AfCFTA: Handling the challenge of capacity
This edition of my series of Articles on AfCFTA implementation strategies will focus on capacity building. The importance of capacity building has been demonstrated by the fact that hundreds of new businesses get registered with the Nigerian Export Promotion Council (NEPC) to get export certificates that make them eligible to export every year, yet, the number of exporters that shipped goods out of Nigeria every year has remained below one thousand in the last ten years. The question then is, why is the number of exporters and the volume of export not growing? It is due to the lack of capacity of the registered exporters to do the business.
A number of FTAs around the world have failed to achieve objectives in some of the countries involved because of the deficiencies in export business management skills among the business people especially the SMEs. One of the pivotal goals of the AfCFTA is to create jobs among the member states. This is achieved via the increased market demands, which leads to an increased volume of production and consequently leading to the need for increased manpower. The impact of AfCFTA can only be felt by an average Nigerian on the street if the businesses are supported to develop the capacity to overcome the 5Ps of export business challenges and these are Products, Purchaser, Pricing, Paperwork and Payment.
First, there is need for capacity building in the area of products that can be exported to African countries and this should be based on what they currently import from other parts of the world. This should include quality specifications and requirements of the different countries, and what makes the products eligible for shipment within Africa under the AfCFTA. Our preliminary research at 3T Impex Consulting Limited revealed that there are currently about 90 products that Nigeria can export to other countries in Africa based on what these countries currently import from other parts of the world.
The second area of capacity building for manufacturers is the skills to get purchasers. It is one thing to have potential buyers all over the African continent; it is another thing to be able to get the buyer to buy from you. Capacity building areas with respect to getting purchasers should include but not limited to the following areas: international marketing, market-entry strategies, product packaging, and contract negotiations. It is a general belief among many exporters that the main challenge of exportation is getting buyers and this assertion was based on the fact that more than 70% of the enquires we get daily regarding exportation is on how to get buyers.
Even though a manufacturer has a good product with huge demand on the African continents and contacts of buyers in different countries, he might still be unable to get buyers if he does not know how to effectively and efficiently price the products to be exported. The product manufacturers need to know about different pricing strategies, different pricing objectives, product costing and pricing, cost elements in a typical export project. Incoterms and how it affects costing, logistics options and cost implications is also highly imperative.
International trade is largely a business of logistics and documentation. The need for capacity building in the area of paperwork is very important because, if the documentation is faulty, it has the tendency to make the transaction fail and lead to losses. Shipment of goods to the destination can last up to two months and the buyer might have to pay sometimes before seeing the goods especially in a letter of the credit transaction. The exporters need to know about pre-Export documentation and post-export documentation.
The last but definitely not the least area that requires capacity building is the issue of payment. This basically involves sourcing from funds to pay local suppliers and getting payment from the buyer after shipment. The manufacturers and/or exporters will require capacity building in the areas of pre and post export financing and payment methods like Letter of Credit, the bill for collection, Open Account and Advance Payment. Considering the fact that more than 80% of trade in the world are done on Open Account (Cash Against Document), which leaves the exporters exposed to the risk of either delayed payment or payment defaults, it is, therefore, necessary to train exporters on measures to put in place in order to mitigate this risk.
Finally, I will like to state that inadequate capacity on the part of manufacturers is a major challenge that has bedevilled the implementation of FTAs in several developing countries around the world. No matter the plans and strategies put in place by the government, if the actors are not equipped with the skill and competence to take advantage of the AfCFTA, then the anticipated benefits remain as a mirage and at the level of potentials.