HOW THE AfCFTA CAN IMPACT LOCAL BUSINESSES IN NIGERIA
So far, 44 out of 54 African countries have signed for the establishment of an Africa Continental Free Trade Area (AfCFTA) which would make it one of the largest free trade blocs in the world today. Nigeria and South Africa are among the 10 nations which are yet to sign the AfCFTA for numerous economic and political reasons. However, recent reports show that Nigeria is on the verge of signing this historical pact which will transform intercontinental trade in Africa forever.
A poll initiated by the Federal Government of Nigeria on the benefits or otherwise of signing the AfCFTA revealed that 78 percent of businesses surveyed from a total 512 companies across the 6 geo-political zones believe that signing the agreement will bring about a positive effect on businesses in Nigeria.
Here is how the implementation of the CFTA can likely affect local businesses in Nigeria.
What is the AfCFTA?
The AfCFTA is a movement by African heads of states to put in place a single continental market for goods and services with free movement of people and investment in order to expand intra-African trade which accounted for a mere 10.2 percent of African trade in 2010.
The agreement signed in March 2018 by 44 African nations implies that African countries will be committing to removing 90 percent of tariffs imposed on goods and services, while the remaining 10 percent will later be phased in on certain identified “sensitive items”.
The goal of AfCFTA is to bring together all 54 African nations into a single market with a total population of more than one billion people and a combined Gross domestic product (GDP) of $3.4 trillion.
How will the CFTA benefit local businesses in Nigeria?
Estimates from the United Nation’s Economic Commission for Africa (UNECA) suggest that intra-African trade could increase by 52 percent in 2022 following the full implementation of the agreement.
With a single continental market for goods and services and a combined population of over one billion people in Africa, Nigerian businesses are expected to gain as the level of exports could rise due to an open access to markets previously unavailable to them.
Bongo Adi, economist at Lagos Business School opined that opening up the barriers to trade through the AfCFTA will help enhance trade as there are many things that Africans can trade with each other.
‘‘Nigerian traders are settled and well established in most African countries, therefore, by signing the AfCFTA, it will enable them make Nigeria the country of choice for the importation of finished goods for retailing in these African nations. These traders will leverage their networks and already established contacts to get best prices for products to stock their shops. This sudden demand for Nigerian products all over Africa through these traders will push non-oil exports in Nigeria higher in years to come,’’ he added.
The free trade agreement committing African nations to removing 90 percent of tariffs on goods and services will help cut down the cost of importing of goods, thereby allowing for cheaper importation of some raw materials needed by Nigerian businesses. This will, therefore, relieve the cost of production of local produced goods allowing these companies to grow and expand.
A stepping stone towards an integrated single continental market with a harmonised trade regime and trade liberalisation strategies will help stabilise the exchange rate, thereby making Nigerian local businesses to thrive in the international market.
Henry Okodua, an economist at Covenant University asserted that “productive businesses in Nigeria will benefit from the tariff reduction as it will enhance business welfare.”
As a result of a larger market induced by the CFTA, Okodua explained that “productive businesses in Nigeria will be able to produce more goods, thereby generating positive economies of scale and creating employment opportunities at the macro level.”
Culled from Business Day