The AFCFTA: What It Portends for The Nigerian Economy
“Hinged on estimated market size of $ 3 trillion, the African Continental Free Trade Agreement is about the largest free trade agreement in history.” (World Economic Forum)
After more than a year of mixed reactions, the African Continental Free Trade Agreement was finally endorsed by the Heads of States and Governments of all 54 African countries on July 7, in Niamey, Niger Republic.
The initial mixture of enthusiasm and skepticism that greeted the idea was in view of the potential gains, risks or challenges associated with the agreement. While the skeptics saw it as more of a threat to their national economic interests, the enthusiasts saw it as an opportunity to venture into other markets, invest and compete on a continental scale at a much lower cost.
The question now is: How does the agreement affect the Nigerian economy at large? What opportunities come with it? And what are the inherent risks and challenges associated with the agreement?
THE IMPACT OF AFCFTA ON THE NIGERIAN ECONOMY:
- Access to Greater Continental Market Share: The agreement gives Nigeria the opportunity to gain access to over one billion consumers and tap into a three trillion-dollar African market.
- A stronger Industrial Agenda: The treaty will drive the much-needed increase in manufacturing activities. This will, in turn, improve Nigeria’s export earnings and make the manufacturing sector more competitive.
- Drastic Reduction of Trade Tariffs: With a substantial % of trade tariffs eliminated from trade among member states, import and export activities will attract record-reduction of the cost of import/export trade and help to drive down the retail cost of commodity goods.
- Employment Creation: According to the World Economic Forum, the agreement is expected to serve the best interest of Small and Medium-Sized (SME) companies, which accounts for more than 80% employment and 50% of its GDP. With this fresh opportunity to be more competitive, there will be more employment opportunities for all, not just with SMEs but larger corporations.
- Increase Foreign Direct Investment: With restrictions lifted on foreign investments, investors will flock to the continent. This adds capital to expand local industries and boost domestic businesses. New capital enhances an upward productivity cycle that stimulates the entire economy (World Economic Forum, 2018).
THE INHERENT RISKS & OPPORTUNITIES
Risks Associated with the AFCFTA
- Evasion of trade tariffs: Foreign investors may be tempted to evade tariffs or import duties for goods imported from other continents as though they were made in Africa. And this would short-change the government on statutory revenues.
- Drastic reduction in Internally Generated Revenue: The elimination of about 90% of tariffs for goods traded among member states across geographical borders will reduce revenue generated from Nigeria’s import/export tariffs and duties.
- Threats of new foreign entrants into the Nigerian Industrial Space: Threats of New entrants into the Nigerian market will tighten the Nigerian market, increase competition with foreign companies, eat into their market shares and threaten the very survival of small and medium-scaled enterprises.
Opportunities Associated with the AFCFTA
- Increase: Increase in manufacturing activities will help the promotion of made-in-Nigeria goods, export, and a much healthier trade balance.
- Eliminate Smuggling: Low trade tariffs will drastically reduce or eliminate the incidence of smuggling.
- Increase Foreign Direct Investment: Indigenous companies will be motivated to venture into other African countries in search of growth opportunities for their businesses.
In the face of all the arguments for and against it, The African Continental Free Zone Agreement has become our reality today. Though it may contain its own risks and limitations (like all other global treaties), the long-term benefits appear to outweigh all its shortcomings. The end goal is a more prosperous Africa, with unrestricted economic opportunities for all who dare to venture across the region.