Leveraging African Continental Free Trade Area for Nigeria’s economic growth

International trade experts say one of the biggest challenges African countries face in global trade is that they do not sufficiently trade among themselves.


It is believed that trade records among African countries are frequently understated, partly as a result of the lack of adequate data and high rate of smuggling.

Regardless, trade among African countries has been abysmally low.

Africa is also responsible for a meager 3 per cent of global trade, in spite of being home to three of the top five fastest-growing economies in the world.

International trade experts say one of the biggest challenges African countries face in global trade is that they do not sufficiently trade among themselves.

The tendency for trade remains concentrated within the common-currency areas and trade zones that developed among African countries during the colonial era.

These trade relations are undertaken by the often-inadequate means of transportation and communication; the lack of complementary agricultural or other products, and by limited manufacturing capacities.

In response to this continental trade inadequacy, the ambitious trade policy, known as the African Continental Free Trade Agreement (AfCFTA), was conceived.

Experts say AfCFTA has the potential to become the world’s largest free-trade area, and that Africa is expected to contribute more to world trade thereby delivering economic growth to its citizens.

The framework for the establishment of the Africa Continental Free Trade Area (AfCFTA) agreement was signed in Kigali, Rwanda, by 44 Heads of State and Governments on 21 March, 2018.

The broad objective of the AfCFTA is to create a single continental market for goods and services, with free movement of business persons and investments, paving the way for accelerated establishment of the Continental Customs Union.

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AfCFTA is expected to enhance competitiveness at the industry and enterprise levels by harnessing opportunities for large scale production, continental market access and better reallocation of resources.

The agreement requires members to remove tariffs from 90 per cent of goods, allowing free access to commodities, goods and services across the continent.

However, When AfCFTA agreement went into effect on the May 30, 2019, Nigeria neither consented to the Kigali declaration nor signed the AfCFTA agreement.

Nigeria’s initial reluctance to sign the agreement is understandable.

With an estimated 200 million people, Nigeria is Africa’s most populous country and has about the combined population of Ethiopia and Egypt, the continent’s second and third most populated countries respectively.

Being the seventh most populous country in the world and Africa’s largest market, Nigeria is attractive to many economies and companies looking to make inroads into the African market.

Some trade unions and professional bodies had vehemently opposed Nigeria’s membership of AfCFTA, with the Nigeria Labour Congress, for instance, referring to the agreement as a “renewed, extremely dangerous and radioactive neoliberal policy initiative”.

But is it true that a trade agreement such as AfCFTA could reduce Nigeria to an economic dumping ground? A report published by the World Bank in June 2022 suggests otherwise.

The bank said AfCFTA is expected to raise Africa’s nominal GDP to $6.7 trillion by 2030 if all African countries sign up.

It also stated that the continent will attract even more Foreign Direct Investment (FDI) by reducing the risks of shifting regulations and policies.

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This scenario, it said, would bring income gains of 9 per cent by 2035 and reduce extreme poverty by 50 million.

The Secretary, National Action Committee on AfCFTA, Mr Francis Anatogu, recently said Nigeria should not be playing catch up on a turf it is expected to dominate.

“Nigeria has to take 10 per cent of Africa’s import from the world to provide the products and services from Nigeria that are currently being supplied by other countries outside Africa.

“But we know that for us to achieve that we need to focus on developing value chain in products and services.

“What we are focusing on 2022 is to understand where the opportunities are and we have already identified areas that are priorities for AfCFTA in terms of products and services.

“We have also been able to dimension them into arrowheads to help us focus on the short term and frontiers that we can focus on the medium to long term,” he said.

He also said seven countries have started piloting trade with AfCFTA, while Nigeria was on the verge of joining.

The World Bank report quoted earlier projected that, “Under deep integration, Africa’s exports to the rest of the world would go up by 32 per cent by 2035.

“The intra-African exports would grow by 109 percent, led by manufactured goods.”

Since small and medium-sized enterprises account for 90 per cent of jobs in Africa, Nigeria’s non-oil sector is going to benefit immensely from AfCFTA.

Crucially, AfCFTA Secretary-General, Wamkele Mene, also said about the agreement: “It will be the opportunity to close the gender income gap, and the opportunity for SMEs to access new markets.”

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An opportunity to close the gender income gap is critical because according to the Economic Commission for Africa, women account for around 70 per cent of informal cross-border traders in Africa.

However, much of this trade is conducted at high exposure to violence and violation of women’s rights.

It is therefore believed that tariff reductions and freer movement under AfCFTA will enable informal women traders to operate through formal channels, thereby bringing better protection.

A Professor of International Economic Relations, Jonathan Aremu, said for Nigeria to maximise the opportunities presented by AfCFTA, the country must place equal emphasis on importation.

“There exists an incomplete perception among a lot of observers in the country that the AfCFTA is essentially about promoting exports only.

“Under the balance of payment, it is understood that every additional U.S. dollar worth of intra-African exports must be matched by a dollar of intra-African imports simultaneously.

“Therefore, the calculation of welfare benefits of AfCFTA does not hinge on export promotion alone but hinges on larger (and cheaper) volumes of imported consumer and intermediate goods and services,” he said.

Broadly speaking, proponents of AfCFTA are optimistic about the agreement’s potential to reduce poverty, increase firm competitiveness, and boost intra-African trade and investment.

In Nigeria, small and medium-sized businesses are hoping that AfCFTA will lead to a reduction in cost of production, increase in production capacity, expansion of market size and price reduction.