It will no longer be business as usual for Nigerian manufacturers, small businesses and banks as the imminent African Continental Free Trade Area (AfCFTA) promises to disrupt traditional practices and rile economies.
For the Nigerian financial system, correspondent banking through strategic partnership with foreign banks is the way to go, while utilising Africa’s footprint to expand reach and drive new inbound customer acquisition, Bunmi Kuku, partner and business consulting leader at EY, said last Wednesday at the virtual AfCFTA Nigeria Strategy Workshop Series II which focused on financial services and investment mobilisation.
Some Tier 1 and Tier 2 Nigerian banks have established branches across Africa, but this may not be enough with big banks in South Africa, Egypt, Kenya and Morocco thinking digital disruptions ahead of the AfCFTA in 2021.
Banks are not the only entities that will need a strategy re-think and expansion drive in the AfCFTA era beginning on January 1, 2021. Nigeria’s 41.5 million micro, small and medium enterprises (MSMEs) must be ready to expand reach, raise quality standards and add value to their products.
In the fashion industry, for instance, many of the African prints and fashion designs come from Nigeria, but the industry has mostly exported raw materials such as cotton rather than full-fledged garments and outfits like Bangladesh which earned $30.14 billion from garments between January and November 2020.
Ken Ukoha, president National Association of Nigerian Traders (NANTS), said the fashion and beauty industry would be a million dollar sub-sector “once we go beyond exporting just raw materials and start exporting value added products.”
At the manufacturing segment of the AfCFTA series on December 12, Ukoha said there should be emergence of clusters to reduce cost and influence adoption of common standards.
Nigerian manufacturers are expected to step up as the free trade promises to make or mar them. Innovation will be at the heart of the trade deal as firms will likely outdo each other in terms of price and quality, experts say.
For instance, the use of renewable may become popular among small- and medium-scale players in a push to reduce production cost and compete in the continental market. This means that the use of expensive energy sources cannot be sustainable.
Backward integration is tapped to become a major innovative issue from 2021. By backward integration, firms buy part of their supply chains. The advantage of this move, though expensive, is that it reduces production cost in the long run and exposure to unnecessary foreign exchange risks. Firms with backward integration projects such as Dangote Group, Flour Mills, FrieslandCampina WAMCO, Olam, among others, are expected to compete favourably—other things remaining equal.
“Firms must produce for export, rather than for just the local market. That makes them begin to re-think the quality of their products and, perhaps, price,” Ike Ibeabuchi, a manufacturer, said.
