Nigerian small businesses may miss opportunities in AfCFTA

Small businesses contribute almost half of Nigeria’s GDP, yet most of them are unaware of the African Continental Free Trade Area (AfCFTA) agreement, which began January 1 and promises open trade among African nations.

If managed efficiently, the newly formed market of 55 nations, 1.2 billion people, and an aggregate GDP of up to $6.7 trillion Purchasing Power Parity (PPP) has the potential to bring unprecedented stimulus to African economies by unlocking the historically low level of intra-African trade.

However, the little to no knowledge by Nigerian small businesses is standing between them and the numerous benefits that are expected to come with the agreement now in operation, as well as how to protect themselves against any threats it may pose to their survival locally.

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A survey by the Centre for International Private Enterprise (CIPE), an organisation that works to support democracy through private enterprise, found that there is a low level of awareness regarding the existence of the trade agreement among Nigeria’s Micro, Small, and Medium Enterprises (MSMEs).

“We found a worrying degree of unawareness about AfCFTA. Two-thirds of MSMEs surveyed declared not knowing of the deal’s existence. This lack of knowledge is particularly acute among smaller businesses and can represent an enormous obstacle to the successful uptake of AfCFTA,” CIPE stated.

The survey was conducted using 1,800 MSMEs in five states: Abia, Anambra, Kano, Lagos and Abuja (FCT) based on the high presence of MSMEs in the selected states and their homogeneity. Across the selected states, the study sampled agricultural, manufacturing, services, and wholesale/retail firms.

To the question, ‘Are you aware of the AfCFTA Agreement which Nigeria signed on July 7, 2019?’ Sixty-seven percent of respondents answered ‘No,’ according to the report, while 25 percent said they were aware and 8 percent picked neither affirmative response.

“Information is a big gap. You cannot plan for a market that you do not know or understand,” said Opeyemi Oriniowo, principal partner, Rindev Consulting Limited, who was quoted in the report.

An analysis of the MSMEs’ awareness by enterprise size shows that only about 18 percent of the micro and small enterprises were aware of the AfCFTA policy, while a significantly more substantial portion (67%) of the medium-sized enterprises were not aware of the Agreement.

Further disaggregation by enterprise sectors shows that 97 percent of agricultural MSMEs were not aware of the agreement, the highest among the categories.

The researchers found it surprising that given the increased awareness of the importance of services as both inputs to other exports, and as exports themselves throughout African economies. Some 92 percent of the MSMEs surveyed in the services sector said they were not aware of the AfCFTA Agreement.

Damilola Adewale, a Lagos-based economic analyst, said the fact that most respondents from the informal economy do not know about the agreement makes the chances of benefiting from it very slim.

“The unawareness of these small businesses that are the engine of growth and employment in the country is an indication that the country is in a disadvantageous position,” Adewale said further.

Similarly, Ayodeji Ebo, senior economist at Greenwich Merchant Bank, pointed out that the lack of awareness is going to be a major miss for the MSMEs because of the market the agreement seeks to create for them.

“The government will need to create the awareness and resources to highlight these opportunities to them. They should look beyond the finance that they need, but try to fill the capacity and knowledge gap,” Ebo said.

Among the minority of respondents aware of the agreement’s existence, there is a general optimism surrounding the prospective effects of its implementation. The opportunities the agreement presents are ability to penetrate new markets, market expansion, access to a variety of goods and services, stronger cross-border supply chain, positive for industrialisation, opportunities for services trade to enhance prospects of poverty reduction, and employment generation.

However, many are worried about the prospects of more competition. Threats to MSMEs in Nigeria on the back AfCFTA include an increase in foreign competition, a reduction in the demand for local goods, and the dumping of sub-standard products.

“Nigerians are not loyal to brands but loyal to products best suitable for ‘pocket’ and hence favour cheaper goods,” said Olanrewaju Oniyitan, CEO of W-Holistic Business Solutions, in the report.

Due to these threats, the minority reported a strong need for government investment in electrification and general transport infrastructure to enable them to compete effectively.

To bridge the awareness gap, analysts at CIPE call for the development of a context-specific awareness dissemination strategy. They also suggest that special attention is given to non-digital dissemination strategies to ensure full reach of Nigerian businesses, irrespective of their technological participation levels.