Maximum exploitation of the benefits of African Continental Free Trade Area in Nigeria: The roles of the public and private sectors.

Maximum exploitation of the benefits of African Continental Free Trade Area in Nigeria: The roles of the public and private sectors.

By: Olawoyin Zainab Yetunde.

[email protected]

Abstract.

The agreement establishing the African Continental Free Trade Area (AFCFTA) was signed into force on the 30th of May 2019 subject to the requirement that the proposal would come into force 30 days after ratification by 22 of the signatory states. On April 2, 2019, The Gambia became the 22nd state to ratify the agreement and on April 29th the Saharawi Republic made the 22nd deposit of instruments of ratification. The agreement went into force on May 30 and entered its operational phase following a summit on July 7, 2019.

On July 7th 2019, the president of the federal republic of Nigeria, Muhammadu Buhari signed the agreement establishing the African continental free trade area at the 12th extra ordinary summit of the African union. This took place in Niamey, Niger republic. Although, this agreement is yet to be ratified by the National assembly in Nigeria, it has been successfully ratified by 27 countries and as a result of this, operations are set to begin in July 2020.

Nigeria has merely signed the agreement establishing the AFCFTA, its participation in the free trade agreement is subject to the ratification by the National assembly. Subject to the provisions of Section (12) of the 1999 Constitution of the federal republic of Nigeria that no treaty between the federation and any country shall have force of law to the extent to which any such treaty has been enacted into the law by the National assembly. Therefore, the lawmakers in Nigeria need to deliberate on and ratify the trade deal before it can become binding on Nigeria.

The trade deal offers many opportunities for sustainable development and economic growth in African countries. however, not all countries will benefit to the same extent. While the expected average GDP growth is around 1% some countries are expected to grow over 3% while some countries GDP will grow on the average. Thus, some countries will grow below the average while some will exceed the average. In the event that the trade deal is eventually ratified by the National assembly of Nigeria what comes next? What are the basic steps that should be taken to ensure that the trade deal positively affects the GDP growth in Nigeria?

It is in purview of this that this paper highlights the basic roles that the private and public sectors in Nigeria need to play to ensure that the Nigerian economy is one of the great beneficiaries of the trade deal. These sectors play a major role in ensuring the economic development and stability of Nigeria and consequentially its active participation in the trade deal.

Introduction.

The AFCFTA is a trade agreement which promises to offer various benefits to its member nations. These benefits include that large companies, small and mid-size enterprises will likely gain preferential access to bigger markets and thus scale faster and become more competitive. There would also be an increased competition due to trade liberalization which will help African companies innovate faster and become more efficient, Consumers are also not left out in the benefits of this agreement. The agreement will benefit consumers who would access a wider supply of products at cheaper prices, therefore producing welfare gains across the continent.

This agreement indeed offers attractive benefits which every member nation of the AU is expected to be attracted to. Yet, when the agreement was brokered by the African union at the summit in Kigali on 21 March 2018, only 44 African nations out of 55 signed the agreement. Among the AU member states that did not sign the pact were two prominent holdbacks: Nigeria and South Africa. However, Botswana, Lesotho, Namibia, Zambia, Burundi, Eritrea, Benin, Sierra Leone and Guinea Bissau are the other member countries which did not sign the pact.

As Africa’s biggest economy and most populous country, Nigeria is widely considered crucial to the success of a deal that will remove 90 per cent of intra-African tariffs. President Buhari delayed his assent to the agreement to allow for more stakeholder engagement and assessment of the impact of the trade agreement on local industries in Nigeria. This is because there are diverging opinions on how the trade deal will affect Nigeria. The repercussions could be disastrous for an economy that is tangled in sluggish growth with a manufacturing sector that is moribund.

The status of Nigeria regarding the AFCFTA is like two sides of a coin. On one side there is the probability of Nigeria becoming the factory for the rest of the continent therefore allowing it to export to dozens of other African nations and on the other side there is a probability of Nigeria becoming a dumping ground for other African countries therefore injuring large companies and possibly killing small and mid- size enterprises.

The paper serves to highlight the challenges Nigeria is likely to face subject to the operation AFCFTA in July 2020 and the roles the public and private sectors need to play to curb these challenges in order to achieve maximum exploitation of the benefits of the AFCFTA.

What is AFCFTA?

AFCFTA is an acronym which stands for African Continental Free Trade Area. It is a continental trade agreement with the objective of creating a single market for goods, services and movement of people in Africa by eliminating tariff and non-tariff barriers within the region. The agreement was brokered by the African Union (AU) and was signed on by 44 of its 55-member states in Kigali, Rwanda on March 21, 2018 creating the world’s largest single market. The proposal was set to come into force 30 days after ratification by 22 of the signatory states. On April 2, 2019, The Gambia became the 22nd state to ratify the agreement, and on April 29 the Saharawi Republic made the 22nd deposit of instruments of ratification; the agreement went into force on May 30 and entered its operational phase following a summit on July 7, 2019.

The trade agreement is regarded to be the largest since the establishment of the World trade organization (WTO) in 1995, this trade agreement is proposed to be covering 55 countries and 1.2bn people producing US$2.5tn worth of goods and services. The agreement aims to boost intra-African trade by making Africa a single market of 1.2 billion people and a cumulative GDP over $3.4 trillion. The UN Economic Commission for Africa (UNECA) estimates that the implementation of the agreement could increase intra-African trade by 52% by 2022. And According to the African Development Bank (AfDB), the AFCFTA “will stimulate intra-African trade by up to $35 billion per year, creating a 52 per cent increase in trade by 2022; and a vital $10 billion decrease in imports from outside Africa” [1]

Objectives of the AFCFTA.

The trade agreement proposes various goals which it aims to achieve in member nations and they include:

1.     Single continental market: The AFCTA aims to create a single continental market for goods and services in its member nations. It is directed towards the improvement of the economic integration of the African continent. This also involves enabling free movement of business professionals thereby accelerating the establishment of the Continental Customs Union and the African customs union. The AFCFTA and other developments are notable indications that the African continent is marching forward. An estimate by the United Nations Economic Commission for Africa notes that: “The CFTA could increase trade between African countries by as much as $35 billion, an increase of more than 50 percent from current levels.”

2.     Expand intra-African trade: The global economy has become integrated as a result of globalization, greater financial linkages, and even the increased mobility of people The AFCFTA aims to expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation across Regional Economic Communities (RECs) and across Africa. This will aid African integration with the global economy and its integration regionally. Intra-African trade, hovered at around 15.2 per cent in the period 2015–2017, while comparative figures for America, Asia, Europe and Oceania were, respectively, 47.4, 61.1, 67.1 and 7.2 per cent.

[2]

3.     Establish a liberalised market: Trade liberalization is the removal or reduction of restrictions or barriers on the free exchange of goods between nations. These barriers include tariffs, such as duties and surcharges, and nontariff barriers, such as licensing rules and quotas. Many economists often view the easing or eradication of these restrictions as steps to promote free trade. The effect of trade liberation can be seen through the trade activities of the various regional economic communities in Africa the two RECs that have achieved the greatest measures of success in trade integration – SADC (Southern African Development Community) and EAC (East African Community) – either have low non-tariff barriers or a strong manufacturing economy.

Intra-regional trade within Africa’s regional economic communities[3]

About 80 per cent of all intra-African trade flows through RECs

4.     Facilitate investment: Without investment, the economy could enjoy high levels of consumption, but in the long run, this creates an unbalanced economy. Investment is of great importance in improving productivity and increasing the competitiveness of an economy. The AFCFTA aims to facilitate investment by aiding the movement of capital and also the movement of people in its member nations. Investments leads to asset creation that leads to enhanced production, employment and overall economic progress. An effective investment would also increase the productive capacity of the economy.

5.     Resolve challenges of multiple and overlapping memberships: The AU recognizes eight regional economic communities (RECs) and five subgroups which consist primarily of trade blocs and, in some cases, involve some political cooperation and monetary unions. The eight Recs’ in Africa are:Economic Community of West African States (ECOWAS), Economic Community of Central African State (ECCAS), Arab Maghreb Union, Union du Maghreb arabe in French, (UMA), Southern African Development Community (SADC), Common Market for Eastern and Southern Africa (COMESA), Intergovernmental Authority on Development (IGAD), Community of Sahel-Saharan States (CEN-SAD), and East African Community (EAC). 39 countries out of 54 countries are members of more than one of the eight RECs.The  multiple membership of RECs complicates the overall continental integration process and put massive strains on the member states ability and resources to cope with diverse agendas and conjectures. The AFCFTA aims to resolve the challenges of multiple and overlapping memberships and expedite the integration processes.

6.     Enhance competitiveness: One of the objectives of the trade agreement is to enhance competitiveness at the industry and enterprise level of member states within Africa and in the global market by exploiting opportunities for scale production, continental market access and better reallocation of resources. healthy competition among industries in member nations helps to improve product quality and new innovations.

7.     Encourage industrial development: The trade agreement aims to encourage industrial development through diversification and regional value chain development, agricultural development and food security. When foreign competition increases, it exerts pressure on producers to become more efficient and increase productivity. Manufacturers will ensure to ameliorate, revolutionise, expand, their businesses in order to reach the standard and compete with foreign businesses.

8.     Socio-economic development: The AFCFTA aims to achieve sustainable and inclusive socio-economic development and structural transformations within member states. Countries that are open to international trade tend to grow faster, innovate, improve productivity and provide higher income and more opportunities to their people. Open trade also benefits lower-income households by offering consumers more affordable goods and services.

Prospective benefits of the AFCFTA.

AFCFTA is an agreement which is seen to be potentially beneficial to the consumers, producers and exporters in its member nations, However, it is important to note that not all countries will benefit from this agreement to the same extent and attaining these benefits attracts costs and commitment from the member nation. some of the prospective benefits of AFCFTA are:

1.     Welfare benefits due to lower import prices.

2.     Consumers access to high quality goods, cheaper goods and variety of goods.

3.     Production efficiency which will aid increase in output

4.     Exporter’s access to larger market

5.     Higher value-added jobs and exports

6.     Technological specialization

7.     Promote Agro-processing through trade in agricultural products

Prospective implications of AFCFTA

 Subject to the operations of AFCFTA in Africa it is expected that the agreement will have its implication of the economies of its member nations. A research paper published by the United Nations Conference on Trade and Development (UNCTAD) in February 2018 points out that the Continental Free Trade Area (CFTA) offers many opportunities for sustainable development and economic growth in the African economies. However, not all countries will benefit to the same extent.

UNCTAD has estimated the quantitative effects of the CFTA providing to 2 long-term scenarios: A full Free Trade Agreement (FTA) and Special Product Categorization (SPC).

A full Free Trade Agreement (FTA): This is when the trade agreement involves eliminating all tariffs in the CFTA. UNCTAD estimates that this could generate welfare gains of US$ 16.1 billion, at the cost of US$ 4.1 billion in trade revenue losses (representing 9.1% of current tariff revenues). GDP and employment are expected to grow by 0.97% and 1.17% respectively. Intra-African trade growth is estimated at 33% and the continent’s trade deficit is expected to drop by 50.9%

Special product categorization: This trade agreement permanently exempts sensitive products from liberalization. In a scenario in which the sector with the highest current tariff revenue would be exempted from liberalization, UNCTAD simulations estimate a welfare gain of US$ 10.7 billion in the long term. Tariff revenue losses are expected at US$ 3.2 billion (representing 7.2% of current tariff revenues). GDP and employment growth are expected to grow by 0.66% and 0.82% respectively. Intra-African trade is expected to grow by 24%, while, Africa’s trade deficit shrinks by 3.8%.

Implementation of the AFCFTA will also lead to the deregulation of the aviation industry. Aviation contributes $72.5 billion in GDP to Africa, and supports over 6.8 million jobs. There is a great probability of massive gains if all of the regulations of these countries are collapsed into one regulatory framework that allows the movement of goods and services in one singular market. A 2014 study by the International Air Transport Association shows that implementing these changes in just 12 key markets in Africa would provide a potential 5 million extra passengers a year with unrestrained opportunities to travel and trade. It would also create an additional 155,000 jobs and potentially increase the GDP of those 12 countries by an additional $1.3bn.

Challenges of AFCFTA.

It will be an implausible reasoning to believe that the implementation of AFCFTA won’t come with its challenges for its different member nations and some of its challenges are:

1.     Infrastructural challenges: Infrastructure can be described as basic structures such as roads, bridges, rail links, sea ports, electricity generation, water and irrigation projects that are needed for a country, region, or organization to function properly. The services generated as a result of an adequate infrastructure base will lead to an increase in aggregate output. Many producers based in African countries fall short to compete in domestic and regional markets due to many challenges such as the lack of infrastructure. Addressing Africa’s physical infrastructure gap will require $93 billion per year worth of public and private investment.

2.     Fiscal imbalance in trade dependent countries: Many small African countries with large informal economy rely on customs and import duties for a significant portion of budgetary revenue. If tariffs become fully eliminated and trade routes switch to neighbouring countries, the implied revenue loss could widen fiscal imbalances in these countries.     

 Contribution of customs and import duties to tax revenue.[4]

3.     Agricultural sector: The agriculture sector is the largest employer of labour on the continent. Thus, it is very sensitive to policymakers and often protected from foreign competition. some countries may likely put up some forms of non-tariff barriers and/or include agricultural products in the category of special products excluded from the trade deal (special products categorization)

4.     Multi-membership of REC’s: The status of African countries in the various RECs can be likened to a “spaghetti bowl”. The multiplicity of regional economic groupings poses as a serious constraint for the effective integration of the continent. According to Atieno Ndomo in the article ‘Regional Economic Communities in Africa A Progress Overview’[5], the multiplicity of RECs and overlapping memberships have created an obscure and complicated web of competing commitments which, combined with a variety of rules, result in higher costs of trade transactions between African countries, in effect discouraging and undermining integration because it could lead to resource wastage and the consumption of much effort due to duplication of activities.

5.     Exportation of similar products: African countries export similar products. These products are often primary goods such as agricultural products, oil and mineral resources with little value add. UNCTAD estimates export concentration in Africa to be the highest of all continents while extractive products constitute 76% of total exports according to BACI world trade dataset.

6.     Foreign exchange restrictions: foreign exchange is the process of converting domestic currency into international banknotes at particular exchange rates. Exchange rates have a major role to play in international trade. Foreign exchange rates influence capital flows, investment funds.

7.     Quota: A quota is a government- imposed trade restriction that limits the number of monetary value on goods that a country can import or export during a particular period.

8.      Language: the African continent is a continent with a very high linguistic diversity. The total number of languages natively spoken in Africa is variously estimated at between 1250 and 2100 and by some counts at over 3000. cultural factors and common languages are well known determinants of trade. Speaking the same language facilitates communication and makes transactions easier and more transparent. Countries whose residents can communicate easily are likely to trade more with each other.

Relationship between AFCFTA and Nigeria:

On 7th July 2019, President Muhammed Buhari signed the agreement establishing the African Continental Free Trade Area (AFCFTA) at the 12th Extraordinary Summit of African Union (AU) in Niamey, Niger Republic. He had delayed his assent to the agreement at the Kigali Summit in March 2018 to allow for more stakeholder engagement and assessment of the impact of the trade agreement on local industries.

Until President Buhari signed it the agreement, Nigeria was the most prominent holdout to the African Continental Free Trade Area agreement (AFCFTA). As Africa’s biggest economy and most populous country, Nigeria is widely considered crucial to the success of a deal that will remove 90 per cent of intra-African tariffs.

President Buhari’s assent to the bill is the first stage in the implementation process of the AFCFTA in Nigeria. Lawmakers still have to deliberate on and ratify the trade deal before it becomes binding on Nigeria subject to the provisions of section 12 of the 1999 constitution of the federal republic of Nigeria.

The signing of the trade agreement brought about a lot of controversies among various individuals, bodies, organisations in Nigeria. Various concerns have been raised which includes the exposure of the already struggling local manufacturing sector to undue competition. The Nigeria Labour Congress, an umbrella organisation for trade unions, was one of the biggest supporters of Mr Buhari’s cautious approach. In an August statement, it repeated its warning that instead of becoming manufacturing hubs, Nigeria and other countries could turn into dumping grounds for cheap Chinese and western goods. However, Opinions diverge on how the landmark trade deal will affect Nigeria and the broader African continent.

Making an analogy, the chairman of the Airline Operators of Nigeria, Capt. Megginson said: jumping to sign the AFCFTA Treaty is like putting a swimming pool in a house. It is nice to put a swimming pool in a house with children, but you must first teach the children how to swim before putting them in the swimming pool otherwise the swimming pool will become a hazard and kill the children.

Effects of implementation of AFCFTA in Nigeria.

Although the trade agreement is yet to be ratified by the National assembly in Nigeria, it holds a lot of promises for the Nigerian economy. If Nigeria fails to ratify the free trade agreement, it would risk surrendering the country’s largest non-oil export market to other regions because Africa is already the largest destination of Nigeria’s non-oil exports (formal and informal), and thus very strategic to the government’s plan to diversify exports.

                      Nigeria’s formal non-oil to African countries.[6]

In 2018, Nigeria exported and imported goods to and from the rest of Africa to the value of 7 billion US dollars and 1.3 billion US dollars respectively and 13% of Nigerian exports are as a result of intra-African exports while 4% of total imports come from intra-African trade. The major destination of Nigeria’s goods in Africa are: South Africa, Togo, Cote d’Ivoire, Swaziland and Egypt.

Africa’s imports are mainly manufactured products, the focus of Nigeria’s development agenda. AFCFTA therefore provides Nigeria with the opportunity to realise her economic growth and diversification aspirations base on the African market.

Nigeria is a dominant player in the manufacturing of tobacco, cement, petrochemicals (urea and polypropylene), oil production vessels and consumer products so with an improvement in our trade capacity, trade infrastructure, trade environment and trade rules enforcement Nigeria would be regarded as being adequately equipped for the AFCFTA.

Roles of the public and private sectors in the maximum exploitation of the benefits of the AFCFTA in Nigeria.

The two major problems likely to be faced by Nigeria regarding its active participation in the free trade agreement include: weak manufacturing industries and poor infrastructural development. The WEF (World Economic Forum) ranked Nigeria 115 out of 140 countries in its global competitiveness report in 2018 and 17 out of 40 African countries. Similarly, Nigeria was ranked 146 out of 190 countries and 26 of 54 African countries in the 2019 World Bank’s Ease of Doing Business (EOD) report.[7] This is as a result of Nigeria’s lack of progress on economic reforms and indefinite underinvestment in infrastructure. This puts Nigerian manufacturers at a disadvantage compared to more competitive markets.

Nigeria cannot actively participate in such an agreement if important steps are not put in place to fix its moribund manufacturing industries and also improve its poor infrastructure.

While in most countries infrastructural development is majorly in the hands of the public sector In Nigeria a great percentage of its industries have been privatised and are only being regulated by the government. We have sectors such as Education, energy, oil and Gas, health-care, telecommunication etc. being controlled by private companies so it is important that the private sector actively works along with the public sector for the success of the trade agreement.

The public and private sectors in Nigeria are a major determinant of the success of the trade agreement in Nigeria. Nigeria cannot effectively compete with other African countries with her present moribund infrastructure. It is disheartening to realise that in this 21stCentury, while the rest of the world is strategizing and planning for a strong and sustainable economic expansion, the Nigeria is still battling with inadequate infrastructure, poor electricity, bad roads etc.

In order to maximally exploit the benefits of the AFCFTA in Nigeria, the government needs to improve their institutional capacities to efficiently tax and redistribute the gains from the trade agreement. This can be achieved by integrating and harmonizing regulatory measures, eliminating non-tariff barriers to trade and investment, and facilitating the entry into the formal economy.

The issue of inadequate infrastructure is a major setback for Nigeria’s economic development. The production of goods, transportation of goods, marketing of goods in Nigeria is greatly mired by its inadequate infrastructure.

The Nigerian port is currently classified among the worst ports in the world due to challenges such as delay of import/export processes, traffic congestion, poor access roads and security concerns. Crises in the Nigerian maritime sector is a well reported phenomenon. The World Bank 2015 - 2017 Ease of Doing Business indicator for measuring the effectiveness of ports, “Trading Across Boarders” ranked Nigeria at a 182/183 out of 185 countries.

Nigeria faces major security issues at its ports. In 2017, 661 pump-action rifles were intercepted outside the port in Lagos. Instead of using scanners, officials use physical examination, which is more cumbersome and time consuming. this is because Nigeria lacks the required scanners and security instruments used at the sea ports, airports and border stations for easier examination of cargoes and detection of foreign items in legitimate consignments. While some level of container scanning is currently in place, the proportion of activities for which scanning (estimated at about 10%) is used is too small to have any meaningful effect. 

The International Monetary Fund (IMF) Economic and Country report shows that Nigeria is the largest economy in Africa with GDP of $413 billion in 2017. Yet, it trails far behind many smaller economies in Africa in terms of ports and maritime activities. Nigeria’s maritime sector contribution to GDP stands at 0.05% compared to 1.4% in South Africa and 3% in Kenya.

When trade barriers are removed, more opportunities are created and so there is a need to ensure that the country is not caught up with the many challenges it faces at the ports. Maritime experts are of the view that Nigeria needs to tackle many challenges which arise from the state of the ports, access roads to the ports which can hinder the smooth running of the agreement. Since the goal is to allow investments, free movement of business travellers and create a continental Customs Union to streamline trade and attract long-term investments.

The Managing Director of Nigerian Ports Authority (NPA) Ms Hadiza Bala-Usman, at the International Maritime Ports and Terminals Conference and Expo stated that there should be adequate Investment in infrastructure by rehabilitation of roads leading to the ports and deliberate policies put in place to improve the transport sector. With this, Nigeria will be able to link critical hinterlands with rails, waterways. She also highlighted other issues such as dredging of seaports, corruption, manual processes in the sector and stated that it is only when these issues are tackled that the country can partake effectively in the regional trade.

Mr Ola Adeeyinwo, Deputy Director, Nigeria Railway Corporation (NRC), added that movement of cargo to the hinterlands faces challenges due to the state of the rail tracks. According to him, it is only the Apapa port that is connected by rail and this affects the evacuation of cargo. He further stated that after the port concession, most of the rail lines were removed thus trading between Nigeria and other African countries cannot be seamless and the continent cannot be fully integrated in form of trade and connectivity with this present status. Mr Fortune Idu, Chairman of the Nigerian International Maritime Ports and Terminals (NIMPORT) believes it is time to invest in shipowners in the country.

Another area of concern is the aviation sector, Capt. Nogie Megginson, chairman of the Airline operators of Nigeria believes that there is a need to come up with a clear agenda to position Nigeria to take full advantage of the Treaty; highlighting several concerns including Challenges of Visa Free Movement, Uneven Taxation & Levies across Africa; restricted currency repatriation policies; and Unrealistic Competition & Unfair Trade; Unemployment of Nigerian youths.

The Nigerian government also has to actively ensure to follow the provisions guiding the member nations of the AFCFTA. Although, the national assembly has not ratified the agreement, and trade activities under this agreement have not kicked off. The imposition of ban on the movement of all goods from countries with which Nigeria shares a land border: Benin, Niger and Cameroon, effectively banning all trade (import and export) sends a negative notion as to the non-compliance of Nigeria to the trade agreement.

A study carried out by the Central bank of Nigeria (CBN) in 2014 estimated informal re-exports from neighbouring countries: Benin, Cameroon and Niger Republics - into Nigeria between June 2013 and May 2014 at US$2.9bn, representing 71% of total informal imports (US$4.1bn) into the country within the period. Nigeria’s border closure demonstrates the implementation gap that continues to exist between the texts of regional or international trade agreements, and the actual measures that some African governments adopt Thus, Although the act of the Government was in pursuance of curbing smuggling of goods such as rice, tomatoes and poultry to bolster Nigeria’s agricultural sector. The Nigerian government needs to show the political will to resolve trade conflicts through dialogue rather than through unilateral trade restrictions.

Lack of progress on economic reforms and age-long underinvestment in infrastructure puts Nigerian manufacturers at a disadvantage compared to more competitive markets in North, East and Southern Africa. Manufacturing industries are involved with the conversion of raw materials into finished goods. According to the national Bureau of statistics (NBS), the Nigerian manufacturing sector is dominated by the production of food, beverages and tobacco, with sugar and bread products generating the greatest value of output. Manufacturing in Nigeria is saddled with a few challenges capable of hindering its’ efficiency in the free trade agreement. Large, medium and small enterprises need to be encouraged in order to be more productive and this can be achieved by: Significantly reduce the cost of doing business, fixing decadent social infrastructure, making available low interest or interest free loan, reasonable taxation.

Electricity poses as one of the major problems that manufacturers in Nigeria face, the power distribution companies in Nigeria referred to as DisCos are involved in the distribution of electricity to residential and commercial areas. Presently, there are 11 power distribution companies in Nigeria. As at march 2020, Nigerians had expressed their disaffection towards the plan by Eko and Ikeja Electric distribution companies to increase tariff by 33 percent by April 2020. When the cost of production is high, manufacturers in order to make their profit need to increase the price of their goods and this could put them at a disadvantage internationally when there are other manufacturers selling similar products at a cheaper price.

 It is important that these DisCos try to improve on their provision of good and stable power supply for the good of the economy. Not all manufacturing companies would be able to run profitably on power generating due to the highly competitive and open economy because of the high cost of fuel and maintenance. meanwhile, the electricity distribution companies on the other hand have claimed that they have not received any subsidy from the federal government since the privatisation of the power sector. In a statement the executive director, research and advocacy of the Association of Nigerian electricity distributors, Mr Sunday Oduntan stated that government ministries, departments and agencies owe the DISCOs in excess of 100 billion naira, for energy consumed but not paid for which is a breach of the federal government’s commitment under the privatisation agreement and the Multi-year tariff order (MYTO) 2015

Financial institutions in Nigeria have an important part to play in the success of the AFCFTA in Nigeria because the lack of sufficient bank credits to meet the needs of the manufacturing sector is one of the problems of the Nigerian economy. One of the major problems manufacturers face as regards to this is the high interest rate on bank lending. thus, financial institutions need to encourage small and medium enterprises by providing loans to them with little or no interest. Provision of loans with little or no interest will encourage small industries expand and by implication become more competitive. Lack of funds causes many industries to fold up and also prevents them from actively implementing new ideas and strategies to improve their business.

The issue of taxation in Nigeria is another area of concern. In Nigeria, small and medium enterprises play a very important role in the development of the Nigerian economy. They serve as a source of employment generation, innovation, competition and national growth however the mortality rate of these firms is very high. According to the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN) 80% of small businesses die before their 5th anniversary and among the factors responsible for this are tax related issues such as multiple taxation and enormous tax burden. Although Taxation is a mode of revenue generation by the government it is important for the government to impose a reasonable tax on SME’s and this can be achieved by viewing and treating these industries as small industries rather than treating them as large industries o that these industries can scale faster and not crumble due to their lack of funds which in the long run will lead to their inability to stand foreign competition.

There is a great chance of the trade agreement causing fiscal imbalance in Nigeria since custom and import duties contributes about 15% to tax revenue and the provision of the trade agreement requires removal of 90% of intra-African tariff. AFCFTA will have long term impact on both fiscal and monetary policy in Nigeria. This is because Nigeria’s trade policy and orientation of the customs service have historically been focused on revenue generation rather than export facilitation. This could be fully offset by company and personal income taxes if Nigerian companies become more efficient exporters.

In Nigeria, the Agricultural sector is one of the largest sources of income. This makes the agricultural very sensitive when it comes to foreign competition. Policy makers in Nigeria need to protect the agricultural sector from foreign competition by including it in the special products category thereby excluding it from trade liberalization.

Most African countries export similar products which often fall into the category of primary goods such as agricultural products, oil and mineral resources. Thus, Nigeria needs to diversify its exports by ensuring there is a major improvement in the quality and quantity of manufactured goods in the country.

The African continent is blessed with a great number of languages and if there is going to be trade among these countries it will be of great importance to effectively converse. Thus, in order to ensure effective intra African trade in Nigeria, it is important for Nigerian citizens to be inculcated with the widely spoken in African which include: Afrikaans, Arabic, English, French, Portuguese, Spanish Swahili. These can be effectively achieved if the educational sector can introduce these languages in the syllabus of students at every level of education.

Conclusion and recommendation.

Nigeria’s status as the giant of Africa due to its large population is the reason other African countries were concerned about Nigeria’s non-participation in the trade agreement. Nigeria’s great population renders it as a good market for other African countries, however how much good will be done to the Nigerian economy by ratifying the trade agreement without consequently making provisions for economic reforms.

The AFCFTA is undeniably a productive agreement and a good starting point for Africa’s continental integration. it is an agreement which holds a lot of promises for the Nigerian economy. Being the giant of Africa, it is expected that Nigeria greatly benefits from this trade agreement. However, Nigeria’s success can be greatly mired if necessary structural changes are not established. The Nigerian economy is in great need of economic reforms being put in place and deliberate efforts to pull down non-tariff barriers.

Indeed, AFCFTA provides Nigeria with the opportunity to realise her economic growth and diversification aspirations Examining the agreement from the perspective of its objectives presents it like it is that one agreement that will radically improve the economy of African nations, however implementing the agreement definitely comes with its own costs and challenges.

Since the ultimate aim of the AFCFTA is to promote African Integration, it will be of great essence to ensure that this is not achieved at the expense of the economic growth of some African countries. Research shows that many African countries have a substantial percentage of the GDP from import duties thus, there is a high chance of these countries facing major economic challenges due to this exemption. In this light, it will be a productive step to include an exemption clause in the act guiding trade under the AFCFTA to protect the economies of countries such as Botswana, Benin, Namibia, Togo, Burkina Faso, Nigeria etc.

However, Nigeria stands a chance of being one of the disadvantaged nations if strategic steps are not put in place to ensure that the Nigerian economy is stable enough to compete with foreign industries. The public and private sectors in Nigeria should be able to: facilitate investments in the country, provide low cost financing, provide stable power supply, provide effective transport system, install adequate warehousing and cold room facilities, improve security at check points. Etc.

On average of all the readiness indicators such as market access, border administration, transport and communications infrastructure, business environment, global competitiveness only south Arica and Morocco can be adjudged to be reasonably ready for the AFCFTA while other countries including Nigeria can only be regarded as being moderately ready.

Thus, in the event that the National assembly ratifies the AFCFTA the Nigerian economy should be seen as being stable and adequately competitive to stand foreign competition because, with Nigeria’s economic status participation in such a trade agreement will only dispose the country as a dumping ground for other African nations. 

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[1] (CSEA Africa, 2018)

[2] (United Nations conference on trade and development, 2019)

[3] (Chapel Hill Denham, 2019)

[4] (Chapel Hill Denham, 2019)

[5] (Ndomo, 2009)

[6] (Chapel Hill Denham, 2019)

[7] ibid