Government revenue in Nigeria is projected to decline when the African Continental Free Trade Area (AfCFTA) comes into effect, with five out of six policy simulation scenarios in a new study showing losses in government revenue are more likely to have resulted from the decrease in tariff revenue – as taxes on imports constitutes a major source of government non-oil revenue. The only scenario where government revenue will not decline is when foreign investment inflow and increased labour supply is assumed.
Commissioned by the Nigerian Economic Summit Group (NESG), the study was carried out by Centre for Petroleum Energy Economics and Law (CPEEL) at the University of Ibadan, Ibadan in conjunction with Equilibria Consult, to conduct an evidence-based study that has the overarching objective of assessing the potential impact of AfCFTA on the Nigerian economy.
The NESG says it commissioned the study to determine the potential impact of the AfCFTA on key macroeconomic variables such as aggregate output, aggregate export, aggregate import, government revenue, investment, and composite prices.
According to the study, government revenue declined by 0.21 percent when linear cut to the tariff is applied and when the tariff cut is back-loaded. The decline in government revenue is only marginally lower (0.20 percent) when the tariff cut is front-loaded. However, during the first period of five years, when the government is assumed to increase its investment by 10 percent, government revenue increased by 0.42 percent before declining by 0.13 percent.
Other results from the study indicate that the AfCFTA will be trade-diverting as Nigeria’s imports from non-African countries will be substituted by imports from African countries.
With AfCFTA, countries with more enabling business environments will attract more investments, as producers are guaranteed access to other African markets regardless of where they are producing from. Considering the study’s findings that Nigeria’s GDP will be negatively impacted when the AfCFTA agreement comes into force, and in view of the need to make the economy more competitive; it was recognized that relying on the inflow of foreign saving to grow the economy may not readily pay-off.
It was recommended that Nigeria embarks on massive infrastructure upgrade and institutional reforms to improve her business environment. The infrastructure upgrade could be realized through the concession of major infrastructural projects (electricity, roads, bridges, airports, seaports, etc.) to the private sector. These concessions, the study noted, must be complemented by strong institutional reforms to effectively regulate the operations of the private sector.
CALEB OJEWALE
