Fifty-four African countries including Nigeria are signatories to the agreement establishing the African continental free trade area (AfCFTA) which came into force on May 30, 2019. Its objective is to increase intra-Africa trade with free movement of goods, services and people across borders. It is also intended to stimulate inclusive economic development in African countries and create jobs, leveraging lessons learnt from existing regional economic communities.
The AfCFTA builds on several years of negotiations by stakeholders at national, regional and continental levels alongside support from development partners. Although free trade could exacerbate inequalities, African countries have agreed to implement AfCFTA with trading under the agreement planned to begin in July 2020. The focus is to maximize benefits of better trading relations within the continent and minimize risks through various national, regional and continental instruments. With a continental market as seen in the European Union, African countries can be better integrated with the global value chain.
Liberalization of goods and services is a central theme of AfCFTA with two major phases of on-going negotiations. The first phase involves defining protocols to manage the movement of goods and services as well as resolve disputes within the free trade area. The second phase focuses on designing appropriate mechanisms to manage competition, investments and intellectual property rights. It is expected that the removal of tariff and non-tariff barriers will increase the volume of trade within Africa building on increased productive capacity and comparative advantages across major sectors.
Removal of tariffs and an increase in tax revenue during AfCFTA implementation could lead to a net increase or decrease in government revenue with significant implications for social investments. Although government revenue may drop by a sizeable margin due to the removal of import duties, there is an opportunity to increase revenue through expanded tax base and improved tax administration capacity. A net increase in revenue will be good news but a net decrease coupled with increased government spending on infrastructure to boost production capacity and trade may crowd-out funding for the health sector. Although health is a political decision, its financing can be buoyed by favourable economic realities.
Nigeria is heavily dependent on its extractive sector to finance the government budget. Government revenue as a percent of GDP is less than 10 percent. As the largest exporter of oil on the continent, Nigeria’s slow pace of diversifying the economy can undermine its fiscal stability in the face of fluctuating commodity prices and uncertainties in global trade. A significant percentage of government revenue is currently devoted to servicing debts. In fact, the nation may be spending up to three-quarter of its revenue on debt servicing by 2022. This impacts negatively on the fiscal space for social investments unless they are ring-fenced. Despite recent reforms to improve revenue generation from non-oil sectors, the result is not large and quick enough to meet on-going financing needs.
The country’s largest untapped resource is its human capital. Substantial investments in human capital development through adequate health and education financing can increase the country’s outputs and per capita income. The 2014 National Summit on Universal Health Coverage (UHC) shows Nigeria is committed to the wellbeing of citizens: UHC is a major target within the Sustainable Development Goal (SDG) 3. It is a noble aspiration which guarantees access to high-quality health services to citizens without financial hardship. There is widespread global and country support for the agenda with the newly agreed United Nations UHC agreement and Nigeria’s Health Sector Strategic Development Plan (2018 – 2022).
Although Nigeria has evidence-based health policies and plans, public financing for health is historically low. Health sector allocation has been less than 6 percent of total government expenditure in the last decade – lower than the recommended 15 percent in the 2001 Abuja Declaration. According to the World Health Organization (WHO), health spending in 2016 was 3.6 percent of GDP while public spending on health was only $10 per capita – one of the lowest in the world. Majority of health spending (about 75 percent of total health expenditure) is out of pocket: a quarter of households spend at least 10 percent of household income on health. Development assistance for health (DAH) generally represents about a tenth of total health expenditure – a crucial source of financing for specific programs. As a middle-income country, Nigeria may have limited access to external DAH, particularly grants and concessional loans, in the nearest future. This is, therefore, the best time to raise more money for health and use it wisely to improve health indices.
The National Health Act mandates the government to devote at least 1 percent of its Consolidated Revenue Fund towards a Basic Healthcare Provision Fund (BHCPF) alongside additional domestic and external financing. The Consolidated Revenue is total government revenue before it is shared across all levels of government. Largely tax-financed, the BHCPF is intended to expand health insurance coverage through national and subnational social health insurance schemes for Nigerians particularly the poor and vulnerable. It will also ensure primary health centres have adequate resources to operate optimally and key government agencies can manage health emergencies and epidemics. A phased implementation of the BHCPF creates room for iterative learning across states before nationwide expansion.
The success of a continental free trade agreement rests on a healthy workforce. Nigeria needs to urgently prioritise human capital development to reap the benefits of innovation, trade and investments. While the government is investing heavily in much needed physical infrastructure, there is useful evidence that investing in people can increase our national output and set the country on the path to prosperity. Besides, a change in government revenue during AfCFTA implementation will have a direct impact on the BHCPF.
Here are two crucial ways to ensure adequate health investments.
The first step is to maintain a 100 percent statutory transfer for the BHCPF and increase in overall health budget. This will expand current health insurance coverage particularly for those in the informal sector. A better coverage can stimulate productive capacity of households as well as small and medium-sized businesses which employ millions of people. Improvement in the quality of services at health facilities with better linkages across levels of care will enhance timely access to priority health services particularly for women and children. A paradigm shift within the entire health system from excessive focus on curative services to health promotion and prevention will save costs and ensure well-being. And continued focus on health security ensures the appropriate health agency can prevent, respond to and effectively manage the spread of communicable diseases in close collaboration with development partners.
A second proposal is to implement innovative financing mechanisms mainly health taxes to supplement existing health investments. A recent report of the Global Task Force on Fiscal Policy for Health recommends an increase in excise taxes on sugary beverages, alcohol and tobacco to improve population health. This is not only an avenue to raise more money but an opportunity to address the risk factors of non-communicable diseases (NCDs) like hypertension, diabetes and cancers. According to WHO, harmful use of alcohol, physical inactivity, excessive salt intake and tobacco use are the leading risk factors for NCDs which are responsible for significant productivity losses and 29 percent of all deaths in Nigeria. Low and middle-income countries have revealed that introducing health taxes is effective in promoting health amid creating additional resources to the health sector without undermining long term fiscal stability. Despite the attendant challenges of raising these taxes, implementing the tax adjustment in a progressive way with extensive consultation will complement proposed reforms to increase government revenue as contained in the Finance Bill.
An increase in health financing requires a compelling investment case and multi-stakeholder efforts. Enhancing the technical capacity of the Ministry of Health at national and subnational levels to make this case will be crucial for the last decade of action before the 2030 UHC deadline. Besides, an improvement in the absorptive capacity and efficiency of the sector with demonstrable results can ensure increased health investments on a regular basis. Every allocation should be used judiciously. Sustained parliamentary oversight with civil society advocacy hinged on a human right-based approach will keep government focused on investing in people. There is also on-going need for health sector leaders to engage more not only with the finance ministry but also with trade and investment stakeholders to ensure health is protected in trade negotiations.
Political commitment of the government at national and subnational levels is the most important factor in prioritising human capital investments which contribute to job creation, poverty reduction and electoral success. At current income level, Nigeria can do more to improve the well-being of citizens as implementation of AfCFTA approaches.
Awosusi is a TEDMED Research Scholar and Health Economist at Health Systems and Development Enterprise.
