Nigeria must brace up for AfCFTA
From tomorrow, Africa will enter into a new trade paradigm that promises to make or mar the continent of 1.2 billion people.
It is the African Continental Free Trade Area (AfCFTA), touted as the largest trade treaty after the World Trade Organisation (WTO) in 1995. The trade pact will create a borderless Africa and a single market of $3.4 trillion for the continent’s economies, exposing firms to a diversified and large market big enough for everyone.
Experts project that the treaty could raise Africa’s nominal GDP to $6.7 trillion (from $2.6 trillion) by 2030 if all African countries abide by the rules of the game. All African nations, except Eritrea, have ratified the trade pact— a testament that the continent is now ready to trade and tap economies of scale associated with expansion.
One of the 10 principles of economics propounded by Harvard professor, Gregory Makiw, is that trade makes everyone better. Africa was yet to come to terms with this principle before now, trading at merely 17 percent with each other.
Compared with other continents, Africa’s intra-trade numbers are nowhere. Europe’s intra-trade stands at 68 percent, while Asia’s is 59 percent. On the other hand, intra-trade in the Americas is 55 percent. Only Oceania is a laggard like Africa, posting less than 10 percent intra-trade. It was, therefore, cheery news when 54 countries of Africa agreed together to champion a trade treaty that could redefine the continent.
Nigeria was part of the negotiations for the AfCFTA from the outset, with late Chiedu Osakwe spearheading most of the discussions. This was why President Muhammadu Buhari got a lot of flaks from different quarters when he refused to sign the deal initially. But the president has ratified the treaty and is openly making preparations for it.
According to several analysts, Nigeria is one of the countries to reap the gains of the free trade pact. And the reasons are obvious. The country has the largest market size in Africa, and many smaller nations will target its young demography.
In West and Central African region, Nigerian firms are powerfully dominant. Nigeria has the biggest number of pharmaceutical companies with the World Health Organisation (WHO) pre-qualification, which positions them for global competitiveness.
In the export market, most products from Nigeria, especially food and beverages, are cherished in the African market due to the ingenuity that goes into their manufacture. From Dangote to Olam, down to Flour Mills of Nigeria and De-United Foods, Nigerian products are dominant in many parts of Africa.
One of the advantages of the free trade pact is that it will allow these firms to expand further without restrictions that have been a thorn on their skins for many years.
The trade deal will naturally boost Nigerian economy by expanding opportunities for companies and job seekers who will in future be able to work in any part of Africa with little restrictions.
For the firms, this is an opportunity to obtain raw materials at lower costs. The South African example might help. Due to free trade, large car makers in South Africa source leather for seats from Botswana and fabrics from Lesotho, under the preferential Southern African Customs Union trading regime, a United Nations Economic Commission for Africa’s document shows.
For Nigerian small and medium enterprises (SMEs), which form 95 to 97 percent of businesses, this will open up an opportunity to penetrate big and new markets. It is now possible to tap into regional export destinations and use them as stepping stones for expansion into overseas markets.
However, it is not going to be all ‘uhuru’ for Nigeria. An economist, Bismark Rewane, said some months ago that any unprepared government will fail completely under the AfCFTA era. This means that Nigeria must be prepared to take on the challenges of the AfCFTA.
Without doubt, Nigerian firms will face stiff competition from South African, Kenyan, Egyptian and Moroccan economies. Foreign firms may be planning to penetrate Africa and breach the rules of origin through many African countries.
This was the initial fear of Nigerian manufacturers and the fear will not go away soon. In fact, experts predict that China will find a way to by-pass the rules of origin and compete with their products under the AfCFTA, having already mustered a lot of partnerships on the continent.
However, rather than express fear, Nigerian firms must begin to think out of the box by seeking alternative ways of cutting production costs and sourcing raw materials. They must tweak some of their business models and think competitively as the new era could change a lot of things.
But the bulk of the responsibility rests on federal and state governments that must find a way of improving the business environment by making it attractive and investor-friendly.
It is no more time to play petty politics and blame-game, but time to think about the future of a population growing at 3.2 percent rate—much faster than the growth rate mustered after recession of 2016. It will be difficult with the second wave of COVID-19 already at the gate, but it is possible and doable.