March 23, 2021/Proshare

By CSL Research 

At the start of the sensitization programme to address both the private and public sector about the implications of the African Continental Free Trade Agreement (AfCFTA), the National Action Committee on AfCFTA has indicated plans to grow its intra-Africa export trade volume to US$50bn by 2035. According to a Punch news report, the Senior Special Assistant to the President and Secretary of the committee, Mr. Francis Anatogu, noted that the other objectives of the country are to establish a highly productive workforce, business-friendly environment, quality infrastructure, export development incentives and a strong national brand. Admittedly, he also identified the country’s existing challenges as downside risks to achieving its targets.

The AfCFTA trade deal which was operationalized on 1 January 2021 creates a borderless market for African products. The agreement requires immediate removal of tariffs on 90% of goods while an additional 10% of goods classified as “sensitive goods” would be negotiated on a later date.

Currently, 36 countries of the African Union’s 54 member states (excluding Eritrea) have ratified this agreement. Specifically for Nigeria, the agreement is expected to open up the African market for key manufacturing companies in the country to support export sales whilst also raising the prospects of attracting foreign direct investment across the manufacturing value chain.

In our view, African countries with the requisite infrastructure needed for large scale manufacturing activities will be better placed to attract foreign capital from multinational companies who are seeking to establish manufacturing hubs into Africa to take advantage of economies of scale as well as the benefit associated with the absence of regional taxes made possible by AfCFTA.

Many economic experts and stakeholders are concerned about the benefits that could accrue to Nigeria on the back of the deal given its existing weak infrastructure and poor exports. Two key negatives we are concerned about that may emanate from the operationalisation of this agreement are an increase in smuggling and a significant reduction in government revenues.

Due to its large population size, Nigeria is used as a dumping ground for smuggled goods and the implementation of the AfCFTA agreement could worsen this situation. Again, eliminating tariffs would result in loss of custom duties earned by Nigeria with its attendant effect on the already stifled government revenue if the country is unable to increase export proceeds.

That said, we reiterate that Nigeria does not sit in a strong position to benefit from the agreement. Key infrastructure such as power, transportation, storage systems etc. needed for an industrial revolution remain largely underdeveloped. Though steps are being taken to overhaul the transport logistics, we are concerned that many of the action plans will take some time to attain.