Following agreements signed last year, the African Continental Free Trade Agreement (AfCFTA) formally commenced on the 1st of January, 2021. The AfCFTA aims to create a single African market for goods and services, assist with the movement of persons, boost industrial development and ensure sustainability for inclusive socio-economic growth, while resolving the issue of multiple memberships in alignment with agenda 2063.
The act also intends to establish a common ground for Continental Common Market in the future. The free trade area which is the largest in the world based on the number of participating countries, comprises 54 of the 55 African Union nations. With a combined GDP of $3.2 trillion, the United Nations Economic Commission for Africa forecasts that the agreement would increase intra-African trade by 52 percent in 2022. This is resulting from the large market space enabling African countries to diversify their exports which will make for faster growth and attract foreign direct investment.
Africa has recorded low trade over the years. Intra-African export in 2017 was at an extremely low 16%. Europe however, records a 68% intra- continental trade while Asia was at 59%. This reveals that Africa is yet to experience the abounding opportunities that come with trading with fellow African countries.
Nigeria contributes 76% of the total trading volume in the ECOWAS region. This was achievable due to the ECOWAS treaty which allows free movement of people and goods throughout 15 West African countries. The AfCFTA on the other hand comes with larger access to 54 countries with a population of 1.2 billion. Besides, it comes with zero tariffs for over 90% of goods traded within African countries.
Can Nigeria move fast to utilize the opportunities that abound not just for her large organizations, but for small and medium enterprises as well? Manufacturers in Nigeria are provided with a larger market for their goods at a minimal cost of entry. This will help reduce the cost price of goods due to the elimination of tariffs, thereby leading to competitiveness across markets.
Many organisations in other African countries will be targeting the Nigerian market as well for obvious reasons — the population. Local producers should be prepared to step up quality of production to compete effectively with foreign-made goods that would be sold locally. There have been complaints that foreign imports have better quality and are even cheaper. The competition of local rivals with imports should help improve production. This is one area government agencies can support small and medium scale local producers.
Foreign direct investment is another area that stakeholders can work on to improve Nigeria’s economy. With free access across many borders, building industries where the market is should make great sense to investors. With an enhanced investment climate, Nigeria can achieve some edge here. Although there has been a rise in foreign investment over the years, there is still a need for an increase.
Furthermore, this will equally boost the transportation sector. The 19% GDP growth rate of transportation in the first quarter of 2019 has led to the country’s transport sector becoming one of the fastest-growing in Africa. The rail, air, and water transportation will experience an increase in revenue thereby leading to better growth. This is even made possible with the government’s investment in the construction and reconstruction of the country’s road and railway. Beneficiaries will include travel agents, transporters, airlines, logistic companies among others.
The country’s long-standing battle with unemployment can also be addressed as the AfCFTA allows for freedom of people across borders. This will help adventurous and trained Nigerian secure jobs outside the country. It will also provide start-ups with a wider scale to secure talents and skills in any part of Africa.
‘Indeed, the focus of our trade agreement should be directed to a larger extent on development and sustaining small and medium enterprises and not only on well-established big companies’, Cyril Ramaphosa, African Union (AU) Chairperson disclosed.
With the prevalent COVID-19 pandemic and its drastic effect on the economy, there have been forecasts that Africa will lose about $79 billion of output. The AfCFTA, if well utilized, can help fight the economic impact of the virus. As the union hopes to bring 30 million people out of extreme poverty and to raise the incomes of 68 million people who survive by less than $5.50 per day, Nigeria can equally tap into this vision.
There is however a need to put in place policy reforms and trade facilitation measures. Also, there are natural resources that are yet to be explored in the country. This is a great time to harness untapped potentials that can boost GDP. The AfCFTA trade, if well capitalized by government, could lead to prompt recovery in an economy facing the challenges of recession.