Nearly a month after reports surfaced that Nigeria may be ready to sign the African Continental Free Trade Agreement (AfCFTA), President Muhammadu Buhari has blown the lid off, stating reasons for the country’s reluctance to commit to the trade pact.
The president, who demanded an impact assessment on the deal and approved the report in May, cited Nigeria’s lack of capacity to prevent other African countries from dumping goods into the country. According to him, this would impede the growth of emerging local industries, thus posing a challenge in the continental trade accord.
“I don’t think Nigeria has the capacity to effectively supervise and to ensure that our colleagues in AU (African Union) don’t allow their countries to be used to dump goods on us to the detriment of our young industries and our capacity to utilise foreign exchange for imported goods,” President Buhari said, in a meeting with the National Council of the Manufacturers Association of Nigeria (MAN) in Abuja.
The African leader’s claim is in line with that of the President MAN, Engineer Mansur Ahmed, who had urged the Federal Government not to sign the trade pact to save Nigeria from being used as a dumping ground for foreign goods.
“The position of the association is that the government should not sign the framework agreement until wide-reaching sensitization and proper assessment is conducted on its impact on the economy and the manufacturing sector,” Ahmed said in January. The association’s stand is based on a sector-specific study conducted on AfCFTA.
Following the visit by MAN which is reportedly connected to an agitation against the signing of AfCFTA, the President promised to look into the presentation by the association highlighting issues of concern to the manufacturing sector but it seems highly unlikely Nigeria is going to implement the free trade area anytime soon even if it is signed immediately.
Several reactions have trailed this reason for refusing to sign the continental free trade agreement, with widely contrasting views – basically pro and anti-AfCFTA – held and shared by experts, analysts and the general public.
The pro-AfCFTA side of the argument holds that the President’s stand, backed by the manufacturers’ association, is misinformed and myopic due to what the country stands to gain from signing the trade pact. A free trade area is one of the key stages in economic integration and the benefits of a vibrant regional economic integration, as seen among advanced continents (North America and Europe), are enormous.
Typically, regional economic integration leads to a reduction in the cost of trade (for both consumers and producers), improved availability of (and a wider selection) of goods and services, as well as efficiency gains that lead to greater purchasing power in participant countries. Also, there is a tendency for employment opportunities to improve substantially as liberalised trade drives market expansion, technology sharing and cross-border investment flows. Stronger economic ties also improve political cooperation.
The AfCFTA particularly looks to establish a single continental market for goods and services as well as the free movement of business people and investments. Member countries will remove tariffs from about 90 percent of the 200 traded items on the continent in a bid to make them more affordable for consumers. A potential market of more than 1.2 billion people and a share in the combined gross domestic product (GDP) of more than $3.4 trillion, this is what Nigeria stands to lose if it ends up not signing the trade pact.
However, as attractive as the prospects and benefits of the African trade pact sound to Nigerian citizens and businesses, when pursuing economic integration advantages and disadvantages must be weighed. In other words, a free trade area has inherent costs which may be detrimental to member countries on an individual level.
In Nigeria’s case, the trade pact could hurt domestic production based on the inability of local industries to compete at the regional level against the vibrant manufacturing sectors of other African countries like Tanzania, Rwanda and Ethiopia. Hence the President’s fear of Nigeria becoming a “dumping ground” for an uncontrolled inflow of finished goods from other member countries.
But instead of the concerns the president has about the entrance of foreign goods into the Nigerian market, the idea should be viewed as an encouragement that could propel local firms towards growth. A free trade area means domestic firms face competition from abroad but that does not necessarily spell doom to local industry players. On the other hand, increased competition generally leads to better quality products at a lower price for end consumers, as well as more incentives to cut costs and increase productivity. What the government should be looking to do is create a robust local industry and increase its regional competitive capacity.
Moreover, the Nigerian government could offset the likely implications of the pact on its local production by maximising another benefit of a free trade agreement, which is specialisation. This involves focusing on an area of comparative advantage, that is, where the country only produces goods that they are efficient at and in which they have a lower opportunity cost than the rest of the market. Specialization would lead to higher levels of production and export output to other member countries who lack such goods, ultimately earning the country significant income from the free trade area.
While concerns over the disadvantages of the AfCFTA to Nigeria’s local manufacturing may be valid or true, there is enough empirical evidence to show that the advantages of free trade outweigh the likely costs if properly prepared for. An August 2018 independent survey of 512 business leaders and owners by the Nigerian Office for Trade Negotiations (NOTN) reportedly showed an “overwhelming expectation of positive impacts of AfCFTA on businesses and the economy”.
So rather than agitate against the AfCFTA based on its demerits, the Nigerian government would be better off finding a concrete policy program that could mitigate them, maximise the benefits of the proposed liberalized trade and get on the train before it gets too late.