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AfCFTA: How Nigeria’ll benefit from Africa’s $35bn annual trade volume

After a protracted delay, Nigeria, a few weeks ago finally put pen to paper on the agreement of the African Continental Free Trade Area, AfCFTA, EMEKA OKOROANYANWU and BABAJIDE OKEOWO in this report examine the implication of this agreement for Nigeria and Nigerians.

CFTA, was launched a few days ago at the 12th Extraordinary Summit of the African Union in Niamey, Niger Republic. At the launch, Nigeria finally added its signature to the list of countries that have signed the agreement, leaving Eritrea as the only country not to be part of the agreement, owing to political disagreement with Ethiopia.

When in January 2012 at the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union, held in Addis Ababa, Ethiopia in January 2012, African leaders adopted a decision to establish a Continental Free Trade Area called the AfCFTA by 2017, it was greeted with great enthusiasm. The Protocol was expected to bring together 54 African countries with a combined population of more than one billion people and a combined Gross Domestic Product, GDP of more than $3.4tn.

The agreement aims to establish a single continental market for goods and services, with free movement of business professionals and investments, accelerating the establishment of the Continental Customs Union and the African Customs union. The agreement also aims to expand intra-African trade through better harmonization and coordination of trade liberalisation and facilitation across Regional Economic Communities (RECs) and across Africa.

The agreement would also attempt to resolve the challenges of multiple and overlapping memberships and expedite integration processes while enhancing competitiveness at the industry and enterprise-level by exploiting opportunities for large scale production, continental market access and better reallocation of resources.

AfCFTA is expected to be the biggest trade agreement since the formation of the World Trade Organization in 1995. By reducing barriers to trade, such as removing import duties and non-tariff barriers, AfCFTA was planned to boost intra-African trade given its potential of bringing over 1.2billion people together into the same market.

According to the African Development Bank (AfDB), AfCFTA “will stimulate intra-African trade by up to $35 billion per year, creating a 52 percent increase in trade by 2022; and a vital $10 billion decrease in imports from outside Africa.”

All the inherent benefits of the AfCFTA are not lost on many industry experts in Nigeria who waited with bated breath for Nigeria to sign the agreement after the initial reluctance to sign. With a GDP of about $405 billion, Nigeria is considered the largest economy in Africa, closely followed by Egypt ($332 billion) and South Africa ($295 billion). With a population of about 180 million, the nation is also Africa’s largest market, so, Nigeria’s reluctance to sign the agreement initially was greeted with fear in many quarters stemming from concerns from key stakeholders like the Manufacturers Association of Nigeria, MAN and other key stakeholders.

MAN, in particular, cautioned against signing the agreement without fully engaging all relevant stakeholders and adequately comprehending its implications for the Nigerian economy in general and the manufacturing sector in particular. The association counseled that a country-specific study should be carried out to ascertain its implications for the Nigeria economy, particularly the productive sector. This warning was heeded by the president who, declined his assent to the agreement and went on to set up a committee to engage all stakeholders.

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The committee set up by President Buhari in an eight-month-long period held consultations with a total of twenty-seven (27) groups including the National Association of Chambers of Commerce, Industry, Mines and Agriculture, NACCIMA; Nigerian Association of Small and Medium Enterprises, NASME; MAN; Federation of South-South Chambers of Commerce, Industry, Mines and Agriculture (FESPAN); Rice Processing Association of Nigeria, RIPAN; PAN; and the Nigerian Labour Congress, NLC. The sensitisation exercise also included meetings within consultative forums in all the six geopolitical zones, involving more than 1,751 persons.

After the consultation, the committee presented its report to the President and with the backing of all the relevant stakeholders, President Buhari, finally, on Sunday, July 7 in Niamey, Niger Republic signed the agreement bringing an end to several months of wait by stakeholders in the Nigerian economy.

At the signing ceremony, President Buhari stated that “Nigeria wishes to emphasis that free trade must also be fair trade. As African leaders, our attention should now focus on implementing the AfCFTA in a way that develops our economies and creates jobs for our young, dynamic and hard-working population” he said.


How Nigeria can benefit from AfCFTA

Some prominent stakeholders have argued that Nigeria stands to benefit a lot from the recent signing of the AfCFTA agreement. They said it would open up opportunities for Nigerian manufacturing industries to get a foothold in the lucrative West and Central African import trade estimated at billions of dollars.

Former Nigerian president, Chief Olusegun Obasanjo said the economic welfare of Africa and the clear benefits of the AfCFTA, when fully implemented would be to the benefit of all Africans.

He said the issue of AfCFTA should be a matter of great concern to all who desire a strong, safer, secure and progressive Africa. Once implemented, he said, the AfCFTA would increase intra-African trade by over 50 percent, and boost the continent’s GDP by more than $40 billion.

It is believed, Obasanjo said, that inclusive trade policy-making processes can significantly contribute to the empowering of people and persuade governments to develop and implement policies that use trade as a means to pursue economic equity and social justice.

Other key elements for its successful implementation, he noted, include: countries fixing their economies, and especially developing appropriate infrastructure as well as allowing full free movement of people across their borders.

Also, Nigeria’s Vice President, Professor Yemi Osinbajo, has lent his voice in support of the AfCFTA initiative, saying it will boost the country’s economic development and raise its export potentials.  He also used the opportunity to address some of the concerns raised by stakeholders.

Osinbajo, who spoke during the Financial Derivative Company (FDC) stakeholders’ meeting held in Lagos, said in a matter of time AfCFTA would increase Nigeria’s export by eight per cent.

He said the agreement would improve on the export of semi and fully finished goods, noting that AfCFTA will be a catalyst for investment and GDP growth in the country.

“The AfCFTA can transform Nigeria from a target economy to the gateway economy by boosting job creation through increased intra African trade and spurring growth through enhanced economic welfare with an estimated eight per cent increase of Nigeria’s total export. Although Nigeria only just signed the AfCFTA, in terms of readiness, we are not at ground zero. At $35.45 billion, Nigeria’s manufacturing value-added, a measure of a productive capacity to produce and export semi and fully finished goods, is about seven times more than the current average for the top 20 African countries. This suggests Nigeria’s productive capacity is at a higher level than that of most African countries,” the Vice president said.

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He allayed fears of those who think the country as it is at present cannot compete with other African countries in the export business because of lack of infrastructure and poor business environment.

According to him, prior to the agreement, the Buhari administration had identified and focused on many of the priority areas in the competitiveness pillar of the Economic Recovery and Growth Plan, ERGP 2017-2020 directly speaks to the hard infrastructure challenges as well as the reforms required to deliver an enabling business environment for businesses operating in Nigeria to thrive under its competitiveness pillar initiatives since 2016.”

Osinbajo added that part of Nigeria’s preparation for the AfCFTA was the plan for the provision of adequate and uninterrupted power for businesses, which include the implementation of the Power Sector Recovery Plan (PSRP).

He recalled that the president had recently signed a power agreement with Siemens that would significantly ramp up Nigeria’s power generation to 25,000MW by 2025. Osinbajo said that in addition, the government is intensifying efforts towards positioning the private sector to utilise 2,000MW of stranded power under the eligible customer (willing buyer-willing seller) declaration.

According to him, “Our energising economies’ initiative is also supporting the rapid deployment of off-grid electricity solutions to MSMEs in economic clusters such as markets across the country – Ariaria in Aba and Sabon Gida in Kano to mention a few- shopping complexes and agricultural and industrial clusters.”

The vice president also said that the Federal Government was working hard to accelerate other infrastructure gaps in the areas of sea and airports, railways and broadband.

“The completion of the various transport infrastructure projects will continue to receive adequate priority from this administration. Our ports must, as a matter of urgency and necessity, become more efficient in expectation of increasing trade volume. With the National Trading Platform, we are implementing a single-window portal and installing scanners at the seaports in a view to limiting physical examination of containers that have lengthened cargo clearance time. Consistent efforts are also being made to unlock traffic congestion around Lagos port facilities, as well as implementing the NIMASA’s Deep Blue Project for improved maritime security” he further added.

Osinbajo assured that government was working hard to ensure that Nigeria will not be a dumping ground as a result of being part of the AfCFTA arrangement. He said such issues of trade threat will require collective support at the highest level of ECOWAS and the Africa Union and Nigeria.

He said PEBEC’s fiscal policy is being fine-tuned to placate for AfCFTA’s potential impact on government revenues with a review of tax laws and administration strategies.

On his part, Jide Ojo, a Development Consultant, said Nigeria must do all it can to maximise the benefit of the AfCFTA

“For Nigeria to gain maximally from AfCFTA, government at all levels must work together to promote the ease of doing business. This goes beyond making affordable land available to investors, quick clearance of goods from the ports and easy visa requirements. To significantly reduce the cost of doing business, we must fix our decadent social infrastructures such as roads, rail, air, and water transport, provide affordable and constant electricity supply, make available interest free or low-interest rate on loans, a longer moratorium for debt repayment, reasonable taxation, and adequate security. These are things that can help improve micro, small, medium and even large enterprises. It will boost production and make the MSME produce at competitive prices” he said.

Speaking further, he said Nigeria must go beyond exporting raw materials but leverage on the value addition of processed products.

“If Nigeria will gain optimally from AfCFTA, then there must be a valuable addition to our unprocessed products. Exporting raw materials, be they agricultural products or solid minerals, will attract little profit margin for our producers. However, if we can process them into finished or semi-finished products, our profit margin will soar. ” Ojo added.

He also added that there must be  corruption-free in the implementation of the AfCFTA.

“There must be zero tolerance for corruption in the implementation of AfCFTA. Besides, shady deals and sharp practices must be shunned. National interest, not pecuniary gains, must be the watchword. Government regulatory agencies like the National Agency for Food and Drug Administration and Control, Standards Organisation of Nigeria, Nigerian Investment Promotion Commission, as well as the Federal Ministry of Trade and Investment, must all be alive to their responsibilities. The Customs and Immigration authorities must all ensure that their officials fully obey the country’s position on AfCFTA. Also, adequate public enlightenment is imperative on this new trade deal,” he said.