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Why Nigeria may not leverage AfCFTA to revamp ailing economy

Why Nigeria may not leverage AfCFTA to revamp ailing economy

The Nation | 28th March 2023

By Chikodi Okereocha

On the strength of Nigeria’s estimated 200 million population and huge market, she was tipped as the biggest potential beneficiary of the African Continental Free Trade Area (AfCFTA) Agreement. However, two years after trading commenced on January 1, 2021, Nigeria is yet to begin practical implementation of the trade pact. Poor preparation as well as low productivity and reduced competitiveness foisted on manufacturers and agro-exporters by the prevailing high-cost business environment and other unfavourable macro-economic variables are said to be undermining the country’s chances of leveraging the AfCFTA to remake reflate the economy.

It does not take an expert in international trade and diplomacy to see that the odds are stacked against Nigeria as far as taking full advantage of the African Continental Free Trade Area (AfCFTA) Agreement is concerned. For a start, two years after trading under the AfCFTA commenced on January 1, 2021, Nigeria, which experts tipped as the biggest potential beneficiary of the trade pact that seeks to connect 1.3 billion people across 55 African countries with a combined Gross Domestic Product (GDP) valued at over $2.6 trillion, seems unprepared to seize the monumental opportunities offered by the AfCFTA.

Nigeria, in spite of her population and market size that naturally place her in a vantage position to dictate the pace in the continental trading bloc, has not moved beyond what some private sector operators routinely refer to as “sensitisation and consultation with the public sector.” The paperwork for the agreement has also not been concluded. The Nation learnt that, as of last week, the final document articulating Nigeria’s National Strategy under the AfCFTA was still being prepared. This was after all stakeholders were said to have been invited to validate what Nigeria’s National Strategy will be.

The 2nd Deputy President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Jani Ibrahim confirmed this much, saying: “All the relevant stakeholders were invited to validate what our national strategy will be.” While adding that “the final document is being prepared,” Ibrahim, however, told The Nation that a lot of sensitisations were going on, with Small and Medium Enterprises (SMEs), for instance, getting online to be able to do business under the AfCFTA. The NACCIMA chief, who has been on the frontline of the push for the private sector’s active participation in the AfCFTA, was, however, quick to add that “there are certain things that also need to be done which is the domestication of AfCFTA statutes in our books.”

Now, the fear is that with Nigeria already in an election year when matters germane to her economic survival, including those related to the AfCFTA, are likely to take the back seat, domesticating the protocols and implementing the AfCFTA may not be given priority attention this year, perhaps beyond. The AfCFTA is a high-ambition trade agreement founded in 2018, with trade commencing on January 1, 2021. It seeks to create the world’s largest free trade area; one that integrates 1.3 billion people across 55 African countries with a combined GDP valued at over $2.6 trillion.

The Agreement commits countries to remove tariffs on 90 per cent of goods and incrementally applies the same to services. The removal of tariffs on goods, in particular, is projected to increase the value of intra-African trade by 15 to 25 per cent by 2040, translating to between $50 billion and $70 billion in value.

Nigeria – Africa’s largest economy – signed the AfCFTA on July 7, 2019, becoming the 34th member of the continental trading bloc, which, according to development experts and analysts, puts her in good stead to benefit tremendously from the larger market access, free movement of labour, goods, services and capital it offers. The AfCFTA is also expected to motivate Nigerian SMEs to expand their businesses to other African countries, foster business growth, increase profit as well as contribute substantially to the development of the manufacturing sector.

Other monumental and heart-warming benefits and opportunities available for Nigeria to grab under the AfCFTA include a significant boost in the export of commodities (mainly agricultural and other non-oil commodities), manufactured products as well as services; increase in the country’s GDP and contribution to external reserves accretion; likely influx of Foreign Direct Investment (FDI) into the country.

Other monumental and heart-warming benefits and opportunities available for Nigeria to grab under the AfCFTA include a significant boost in the export of commodities (mainly agricultural and other non-oil commodities), manufactured products as well as services; increase in the country’s GDP and contribution to external reserves accretion; likely influx of Foreign Direct Investment (FDI) into the country.

However, while the aforementioned benefits and opportunities offered by the AfCFTA are, no doubt, bountiful and mouth-watering, there are fears that they may elude Nigeria. Her seeming lack of readiness or preparedness to seize the opportunities tossed on her path by the AfCFTA by moving beyond sensitisation and consultation campaigns to the practical implementation of trading may hurt her chances of leveraging the agreement to reflate her economy.

Admittedly, for a trade agreement that took over 60 years to put into place, significant trading under the AfCFTA, according to those schooled in the dynamics of international trade agreements, will take some years to take off fully. This means that it will take some time before the envisaged direct benefits of the trade liberalisation deal begin to manifest. The AfCFTA Secretary-General Mene Wamkele said, for instance, that market integration, which the agreement seeks to achieve, is not an event, but a process that takes time, pointing out that it took the European Union (EU) almost 60 years to achieve its current depth of integration.

However, the thinking of industry operators and stakeholders is that Nigeria may be off to a shaky start and as such, may not benefit from the first-mover advantages that come with the AfCFTA. Besides, Nigeria’s failure to implement the AfCFTA and lead the charge in the unfolding effort to leverage the AfCFTA to force Africa’s economic rebirth may not only hurt her chances of maximising its benefits but also constitute a drag on other African countries.

The President of the Pan-African Manufacturers’ Association (PAMA), Otunba Francis Meshioye, inadvertently verged on Nigeria’s seeming lack of readiness in the AfCFTA regime when he said: “Without doubt, we must now move beyond the completion of negotiations on the schedule of tariff offers, finalisation of work on the Rules of Origin and fully operationalise the Pan-African Payment Platform. We should speedily resolve all outstanding issues that are germane to the effective implementation of AfCFTA.”

The occasion was the “Lighting the African Trade Torch for the Implementation of AfCFTA” held in Lagos on January 18, 2023, where, in his goodwill message, Otunba Meshioye, who incidentally doubles as the President of the Manufacturers Association of Nigeria (MAN), affirmed PAMA’s commitment to the seamless operationalisation of the AfCFTA Agreement. Organised by the Africa Business Council (AfBC), which is considered the premier advocacy arm and platform for private sector cooperation and engagement at the African continental level, along with ensuring regular inclusive dialogue with the AU, the ‘Light the Africa Trade Torch for Implementation of AfCFTA’ is a private sector initiative started on January 20, 2021, for the popularisation of AfCFTA.

At the Lighting the Africa Trade Torch event, Otunba Meshioye reiterated that PAMA sees the single liberalised market for free trade in goods and services, which AfCFTA offers, as “a lifetime opportunity for African countries, Nigeria inclusive, to trade more with each other, refocus national economic, investment and industrial policies to be in sync with continental aspirations.”

Some of the aspirations, according to him, include enhancing private sector development, growing national economies, increasing the number of African multinational companies and fast-tracking the process of fully integrating the continent into the global market among others. “All these opportunities are for the taking if the competitiveness of private businesses is enhanced, and I must say we cannot afford to allow this monumental opportunity to liberate Africa economically slip from our hands…,” Meshioye said.

Nigeria is hobbled by reduced competitiveness, low productivity

Unfortunately, as things stand, the “monumental opportunity to liberate Africa economically,” which so much excites Meshioye and, indeed, other critical stakeholders may slip from the continent’s hands, at least, from Nigeria’s end, unless the productivity and competitiveness of her private businesses – both in manufacturing and agriculture – is urgently enhanced as the PAMA president recommended.

Indeed, not a few operators and experts, who spoke with The Nation were emphatic that without addressing the weak productivity and reduced competitiveness of private businesses in Nigeria forced largely by the prevailing high-cost business environment and other unfavourable macroeconomic variables, the country will not benefit optimally from the AfCFTA regime. “For you to benefit from the AfCFTA, you must be competitive. Your goods must be competitive in quality and price,” NACCIMA Director-General Olusola Obadimu said, adding that “When your infrastructure is weak and your cost of doing business is high, the security is bad, how can you manufacture competitively?”

Obadimu told The Nation that if Nigeria is not competitive with her goods and services, there will be more inflows than outflows and she will lose because more goods and services will be coming in than they are going out of the country. “So, the only way to be competitive and gain from the agreement is to be able to compete and get your goods or whatever you produce in good quality and less price. That’s how you can have more outflows than inflows,” Obadimu stated.

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, could not agree more, noting that countries with strong productivity and competitiveness will benefit more. “Benefits and costs would vary from country to country. Countries with a quality investment environment would emerge as key destinations for investment,” Yusuf, who was former Director-General of the Lagos Chamber of Commerce and Industry (LCCI), said.

Ibrahim also attributed private businesses’ weak productivity and reduced competitiveness to infrastructure gaps, particularly poor electricity supply and logistics problems. “A critical area of concern for Nigeria under the AfCFTA is the manufacturing sector. Of course, we know the reasons why we may not be too competitive; it’s because of the challenging business environment, especially power and logistics problems, but we’re looking forward to the government resolving them so that our enterprises can take advantage of this open market,” he said.

Before his recent exit as MAN President, Mansur Ahmed never stopped lamenting that with the economy lacking in key infrastructure, the manufacturing sector was too fragile to become competitive under the AfCFTA or even withstand competition from other countries. “We cannot achieve competitiveness without the provision of infrastructure such as good road networks and electricity, not only within African countries but also across borders. There is also the aspect of the provision of soft infrastructure – like visa, tariffs, and foreign exchange – that will help ease the process of carrying out business transactions between countries,” Ahmed said, at one of MAN’s fora in Lagos.

While insisting that, “We must address all these issues since the AfCFTA is not just about trade in goods, but also trade in services,” the former MAN president said modern industry competitiveness depends to a great extent on the provision of adequate and efficient infrastructure. “From the availability of power and energy to transport and logistics, the role of infrastructure cannot be overemphasised in trade and economic development on the continent,” he stated, pointing out, for instance, that transportation is vital to enhancing competitiveness in trade.

Indeed, the need to address Nigeria’s business environment challenges particularly closing her huge infrastructure gap, especially power and also improving the general ease of doing business has never been compelling if she must reap the full benefits of the AfCFTA. For instance, because of poor transport infrastructure, it costs a business owner in Nigeria more to transport goods from Lagos to Kano than it costs a Chinese business owner to transport the same goods from China to Lagos.

High logistics costs and high cost of power supply have been a pain in the neck of manufacturers and agro exporters in Nigeria. The Nation learnt that while power takes only about 10 per cent of production cost in some countries, it gulps between 40 to 50 per cent of Nigerian manufacturers’ cost of production.

The founder and Group Chief Executive of Emerging Africa Capital Limited, Mrs Toyin Sanni, also lent her voice to the growing concern over Nigeria’s lack of capacity to benefit from the AfCFTA. “Unfortunately, we can’t take advantage of the agreement again because what we produce is much more expensive for us to take it anywhere,” she said. Mrs Sanni, who was a panellist at this year’s edition of the annual Vanguard Economic Discourse held last week with the theme, “Taming Inflation and Stimulating Growth: The Place of Fiscal and Monetary Policies,” hinged her position on Nigeria’s current unfavourable macroeconomic conditions, particularly rising inflation.

According to her, the rising inflation in the country has led to several unsavoury consequences, including a drastic reduction in the purchasing power of Nigerians, increased number of Nigerians relocating abroad for greener pastures (otherwise known as the Japa syndrome), reduced foreign investment, reduced competitiveness in the global market etc. She, however, traced Nigeria’s rising inflation to a sustained reduction in the value of the local currency, the naira, an increase in fuel and energy costs, as well as increased insecurity across the country, which, according to her, forced an increase in food cost and by extension, inflation.

“Reduced foreign investments, high inflation have brought instability and made Nigeria a less attractive destination for foreign investments and our next-door neighbours have taken up all the flows that should have come to us by virtue of the size of our market. There are reduced productivity, reduced savings and investments,” Sanni said.

She said: “Nigeria’s reduced competitiveness in the global market is particularly important now that we have the AfCFTA, an initiative that is meant to give us the opportunity to take our goods across the whole of Africa at a much-reduced tariff and minimal obstructions.”

The expert, however, said encouraging Nigerians abroad to bring in more money into the country, widening the tax net, and, of course, improving infrastructure, and others, could help turn the situation around. Obadimu, who was also a panellist at the Economic Discourse, however, argued that the soaring inflation currently plaguing Nigeria and hurting her continental and global competitiveness was basically cost-push, forced by the prevailing high-cost business operating environment. “Our inflation is basically cost-push, and that’s why monetary policy is not working and can’t work,” Obadimu maintained, insisting that addressing the high-cost business environment as well as the divergent exchange rates, for instance, are key to curbing inflation.

Agro-exporters also losing grip

Manufacturers are not the only players under the AfCFTA regime whose productivity and competitiveness have seriously declined in recent times. Operators in the agri-business sector are no less affected due largely to the lack of quality and standardisation for Nigeria’s export-bound agro-allied products. The thing is that in today’s international business and trade, importing countries want to be sure of the quality, sanitation, and hygiene of products from exporting countries. Countries not sure of the quality and standard of their imports will not throw their markets open to the exporting countries.

What this means is that, for Nigeria to be competitive in agro-export globally, she must comply and align herself to the global benchmark for standards and trading. This is conspicuously lacking in Nigeria at the moment where the rejection of export-bound products has continued unabated, due to a lack of a policy framework that guarantees standards, quality and certification.

According to experts, the poor quality of agricultural products for exports, which results in such rejections, is traceable to poor handling of agricultural products (pre- and post-harvest period), diseases and pest attacks on crops and excessive use of pesticides for preservation purposes. Indeed, with globalisation and increasing emphasis on the quality of agricultural products, which is benchmarked on international food safety procedures, the need for Nigeria to put in place appropriate risk management measures and provide required guarantees on agricultural products leaving the shores of the country has never been imperative.

The President and Chairman of the Board of Trustees of African Export–Import Bank (Afreximbank), Prof. Benedict Oramah, brought the reality of Nigeria’s poor showing in the international export business nearer home when he said recently that Nigeria suffered a loss estimated at $700 million over rejected agro-produce. “Due to poor quality, over $700 million worth of agro-produce are rejected from Europe alone. “About 76 per cent of exports from Africa are rejected annually,” Prof. Oramah said, at the official inauguration of the Africa Quality Assurance Centre (AQAC) in Sagamu, Ogun State.

He, however, said Afreximbank was working to address the problem by working with a lot of organisations to create the framework for the harmonisation of standards across the continent. He said African products must meet international standards to make their mark in countries around the world. Other areas highlighted by experts to help give Nigeria a strong footprint in the AfCFTA regime include the need to fast-track industrialisation, prioritise value addition to agricultural products, and increase technology adoption in order to improve payment systems, widen market reach, build capacity, eliminate diverse barriers and entrench cost-effective processes, among others.

While industry operators and stakeholders await the in-coming government in Nigeria to address some of the identified issues that may deny the country the benefits of the AfCFTA, the service sector, where Nigeria is said to have comparative advantage and strength, The Nation learnt, appears to be coming on relatively strong at the moment. For instance, Engr. Ibrahim, said a lot of Nigerian lawyers, including operators in the banking, aviation and creative industries, are already operating in Africa.

NACCIMA ex-officer, Adebayo Jimoh added that a lot of Nigerian operators in the cement sector such as Lafarge and Dangote Cement are also now operating in African countries, making it easier for them to expand.

 source: The Nation