Focus: African Continental Free Trade Area

Stick together

Jan. 25, 2022

Nigerian businesses have mixed feelings about their country joining the AfCFTA, although the prospects are positive in the long run.

The African Continental Free Trade Area (AfCFTA) was formed in 2018 to create a free trade bloc across the continent and formally went into effect on January 1, 2021. After years of lobbying and consideration, the number of members in AfCFTA grew to 54 of all 55 member states of the African Union (AU).

The only member state reluctant to join the AfCFTA was none other than Nigeria—the largest economy in Africa. Captains of industry across Nigeria were worried that the downsides of the agreement might be greater than the advantages it offered. The Nigerian labor congress and manufacturers' association were particularly alarmed by what AfCFTA entailed.

By creating a single market for goods and labor and ensuring the free movement of people across 55 countries, the accord could potentially overburden the richer African economies such as Nigeria, Egypt, and South Africa. With the labor force and skill workers from across the continent freely moving to Nigeria, the job market would potentially see a drop in wages, which discomforted the labor unions across Nigeria for months. Moreover, given the non-homogeneous state of African economies, the agreement could force Nigeria to act as the economic and industrial engine of the continent, while indirectly forcing Nigeria to sell its products and services at prices that are more reasonable to less privileged African economies.

The issue of tariffs and dispute settlements are yet further problems. After joining the AfCFTA, Nigeria cannot continue to impose its own tariffs on goods and services, which may affect its income in the short run and put some Nigerian businesses out of competition. However, the government never dismissed the deal altogether. The authorities knew that the deal came with certain upsides, as well, but making a final decision was not an easy task. “In my view, the Nigerian government made a wise decision. Holding off on signing the agreement shows how seriously it is taking the agreement," says Olabisi D. Akinkugbe of Dalhousie University.

During its prolonged hesitation to sign the free trade deal, the government consulted various stakeholders that had a skin in the game as well as nonpartisan think tanks such as the Nigeria Institute for Advanced Legal Studies. It was therefore after much consideration that the authorities came to the conclusion that Nigeria had more to gain from the accord than it had to lose, especially in the long run.

AfCFTA can ensure the access of Nigerian manufacturers to reasonably priced African raw materials. And, although it may initially place heavy pressure on the economy as one of the main driving forces of the AfCFTA area, in the long run this will foster economic growth. Simply put, Nigeria's role in AfCFTA will be more-or-less comparable to that of Germany (as Europe's leading economy) in the EU bloc—which is not a bad thing after all.

After much ado, the Nigerian Federal Executive Council authorized the nation's membership in AfCFTA on Nov 11, 2020, nearly a year after Nigeria signed the agreement in July 2019. To date, this makes Nigeria the last African nation to join the accord. The upsides of joining the agreement are not trivial. As Africa's largest economy with a GDP of USD500 billion, Nigeria already has the upper hand in the African market.

There is little reason to fear competition when Nigeria is already the leading manufacturer of most commodities with added value in Africa. And even if Nigerian industrialists face some competition after AfCFTA comes into effect, it can be seen as a good thing, helping the nation's manufacturers prevent complacency and constantly seek better technologies, management strategies, and overall efficiency.

Although the AfCFTA accord allows potential foreign competitors to tap into the Nigerian market, it simultaneously gives Nigerian market players—who are clearly stronger than their competitors—the same opportunity to expand across the continent and find new markets for their goods and services. All other AfCFTA member have a population of 1.2 billion put together, many of whom are keen to purchase high-quality goods and services offered by 200 million Nigerians, who—on average—are better educated, more skilled, and more affluent than the rest of sub-Saharan Africans. So, AfCFTA is not an unfair deal for Nigerians after all.
Nigeria has more long-established retail brands and service providers of solid repute than its competitors. By expanding their operations into other AfCFTA members, Nigerian businesses can experience an exponential growth and—given their high chances of success—they can likely attract investment from across the globe, especially from Europe and the US.

Despite Nigeria's initial misgivings about joining an intra-continental free trade agreement, chances are that in the long run the benefits will significantly outweigh the downsides which come with AfCFTA. To be certain, however, we should wait and see how things will unfold in 2022 and the next few years.

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