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Tapping into trade links for growth

How Nigeria will benefit from AfCTA depends on how prepared it is

Nigeria can grow its way through trade, diversify the economy and generate jobs by strengthening intra-regional and global trade links.

Rapid urbanisation, a huge working-age population, large market size, abundance of agricultural and natural resources together with seaports located across the country position the country for reaping the benefits of linking with regional and global value chains.

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Last year, Nigeria signed the Africa Continental Free Trade Agreement which is expected to boost trade in the continent by 52 percent in 2022..

Global value chains (GVCs) – the import and export of raw materials, parts and components, semi- and finished goods between firms across countries – has evolved over 20 years.

Complex production processes for making cars and computers have been broken up into smaller, simpler parts and specialised tasks performed by different countries, easing the way of less developed countries into the global trade.

Advances in ICT and transportation coupled with trade policies and cheap labour have delivered immense benefits to emerging economies in Asia and Europe, integrating them into the global economy.

GVCs rapidly expanded global trade, accelerated economic growth and reduced poverty. It has allowed poor countries converge i.e. catch up with richer economies – 1 billion people escaped poverty as a result of labour-intensive trade-led growth in countries like China, Vietnam and Bangladesh. Oil-dependent Nigeria can learn how to diversify its economy and generate jobs from these countries.

Nigeria, like most African countries, however, due to trade barriers, poor infrastructure and logistics has been unable to take part in global or regional value chains.

Job creation rates in Nigeria have been too slow to keep up with labour force growth. Between 2010 and 2017, average job growth was 1.6 percent, weaker than labour force growth of 3.9 percent according to PwC, a consultancy.

To cut the unemployment rate, it is estimated that Nigeria needs to add at least 3 million new jobs annually or 4.5 percent annual job growth rate, which translates to nearly 200 percent rise from the current annual growth rate.

Currently, 40 percent of Nigeria’s population is below the age of 14, and about 70 percent are aged below 35. These statistics are significant because around 55 percent of young people in Nigeria aged 15 to 35 are unemployed or underemployed.

The global pool of labour is shrinking in developed countries and China; their companies are relocating to attractive destinations with skilled labour, competitive wages and well-equipped and efficient ports. Chinese companies are looking to set up factories elsewhere, in Ethiopia and other East African countries, for example.

Nigeria’s first deep sea port, located at the Lekki Free Trade Zone (LFTZ), will make the country the trans-shipment hub of the region. Once completed it will offer factories located within the LFTZ links to region and global markets.

For chief executives of manufacturing companies in Nigeria, poor accessibility/gridlock at the ports and the resulting high demurrage costs as well as poor infrastructure (roads and rail) as their third and fourth biggest challenges, according to the Manufacturers’ Association of Nigeria CEO Confidence Index (MCCI) for the third quarter of 2019.

Regulatory reforms improved Nigeria’s position on the Doing Business Rankings in 2019; it moved up 15 places to 131st position. However, starting a business is still a challenge, so too are getting electricity, registering property, paying taxes and trading across borders.

The GVC model of the fast is being replaced. New technologies: automation, artificial intelligence (AI) and machine learning (ML) are improving efficiency, boosting productivity and reducing the need for labour.

Nigeria must rethink how it can drive growth, reduce poverty and generate millions of jobs from connecting to the GVCs. For example, how to adapt its ports, roads and rail infrastructure as well the skillsets of its young population to meet these changes.

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