While the Federal Government of Nigeria showed reluctance in signing the African Continental Free Trade Area (AFCFTA) agreement hinging on the possibility of the deal not being a level playing field for the country, analysts fear that Nigeria’s protectionism could frustrate implementation.
Protectionism is an advocate of a government’s protection for domestic producers through restrictions on foreign competitors.
Giving the history of Nigeria’s economic protectionism, analysts say the project, said to create a $3.4 trillion economic bloc, may be weakened on Nigeria’s tepid support of the agreement.
Speaking with Reuters, Bismark Rewane, CEO of Lagos-based consultancy Financial Derivative Company, said, “If Nigeria, after signing decides not to implement, there will be a problem,” saying, “There are so many ways in which Nigeria can frustrate this agreement.”
The largest economy in Africa, with GDP of about $400 billion and a
population estimated at 200 million, fear the possibility of Nigeria being flooded with cheap goods due to low competitive advantage, hence impeding efforts to revive its local manufacturing and agriculture sectors in a drive to reduce dependency on crude oil exports.
In the last four years, the Nigerian monetary authority has placed import controls on about 43 items with FX restrictions on dairy products in the bid to protect local producers and boost industry efficiency.
One would have expected that in the spirit of the trade agreement signing, which is aimed at boosting trade relationships among countries within the region, the Nigeria fiscal and monetary authorities would relaxed some of its import controls. However, this is not the case.
“This reiterates the lack of coordination between the fiscal and monetary authorities, prior to giving assent to that agreement, one would have expected that there would be deliberations between both authorities to see how they can remove those restrictions,” Gbolahan Ologunro, analyst at CSL Stockbrokers, told Businessday.
Explaining the fallout of the lack of coordination, “as long as you continue to put restrictions that will hinder the free movement of goods, it will hinder the extent of trading relationships or gains countries in that agreement can derive ,” Gbolahan said.
Although the suspension of these restrictions may quicken the woes on local producers due to weak local capacity, operating environment and business conditions still not favourable with low incentives to produce goods locally, however, with the right structures in place the medium to long term is optimistic.
“The right structures not FX policy restrictions as this will worsen economic conditions, particularly from inflation perspective, because those products will still get into the market at a higher price,” he said.
The nigerian economy has over the years seen its black market thrive hence while restrictions on imported goods is aimed at encouraging local producers, smuggling activities maybe heightened if border controls are not effective. The resultant effect of this is higher prices of these goods in the market, therefore an upward pressure on inflation.
