• Friday, March 29, 2024
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What Nigeria must do to benefit from the AFCFTA

AfCFTA

After months of delay, President Muhammadu Buhari on Sunday finally signed the African Continental Free Trade Agreement (AfCFTA). President Buhari’s decision to finally sign the agreement after months of deliberation is laudable, given the opposition mounted by labour unions to the agreement whose goal is to deepen economic integration among African countries.

The African Continental Free Trade Agreement (AfCFTA) is a trade agreement between 54 African Union member states which aim is the creation of a single market for goods and services, free movement of capital and business travelers and a single-currency union. These initiatives are expected to engender the growth of local businesses, boost intra-African trade, and spur industrialization across the continent. By aiming to economically unite the continent, the African Union hopes to create the world’s largest free trade zone covering more than 1.2 billion people and a combined GDP of $2.5 trillion.

The need for deeper economic integration among African countries cannot be overstated. According to research by the African Development Bank, only 15% of international trade by African countries takes place between African countries, compared to around 47% in America, 61% in Asia and 67% in Europe. However, the AfCFTA is expected to radically change that. In fact, implementation of the agreement is expected to boost intra-African trade by 60% by 2022. Thus, by encouraging African countries to trade with each other, the African Union hopes to trigger industrialization and manufacturing across the continent and, in turn, create vast employment opportunities.

Given this background, the decision by the continent’s largest economy and most populous nation to finally sign the AfCFTA is highly welcome. Prior to Nigeria’s signature, there had been apprehension about the effects the refusal of the continent’s largest economy and population to sign the agreement could have on the entire initiative. Nigeria’s reluctance was based on fears that the agreement could hamper the growth of local industries and encourage the proliferation of cheaper products from across the continent. However, following extensive consultations, the Buhari administration has taken the right decision to sign the agreement, particularly considering that Nigeria stands to benefit immensely from the AfCFTA if the nation plays her cards right.

The benefits which could be accruable to Nigerian and Nigerian businesses from the AfCFTA are significant. The AfCFTA offers barrier-free continental market access to businesses. Therefore, by becoming a signatory to the treaty, Nigerian manufacturers, traders and consumers will now be exempt from tariffs on good produced and traded within the continent. This will help to facilitate trade and reduce transaction costs which could boost the volume of the nation’s non-oil exports. Given the federal government’s intention of diversifying the economy from a reliance on crude oil, the AfCFTA provides a veritable opportunity for the achievement of this desire.

Furthermore, with the impending onset of tariff-free intra-African trade and the elimination of other trade barriers, local Nigerian manufacturing companies can now find it easier to export their products to other African countries, a relatively untapped market. For instance, small and medium Nigerian enterprises can now freely export their goods and services to other African countries without the constraints which used to plague such adventures. Also, the availability of a Dispute Settlement Mechanism will help to resolve differences arising out of the AfCFTA and could drastically reduce discriminatory business practices against Nigerian businesses.

However, to fully capitalize on the opportunities presented by the AfCFTA, Nigeria will need to improve its global competitiveness and general business environment. Currently, many businesses in Nigeria survive and thrive not because of the Nigerian business environment but in spite of it. Businesses in Nigeria are generally plagued by structural inefficiencies which hamper their competitiveness and strain their growth. As such, Nigerian businesses often struggle to compete favourably with peers from other nations. Generally, crippling challenges including dilapidated infrastructure, multiple taxation and lack of access to financing all combine to ensure that Nigeran businesses are not as competitive as they could be. Therefore, if Nigeria is to fully capitalize on the opportunities presented by the AfCFTA, these lingering issues will need to be swiftly addressed.

In addition, the ease of doing business in Nigeria needs to improve. Nigerian businesses are often constrained by overbearing regulatory bodies, multiple taxation and generally inefficient government policies. In fact, Nigeria remains far behind several other African countries on several business competitive measures. For instance, while the process of registering a business in Nigeria has historically been a herculean task, it takes just 6 hours to register a business in Rwanda. Given such reality, it will take more than empty rhetoric to position Nigerian businesses to take advantage of the opportunities presented by the AfCFTA.

Overall, if Nigeria is to capitalize on the opportunities presented by the AfCFTA, the Nigerian business environment must change from one which stifles growth to one which enables it. Successful, innovative companies must be encouraged to look beyond the local market. To actualize this, the structural deficiencies inherent in the local Nigerian economy must be eliminated, ease of access to financing must be improved, while policy inconsistencies must also be addressed. Most importantly, the nation’s infrastructure gap needs to be urgently bridged, otherwise many Nigerian businesses will stand no chance of survival in fiercely competitive global market.

 

Olarenwaju Rufai