Jobs & Human Capital

AfCFTA: Nigeria needs Africa

by By Prince C. Oguguo

November 6, 2018 | 6:44 pm
  |     |     |   Start Conversation
Prince Oguguo is a Doctoral Researcher at the Management, Technology & Strategy Department of Grenoble Ecole de Management, France

Compared to over 50% between the three NAFTA countries, trade between the 55 African Union member states is about 18% of total exports from the continent. There is much room for trade growth within the continent. In March 2018, 44 African countries took the next and perhaps most significant step yet, step to advance a vision for greater intra-African trade by signing the Framework Agreement on the African Continental Free Trade Area. Considering that the roots of the AfCFTA can be traced back to the Lagos Plan for Action for the Economic Development of Africa (1980) and the Abuja Treaty Establishing the African Economic Community, it is glaring that the host of these two bedrock conventions and the continent’s largest economy and most populous state has abstained from committing to this agreement.  

The African Continental Free Trade agreement is an ambitious project to facilitate the prosperity of people on the continent by facilitating intra-African Trade. A free trade agreement focuses on removing tariff-based barriers to trade between countries. The 44 countries that have signed on to the AfCFTA have agreed to liberalize trade in goods and services between themselves and other signatories to the agreement. Free trade on the continent can have several benefits for African businesses and the economy in general.

Right now, Africa may be described as a hodgepodge of small isolated markets. This makes it difficult for local businesses to scale and makes each individual economy less attractive for foreign direct investment. By giving businesses access to a larger market beyond their home countries, the AfCFTA will allow the establishment of industries in Africa that are simply not profitable now, foster the scaling of already stunted industries and lead to the development of entirely new industries to take advantage of the growth in inter-African relations. Ultimately, as the economy grows, there will be more job openings for people to man these industries, and economies of scale will mean that products are less expensive for consumers while businesses generate greater revenue.

The AfCFTA also has the potential to revitalize the dynamism of African businesses. Global firms often have greater expertise than local firms, gained from operating in several countries over long periods. The global firms that will be attracted by the AfCFTA will expose local firms to their best practices and technologies often through partnerships and sometimes through competition. This sort of exposure will challenge entrepreneurs on the continent and give them greater access to the skills and partnerships they need to be dynamic in today’s world.

In Nigeria, prominent voices however see dark clouds spewing from the AfCFTA. The president of Nigeria’s largest labour union has for instance described the AfCFTA as “an extremely dangerous and radioactive neo-liberal policy initiative…that seeks to open our seaports, airports and other businesses to unbridled foreign interference never before witnessed in the history of the country”. This sort of rhetoric is however not consistent with the consideration that the AfCFTA is a very basic trade agreement (not a customs union or single market), simply requiring that countries eliminate barriers to trading with each other, especially in tariffs. Free trade agreements have numerous precedents all over the world, none of which has been directly or remotely implicated in the sort of collapse in sovereignty being alluded to.

It would nonetheless be disingenuous to portray the AfCFTA as being without risk for Nigerian businesses and economy. Perhaps the biggest such risk associated with the AfCTA rests on the reality that Nigerian businesses are severely crippled by lacking infrastructure in the country and may thus collapse when exposed to the sort of external competition that a free trade agreement fosters. While it is true that many firms, particularly those in the manufacturing sector where electricity costs are significantly impeding, will probably relocate to countries where business can be done more efficiently, such costs are not the only consideration for a business, and neither should they be for Nigeria’s policymakers. With its rapidly growing population of almost 200 million occupying a territory almost twice the size of France, Nigeria simply has more workers and customers than anywhere else in Africa. For many businesses, there is simply no other place in Africa that can offer such scale. Many businesses, when the abysmal transport network between African countries is considered, will be convinced by economic fact that it is more profitable to produce in Nigeria and export smaller quantities, than to attempt to produce in a smaller neighboring country and ship vast quantities to the Nigerian market.

The effect of the AfCFTA is would extend to many industries beyond manufacturing. For instance, in the creative sector, where Nigeria’s outsized film and music industries have long benefited from its megastars collaborating with other African talents, the increased interaction and cultural exchange that is inevitable through greater trade will allow such collaborations to trickle down and inspire creatives in other industries and with fewer means. Every society stands to gain from greater creativity. Nigeria’s real estate and hospitality sector would also benefit from the increased presence of businesspeople from the continent pursuing trade opportunities; as would Nigeria’s struggling air transport industry as well as it’s grounded counterpart.

Beyond this micro-examination of profit and loss is a much larger issue that speaks to the country’s future and its self-perception as the ‘giant of Africa’. As a founding and leading member of two of the most prominent pan-African organizations, the AU and the AfDB, Nigeria has always recognized that African nations work better individually when they can aggregate their strengths. The AfCFTA should instead of being a red line in this history, be a green light for the country to improve its business environment while promoting initiatives to give its businesses and inhabitants access to new markets and products. Nigeria could influence and possibly shape the most ambitious trade project ever on the continent. A true giant would find the ambition to embrace the potential that AfCFTA stands for.

*Prince Oguguo is a Doctoral Researcher at the Management, Technology & Strategy Department of Grenoble Ecole de Management, France.

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by By Prince C. Oguguo

November 6, 2018 | 6:44 pm
  |     |     |   Start Conversation

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