The African Continental Free Trade Agreement (AfCFTA) is one of the biggest economic events in Africa in the last ten years. Besides the fact that integrates African economies, it provides a sense of belonging to the African continent. The AfCFTA is expected to increase Africa’s income by $450 billion by 2025 and lift about 30 million people out of extreme poverty. With the AfCFTA secretariat launched in Ghana and full implementation of the AfCFTA protocol due in January 2021, African countries are preparing their industries and sectors to extract the gains from AfCFTA.
Nigeria assented to AfCFTA in paper, but its readiness in terms of institutions, domestic programmes, infrastructure, technical capacity building, and other enabling conditions is weak. While the impact assessment report of AfCFTA on Nigeria shows huge gains across selected sectors, the conditions to engender these gains are partly existent. What this means for Nigeria is that there is a probability that local industries may be stifled with intense competition from producers in other African countries. More so, the practice of dumping may escalate within the Nigerian economy.
The rule of thumb for any regional integration is that participating countries should produce and export as much as they import and then, back this up by the level of their GDP. For instance, Nigeria is acclaimed the biggest economy in Africa; therefore, the biggest trade in terms of export should emanate from Nigeria – Nigeria should feed Africa within the AfCFTA. This is highly unlikely. What we expect is that imports to Nigeria will increase disproportionately to export. In fact, Nigeria is aptly tagged as the biggest oil-driven economy in Nigeria. Countries like Kenya, South Africa, Ghana, and Egypt fare better in terms of non-oil production.
The risk of dumping in Nigeria is high with the commencement of AfCFTA and dumping in itself poses a serious threat for economies and emerging economies at that. The obvious problem with dumping is that it destroys the importing country’s local industries. Dumping is the act of reducing the prices of exports below what it would normally sell for in the home country to capture market share. For instance, producers of flour in other African countries can export their flour to Nigeria, sell it at ridiculously lower prices and chase local flour producing companies in Nigeria out of the market.
While it is true that consumers may benefit from cheaper imports due to dumping, domestic industries are severely hurt. It also means that Nigeria will be financing the growth of other African economies at its own expense. Again, what happens if Nigeria decides to pull out of AfCFTA after its domestic industries have been sidelined by foreign producers? This risk of dumping imposes a serious policy concern for the Nigerian government and the home trade office. There have to be effective anti-dumping measures initiated and institutionalized before AfCFTA takes off.
At this point, it is important to examine what other African countries are doing to prepare for AfCFTA and what lessons are there for Nigeria. In Ghana, four major manufacturing initiatives have been flagged off to make Ghana the manufacturing hub of Africa. These programmes are One District One Factory, Planting for Food and Jobs, Planting for Jobs and Export, the Strategic Industries Anchor Initiative, and the port modernization program. In South Africa, the government is proposing a ‘one-stop border policy’ that creates a seamless movement of people and goods across its land borders. In Kenya, manufacturers are implementing strategies to increase production and tap into the AfCFTA market. Some of the strategies in use are the adoption of modern technology for production and collaboration with air cargo companies to leverage air transportation for the distribution of made-in-Kenya goods to other African countries.
It is true that the Nigerian government may have a plan or two in readiness for AfCFTA, but there are bottlenecks that need to be urgently addressed. The Apapa port need urgent intervention; air cargo transportation is an immediate need; security at the border is another concern; backward integration and protection of domestic manufacturers have to be prioritized; seamless export procedures have to be introduced; cutting-edge technologies has to adopted in agriculture and manufacturing; Nigeria can raise more remittance from human capital export to Africa with the right strategies. There is a lot of task for the Nigerian government ahead of AfCFTA to realize the estimated gains out there.
Written by Michael Ogunremi
Michael is an economist with PricewaterhouseCoopers, Nigeria