ACFTA is now signed. What next?

After months of delay, the president finally signed the Africa Continental Free Trade Agreement. That puts paid to the many arguments and counter-arguments on the suitability of Nigeria’s membership of the trading bloc. Regardless of the merits of protectionists arguments for import substitution, the protection of domestic industries, protecting our country against use as a dumping ground for re-exports, guarding against the loss of jobs and so on the popularity of the Nigeria-Africa trade holds sway. It is without a doubt that we have more to gain economically, socially and in international relations than without the membership. All things being equal, the powers of competition, innovation and comparative advantage, our attractive immense market base, our relatively higher income capacity, our substantially untapped natural resources are levers that we can step on to create mammoth prosperity for our country by accessing the expanded markets that the trade bloc presents to us.

With about 17% share of the continental GDP as well as a 15% share of its population, we have all that it takes to turn this opportunity into enormous economic success for the country. Many simulations of the economic impacts of the trade agreement equally demonstrate that. One of such findings shows that Africa reasonably patronises products from Nigeria. For example, a 1% rise in the economic production of Africa as a whole will scale up Nigeria-Africa trade by 1.6%. Similarly, for every 1% decrease in the tariff rate on Nigeria-Africa trade, the Nigerian government revenue is projected to grow by 2.5%. Income from the expanded trade more than actually offsets the potential fall in revenue due to the CET. In more specific terms, we expect about 90% increase in Nigeria’s agricultural sector on account of this Nigeria Africa trade.

In spite of these foreseeable benefits, there is always this justifiable pessimism, which is traceable to the events of our history. For instance, a good question would be why we were not able to create these economic magics by utilising the platform of the ETLS? Before ACFTA, we have had the benefit of the ECOWAS ETLS. How well have we even taken advantage of the ECOWAS ETLS which can be considered a mini version of the continental trade agreement? Clearly, within the sub-region, we are the dominant economic powerhouse, yet we did not take much advantage of the vast markets offered to us to expand our domestic production and export capabilities. Instead of that, we seem to have opened our borders for the dumping of all sorts of products from different parts of the world through questionable re-exports going on within the sub-region. Some smart West African countries saw the ETLS instead as an opportunity to target the Nigerian market rather than a mutually symbiotic trade relationship. First, the West African country imports cheap products from countries such as China and then re-export the same into Nigeria under the framework of the ETLS. It is debatable whether we have had significant marginal improvements in production, employment and revenue from trade taxes directly attributable to the ETLS.

Success mostly takes place when preparation meets opportunity. The Continental free-trade agreements is another such opportunity. What may not be clear is whether we are prepared to take advantage of that opportunity. The first level of preparation requires policy fine-tuning and policy drive. In the former, we must have clear fiscal expectations from the implementation of the trade agreement. These expectations should have two time-based components. One that is relatively long term and designed as part of the broad fiscal policy of the country and the other which specifies targets for institutions that are within the implementation chain and which generally have well spelt out revenue targets. This kind of preparation will leave no one in doubt whether the country fully understands its takeaways from the programme. The implication is that agencies and institutions that lie within the implementation chain will all go back to design further strategies for delivering on the expectations that the country has of them on accounts of ACFTA implementation. Ideally, this would result in a fine-tuned national export policy program.

All the agencies that have responsibilities for ensuring that locally made products comply fully with international quality expectations can no longer rest. That is the second most crucial level of preparation. One major hindrance to our export success is the poor quality compliance of the products that we make. For instance, we could not substantially tap into the many promises of the AGOA acts on account of this factor. A lot of our exports suffer rejection because they are of quality that is not internationally acceptable. Although in the ACFTA, we are to be dealing with several African countries with similar challenges, some states may ride on the back of such weaknesses to erect non-tariff trade barriers. To effectively skip this hurdle, quality regulating agencies such as SON, NAFDAC, and so on must be at their best.

Given that Nigeria is a natural target market, there should be an accentuated level of readiness in trade activity tracking, as well as in dealing with and managing cross-border flows of goods. There is no need to restate that a distinct requirement here is the procurement of modern technological infrastructure for managing ultra-high volume national border trade transactions. In addition to the infrastructural readiness is an attendant justice system that not only anticipates but effectively manages the apparent legal breaches that will be a consequence of the heightened trade pressure. If we are currently buckling under the weights of the existing volume of activities at the border, one can only imagine what would happen, given this agreement if the right levels of preparation are not in place.

One of the primary reasons why we failed to take optimal advantage of the ECOWAS ETLS was the absence of the right level of education and sensitisation of our citizens to understand the benefits of the trade agreement and how entrepreneurs in the country can take maximum advantage of it. The primacy of such education cannot be swept under the carpet if we are to reap the fruits of this continental agreement. Our ministries of trade and investment, academic institutions, the bank, as well as various chambers of commerce should take it upon themselves to educate our citizens on currently existing and discoverable comparative advantages that they can leverage within this framework. As is well known, the expanded markets of the African continent has also created opportunities for scale economies in many areas of production. It is a time for our domestic investment banker to take the lead in attracting represent long-term financing for scale economies in areas where we have lots of comparative advantages more than other countries in Africa.

It is also essential for us to realise that even the comparative advantage is elusive regardless of whether we have an abundant stock of a particular commodity if we cannot get it ready for the market at competitive prices. Therefore, there should be well considered national plan to deal decisively with the infrastructural problems that have always made our products uncompetitive. Two of these costs drivers in our environment are electricity and transport infrastructure. The challenges of these two critical infrastructures are typically responsible for almost 35% of the total costs of domestic manufactures. Recently, the air of peace and security also appear to be lacking and exacerbating the overall cost structure of production. It is needless to state that the absence of substantial peace and security necessary for production orchestrates enormous costs. Again it means that if we do not expertly plan to produce at least costs that the prices which we shall offer our products will be naturally uncompetitive. Cost-driven uncompetitiveness has been the fears expressed by many local manufacturers when the idea of ACFTA came to public knowledge.

The issue of manufacturing costs can also not receive adequate attention without considerably resolving the foreign exchange supply constraints that producers have always faced. The availability of foreign exchange at the right price is a significant desideratum for achieving competitive pricing of local exports. Foreign exchange availability, stability and prevailing rates are necessary for the sustained procurement of required intermediate inputs for production. When any or all of these go outside of their normality ranges, it becomes a tall order for the producer to produce and export competitively. Of course, complementary to the foreign exchange challenge is the entire funding challenges faced by producers and exporters. Much more efforts need to be in place to reduce the cost of funds for manufacturing production.

At the other side of fear, which delayed the signing of the ACFTA also lies a lot of opportunities for the prosperity of this country. However, there is no doubt that this can only be possible if we tidy up our house and make the necessary preparations that would enable us to reap the benefits of this newly expanded markets maximally. If we do not take advantage of these opportunities, the benefits will naturally go to our African trading partners who will, in turn, take advantage of our equally vast markets.