The place of SMEs in Africa’s free trade (2)

The African Continental Free Trade Area (AfCFTA) agreement envisages an Africa that is one big market where everyone trades freely, unencumbered by tariffs and other trade restrictions. That is the essence of free trade agreements, and in this case, the plan is to remove up to 97 per cent of duty on imports on intra-African trade.

Trade has been described as an engine of growth because of certain attributes ascribed to it, especially in resource mobilization and use. According to economists, trade leads to specialization, which increases efficiency and output. Not only does this enrich the world supply of goods and services, but it also permits participants to enjoy a wider variety of goods beyond their capacities or production possibilities. This is the root of an important principle of economics, which says that trade benefits everyone. This principle is rooted in the theory of Comparative Advantage, which requires that parties to trade must specialize in what they do best as reflected in the lower opportunity cost of production.

Now that Nigeria has voted in favour of free trade, and given that her economy is predominantly informal, meaning essentially an SME economy, the question should be how she should play the game of free trade without hurting her economy and citizens. Perhaps, it is important at this point to outline what free trade is not.

Our economy has been sustained to a large extent by the myriad of accidental entrepreneurs who are in business to merely eke out a living

In the first place, free trade should not be mistaken for a verse from the scriptures that should not be questioned; such that once we hear free trade we jump at it. Free trade is not the placing of import orders and clearing the goods at the wharf for sale at Idumota in Lagos. This, perhaps, explains why some nations were not in a hurry to sign the trade agreement, as they had to ask, and answer, certain questions before commitment. Second, free trade is not an excuse to abandon the home and focus on the international market. Free trade may be trade without the impediment of trade restrictions but it is not freedom from competition. Indeed, free trade introduces a different but probably more destructive kind of competition.

This brings us to the issue of competitiveness of Nigerian enterprises, especially the SMEs, within the borderless African market. The informal sector has provided the needed buffer for the Nigerian economy to withstand many of the adverse shocks that have confronted it in recent times. It has also served as kind of purgatory, a reformatory or a holding bay, for many Nigerians being structured out of mainstream economy as insecurity and all manner of headwinds battle for the soul of the Nigerian economy. Therefore, our economy has been sustained to a large extent by the myriad of accidental entrepreneurs who are in business to merely eke out a living. These entities hardly have any muscle for competition.

Besides, a large number of Nigerian SMEs are women-owned enterprises, which face serious challenges, among which is lack of finance. One of the prerequisites for effective participation in foreign trade is the capacity to dimension the foreign market, understand the product offering and demand patterns. This calls for both technical capacity and finance, none of which our SMEs can muster. Trading freely abroad demands both finance and information, without which competitive ability may be seriously impaired.

Historically, Nigeria is not a major export-oriented country, nor is it one of the most competitive countries in Africa. This may be obvious, given the state of infrastructure, the security situation, which has apparently overwhelmed the security agencies, and her low state of manufacturing orientation. The Purchasing Managers’ Index for December 2020 was less than 50, indicating contraction of her manufacturing activity. The gridlock around her only serious port, Apapa, remains a nightmare for importers of raw materials and much remains to be done about her decadent infrastructure. Based on recent study by UNECA, is not a contender in Africa’s competitiveness. The study, which divided Africa into five regions (North, South, Central, West and East Africa), and selected four countries from each of the zones, to study the competitiveness of the regions, found that the East Africa Region was on top of the competitive list, while the Central Africa Region was at the bottom. West Africa Region, including Nigeria, was second to the last. In regard to individual countries, Rwanda was the most competitive. Under AfCFTA, these countries will now play in an open field with the perennially harassed Nigerian entrepreneurs in the SME sector.

Another issue is the fact that some countries may not play by the rules of free trade. Those with aggressive trade policies may use subsidies to promote the drive into foreign markets. Nigerian SMEs neither have enabling environment nor enjoy significant subsidy regime. Nigerian exporters may find themselves competing with nations rather than their counterparts in such nations in a clearly unequal competition. While these are areas of concern, our duty is to inform our SMEs and support them appropriately.