The biggest economic development in Africa since the start of its post-colonial era is the creation of the African Continental Free Trade Area (AfCFTA), which would be the world’s largest free trade area, and, potentially, the world’s largest common market, given Africa’s population of 1.3 billion. So, it’s impossible to stop talking about AfCFTA and, indeed, Nigeria’s place in it. Well, I haven’t stopped talking about it– in this column and elsewhere!
Last week, I hailed Nigeria’s eventual signing of the AfCFTA agreement and urged that the signing must be meaningful and not perfunctory. In other words, having signed up, Nigeria must use the agreement as a trigger for far-reaching domestic policy and institutional reforms to enable it not only to faithfully implement its AfCFTA commitments but also to benefit fully from the agreement. This week, I argue that Nigeria could be one of the biggest gainers, or biggest losers, from AfCFTA, depending on its productive and trade capacities.
For well over a year, Nigeria’s reluctance to sign the AfCFTA agreement attracted huge hue and cry because of its importance both as Africa’s most populous country and, thus, single largest market and as Africa’s largest economy, with a GDP of $376 billion, around 17% of the continent’s GDP of $2.19 trillion. Yet, despite Nigeria’s relative importance, the reality is that its refusal to join AfCFTA would have hurt it more than it would have hurt Africa.
To be sure, AfCFTA would have gone ahead without Nigeria. In 1947, the United States’s refusal to ratify the treaty establishing the International Trade Organisation led to the demise of the proposed global trade body because the US, after World War II, was the world’s dominant and indispensable economy. But Nigeria in 2019 was not like the US in 1947, and its refusal to join AfCFTA would not have killed off the agreement, as the US’s non-ratification of the ITO treaty killed off what would, then, have become the trade component of the Bretton Woods institutions after the IMF and the World Bank!
Of course, without Nigeria’s membership, AfCFTA members would not have access to the country’s 200 million-strong market. But, in turn, Nigeria would not have access to AfCFTA’s 1.1 billion-strong market. So, both in relative and absolute terms, Nigeria would have been the biggest loser from non-membership of AfCFTA. Add to that the fact that not participating in AfCFTA wouldn’t have stopped goods from being smuggled into Nigeria from AfCFTA countries, thanks to Nigeria’s extremely porous borders, especially when most its proximate neighbours are in AfCFTA. So, Nigeria would have been the biggest loser had it not joined the AfCFTA.
But Nigeria has finally joined the trade bloc. So, now what? Well, sadly, it could still be the biggest loser unless it has the productive and trade capacities to benefit from the intra-African trading opportunities created by the agreement. AfCFTA opens up huge opportunities for Nigeria’s manufacturing and services companies, so it has the potential to be one of the biggest winners from the agreement. But it could also be the biggest loser if it cannot produce efficiently and competitively to increase its intra-African trade significantly. Truth is, currently, Nigeria is doing extremely poorly in terms of its intra-African trade.
In an analytical paper entitled “The African trade profile for manufactured goods”, written by the economist Ron Sandrey, who drew on data from the International Trade Centre, ITC, it was clear how appallingly Nigeria fared in exporting to the rest of Africa. While South Africa, the continent’s industrial powerhouse, accounted for 48% of intra-African manufactured exports in 2014, followed by Egypt at 7%, Nigeria languished at 0.8%. When the whole of exports, rather than just manufactured products, are considered, again, unsurprisingly, according to African Trade Statistics (2017), South Africa dominated, with a share of intra-African exports of between 27 to 30% over a period of 7 years (i.e. 2010 to 2017), while Nigeria’s share was 8% during the same period. Of course, no surprises, Nigeria is also hardly importing anything from the rest of Africa!
Although neighbours and near-neighbours tend to dominate trade destinations, Nigeria is not good at selling to its neighbours. The problem is not just with wider intra-African trade, but also intra-ECOWAS trade. For instance, despite the ECOWAS Trade Liberalisation Scheme, Nigeria exported only around 6% of its total exports to other ECOWAS countries in 2016, according to the WTO. The National Bureau of Statistics recently reported that, in the first quarter of this year, Nigeria exported goods valued at N300.6 billion to ECOWAS member states, representing 32.8% of total merchandise exports to Africa. Yet, the fact remains that Nigeria’s exports of manufactured products either to ECOWAS countries or to the rest of Africa remain very low. Given that Nigeria is not doing well under ECOWAS Trade Liberalisation Scheme, can it do better under AfCFTA free trade regime? The jury is out!
Yet, here’s the problem. With AfCFTA, Nigeria would be expected to significantly dismantle its tariff and non-tariff barriers. Now, if other African countries boost their productive and trade capacities to take advantage of AfCFTA’s free trade regime, they would penetrate the Nigerian market, not through smuggling or dumping, but legitimately by being able to produce and trade efficiently and competitively. But if, on the other hand, Nigeria doesn’t turbocharge its capacities to produce and export competitively to the African markets, it wouldn’t be able to access those markets. So, you could have a situation where AfCFTA members are exporting more to Nigeria, but Nigeria isn’t selling more to the AfCFTA markets. Of course, then, government officials and industry lobbyists would respond with cries of “smuggling”, “dumping”, “unfair trade” etc, and populist calls for import prohibitions!
But the president of the Manufacturers’ Association of Nigeria, Mansur Ahmed, was absolutely right when he said recently that only quality products can compete in AfCFTA markets. As he put it, “Inferior products do not stand a chance to compete in that market, so we have to increase the quality of our products”. That’s the message that the Buhari government should be helping Nigerian manufacturers to understand and internalise.
Sadly, Nigeria is only interested in production, not productivity; in quantity, not quality. The Central Bank’s protectionist interventions are designed to boost local production, without concern for productivity, by throwing money at Nigeria’s chronically inefficient agricultural and manufacturing industries, while also shielding them from international competition through import prohibitions. Yet, to succeed, Nigeria must embrace the idea that trade liberalisation can, through efficiency gains, technological upgrades, innovation etc, help develop its competitive productive capacities. It must see AfCFTA not as a threat but as an opportunity to build its productive and trade capacities.
Recently, Olusegun Awolowo, the hardworking and competent chief executive of the Nigerian Export Promotion Council said that Nigeria had identified 22 sectors that could replace oil as the country’s biggest foreign exchange earners. According to him, “We are hoping that in the next 10 to 15 years, we will be able to raise $150 billion from sources outside oil”. Great and laudable ambition, butit would be a pipe dream unless it is predicated upon Nigeria building its productive and trade capacities, including tackling the problem of poor product quality by developing first-class quality infrastructure.
There are countless people who want Nigeria to be a major non-oil exporting nation. Richard Ough, the outgoing head of economic development at the Nigeria Office of the UK Department for International Development (DfID), who tweets frequently and positively about Nigerian products, is one of them. Well, I am another! But we all know that unless Nigeria uses trade agreements like AfCFTA to build its productive and trade capacities, including export quality, it would not be a great trading nation. Yet it should!
Olu Fasan
