

The full implementation of AfCFTA should drive investment interest in African countries that are the most suitable locations for production and investment

To this end, the NIPC boss noted that the government’s efforts are focused on ensuring Nigeria’s attractiveness as a destination. CAMA 2020 and Finance Act 2019 and 2020 have improvements aimed at helping small businesses to survive.

She also said the government has increased its engagements with the organised private sector – Chambers of Commerce, sector associations, industry groups, etc.

This was corroborated by the Secretary, National Action Committee on AfCFTA. He stated: “We are effectively coordinating with all critical stakeholders to ensure a smooth playing field for Nigerian traders and businessmen to explore the vast market.”

Operators’ reactions

Private sector operators have expressed cautious optimism in their expectations from the trade agreement.

President, Manufacturers Association of Nigeria, MAN, Engr. Mansur Ahmed stated: “A possible challenge that stares us in the face is the issue of dumping. The dumping issue frankly is a matter of political will.

“Do our governments and political leaders have the political will to agree on those things that we have to do? For instance, to ensure that we do not allow dumping to take place, there is a need to ensure that all countries operate based on the rule of origin that has been agreed.

“But the difference is that while some countries will ensure that these regulations are complied with, others, unfortunately, will not do so.

“This calls for an effective monitoring mechanism to be put in place to ensure that all countries do the right thing.

“Some Nigerian manufacturers are quite ready to compete in the continental market especially in cosmetics, food, beverages and tobacco, cement and plastics but others will face stiff competition and will struggle.

“Government must be more serious about its effort to reduce the cost of production and improve the business environment. Our trade-related regulatory agencies must also change their attitude from that of gatekeepers and revenue collectors to trade facilitators.

“If we introduce and sustain the right policies that should promote investment, reduce cost and improve productivity, Nigeria’s manufacturing sector has advantages to leverage on and should benefit greatly from AfCFTA, provided the various protocols being negotiated are complied with by all member-nations.”

On his part, Director-General, Lagos Chamber of commerce and Industry, LCCI, Dr Muda Yusuf, said the trade deal will produce winners and losers.

“AfCFTA will produce winners and losers across sectors. The vulnerability risks vary from sector to sector. It calls for a review of business models of many firms and industries in the light of new competition forces that will emerge.

“It presents a significant competitiveness risk, especially for the real sector of the Nigerian economy. Production costs are high, there are issues with costs of logistics, the ports’ processes and infrastructure, multiplicity of taxes, forex liquidity among others.

The benefits and costs of the trade treaty will vary from country to country depending on their economic competitiveness.

“To benefit optimally from this, we need to strengthen the competitiveness of our domestic firms, especially those in the real sector.

“We need to liberate them from the shackles of constraints putting pressure on their costs and inhibiting their competitiveness.

“The quality of our infrastructure needs to improve, our policies need to facilitate competitiveness, our regulations need to support business growth and our institutions need to demonstrate better appreciation of the value of investment and investors in an economy.”

“The government needs to urgently implement the recommendations of its AfCFTA Readiness Committee. If our industries remain uncompetitive, then we would have issues with the continental treaty.

“However, this is not to diminish the significance of AfCFTA and its potential benefits to the Nigerian economy.”

In the same vein, Director- General, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, NACCIMA, Amb. Ayoola Olukanni, said that access to foreign exchange (forex), irregular electricity supply and poor infrastructure such as power, roads, rail and efficient functioning of the ports are issues affecting the readiness of Nigeria for AfCFTA.

“We must reposition the Nigerian economy especially the manufacturing sector by improving infrastructure such as power, roads, rail and ensure efficient functioning of our ports. This is to enable us to compete effectively and successfully under AfCFTA.”

Vanguard News Nigeria

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