Nigeria has a chance to benefit from AfCFTA despite its late start
AfCFTA: HOW NIGERIA CAN WIN WITH AFRICA’S HISTORIC BUSINESS TRADE DEAL
*By Funmilola Fadumiyo
I have always been an advocate for how Nigeria can have 100,000 successful businesses especially with the tenacious entrepreneurial spirit of its people combined with its soaring population which the UN estimates to rise to 398 million by 2050. It is not that we don’t have capable minds to achieve such success, but the challenge is that the government and leadership tend to deny citizens the chance to be lifted out of poverty. More damaging is the fact that government policies, unpreparedness, and inefficiencies are hurting consumers who are forced to pay more due to domestic monopolies, who in turn churn out poor quality goods and services.
Nigeria cannot afford to be a bench warmer with the ushering in of Africa’s historic business trade deal, the African Continental Free Trade Area, AfCFTA, along with its potential to spur economic growth, employment and engender a vibrant middle class. Nigeria now needs to analyse its talents and abilities, push for developments in innovation and technology, drive investments and create a conducive environment for doing business at the regional and global levels.
Nigeria’s Trade Factors
Nigeria is the largest economy in Africa. According to the World Bank’s Africa Economic Outlook data, Nigeria’s economy grew faster in 2018 (compared with the preceding year) due to a modest pick-up in the non-oil sector. However, this did not in any way translate to effective development or poverty reduction. Also, the rate of unemployment, put at 23.1 per cent now is not abating.
At the moment, the EU remains Nigeria’s most important trading partner for oil and non-oil products as the bloc accounts for 49% of imports and 37% of exports (NBS 2018). Europe is followed by USA, India, China and Brazil, while the main regional partners include Ghana and Cote D’Ivoire.
At the policy level, Nigeria remains inward looking as it grapples with the voices of trade lobbyists, monopolists and private sector groups who canvass for protectionism from international firms and regional neighbours.
In 2016, the government set up the Nigeria Office for Trade Negotiation (NOTN) to lead trade negotiations and – in coordination with the Nigerian Investment Promotion Commission (NIPC) – unify Nigeria’s trade and investment negotiating policy framework. This notwithstanding, the country still lacks a robust trade policy and an economic-driven trade strategy.
The Business Environment
Many companies still find doing business in Nigeria challenging with issues around non-tariff barriers, bureaucratic processes, high cost of electricity, lack of infrastructure, duplication of taxes and weak policies. According to the World Bank Doing Business Report 2018, Nigeria ranked 145th out of 196 countries. A Presidential Committee on Ease of Doing Business is working on improving this but the reality is still different between what’s on paper and what businesses face.
Other country Case Studies
Our first example is China which is ranked #2 on the global share of world merchandise trade. Its key policies include attracting export-oriented foreign investors; increasing international competitiveness of its exports and the creation of Special Economic Zones (EPZs) with tax exemptions to boot, all within a comprehensive Export-oriented strategy.
Second is Malaysia which is one of the world’s most open economies and where trade is equivalent to 130% of its GDP. Here, trade policy is aligned with industrial and investment policies, there is a commitment to trade agreements; while a key business enhancement strategy is the focus on creating an eco-system that would help SMEs tap into global supply and value chains and take advantage of trade preferences obtained through bilateral and regional Free Trade Agreements, FTAs.
Our final focus country is Mexico which is ranked #15 in terms of its share of global exports. The country promotes a trade policy that is closely linked with investment promotion and the key strategy involves vigorous tax refund schemes. Financial incentives in the form of export credit finance for marketing and loans for working capital are available for business players and Mexico’s Trade & Investment Promotion organisation, ProMexico has a $97m annual budget and 401 employees.
AfCFTA as Game Changer
AfCFTA will boost intra-African trade and create more jobs across diverse sectors thus increasing purchasing power and benefiting consumers. There are however hanging issues such as financing infrastructure, developing a common currency and the protection of infant industries.
For Nigeria to be a valued part of AfCFTA, the country needs to analyse its production of goods and services, looking at the two critical areas of division of labour and area of specialisation. We need to step up manufacturing activities and inject new technology and skills that will increase competition and improve our chances in the regional exports space while also boosting domestic consumption. We also need to support the services sector through setting up comprehensive Intellectual Property Rights and anti-counterfeiting laws.
Nigeria is not currently exploiting its comparative advantage, e.g. vibrant MSMEs and SMEs, Market, Population and Resources to the fullest. Nigerian investors should also be able to profit from ventures in other African countries. Government should therefore pursue AfCFTA with unrestrained strategic vigour and ambition across four critical strategic areas.
First, government needs to stimulate the business environment and make appropriate financial investments leading to the building of key infrastructure, improving logistics, connecting markets, and improving access – with railway lines being particularly connected to border cities. There should also be the diversification of exports with manufacturing companies, over time becoming responsible for over 70% of our exports.
Second, government should be strategic in developing effective policies for key sectors, introduce more tariff-free inputs, reduce red tape, improve the business environment, and gradually embrace greater openness and push for improved trade, with timelines being set and followed through. Hanging trade agreements should be concluded and proactively taken advantage of. Negotiations must be driven by skilled experts and government should support and create institutions to drive trade expansion. These would include public-private partnerships designed to promote exports as well as 21st century support institutions and services for companies and businesses. There is also the need for more investment in trade policy and trade facilitation reforms that support SMEs/MSMEs and create an enabling environment for them to thrive.
Third, government needs to empanel experts that would be tasked with developing a strategic trade, investment and business strategy that will do a stock take, gap analysis and review of the trade, investment and business environment; identify priority sectors/areas of specialization; link SMEs to investors; highlight creative and innovative opportunities for research and development; and support local businesses.
Finally, there should be a nexus of technical and political will. The Ministry of Trade, Industry and Investment and its agencies should be headed by reform-thinking people. Equally, the key trade and investment related institutions, agencies and councils should have a coordinating mechanism chaired at the presidential level, even as they incorporate inputs from representatives of Ministries and State Governments. A seamless reporting and monitoring mechanism that addresses matters of trends, implementation of trade, investment policy and facilitation measures should be developed with regular feedback at both the Executive and Legislative levels even as investment and financial commitments should be increased for the Trade sector.
Funmilola Fadumiyo, a Trade and Regional Integration consultant, writes from Abuja