Nigeria’s Reluctance to Sign the AfCFTA is at its Own Peril

The African continent is often described as a sleeping giant partly due to its enormous intra-regional trade potential that has remained underutilised. Currently, intra-African trade is only 16% of the continent’s overall trade, compared to 50% intra-Asian and 70% intra-European trade. Meanwhile, the continent is home to 1.2 billion people, providing a huge market for African businesses. By 2030, Africa is predicted to have a combined consumer and business spending of $6.7 trillion.

One of the major challenges facing African businesses has been the difficulty of tapping into other African markets due to poor infrastructure, complex trade barriers and administrative bottlenecks, making it difficult for them to achieve economies of scale and benefit from learning by exporting, which occurs when firms become more productive by exporting goods abroad.

According to a report by the Brookings Institution, greater intra-African trade would not only strengthen product value chains but would also facilitate technology diffusion and knowledge sharing on the continent. In addition, it would stimulate infrastructure development and attract foreign investors.

In a move to bolster intra-African trade, the African Union recently initiated the Africa Continental Free Trade Area (AfCTFA), which is poised to be the world’s largest free trade zone. The deal aims to “create a single continental market for goods and services, with free movement of persons and investments”.

The missing giant of Africa

When the opportunity for free trade among African countries emerged, one would have expected the continent’s largest economy, Nigeria, to be a pioneer not only in swiftly ratifying the deal but also in rallying other smaller countries to follow suit. Unfortunately, that was not the case. Nigeria’s president, Muhammadu Buhari, abruptly cancelled his trip to Kigali where other 44 African leaders signed the ground-breaking deal in March 2018, already indicating his obvious reluctance to support the deal. Nine months later, Nigeria has yet to sign the deal, citing flimsy reasons that are neither justified by sound economic theory nor by trade realities.

In Nigeria, the AfCFTA has faced resistance from both the central government and other organised unions such as the Nigerian Labour Congress (NLC) and the Manufacturers Association of Nigeria (MAN).

The primary reason offered by Nigerian officials for their scepticism has been based on a flawed economic analysis. This revolves around the fear that the deal would potentially cripple indigenous businesses, turning the country into a “dumping ground”. According to Femi Adesina, special adviser to the Nigerian president on media and publicity, the president “would not want to agree to anything that would hinder local entrepreneurs”. He also stated that the president backed off from signing the deal because it “could encourage the dumping of finished goods in Nigeria”. I find these reasons not only flimsy but also elusive.

Recently, Nigeria’s special adviser to the president on economic matters, Adeyemi Dipeolu, announced that the country is not in a hurry to sign the deal, and that “only what would benefit the country [will be] implemented as a policy”. What is more problematic was his remark that “we have to look at the current theory to influence our trade policy”. As a teacher of international economics, I have yet to come across any theory that could justify his government’s reluctance to sign the AfCTFA because the underlying assumptions and outcomes of most theories are fundamentally different from the situation under consideration.

On the other hand, opposition from organised unions has been based on an outdated protectionist ideology and the fact that they were not “adequately consulted”. The NLC opposed the deal on the grounds that it was a “dangerous and radioactive neoliberal policy” and called for greater consultation with them. This is false given that, far from being an externally-imposed neoliberal agenda like the infamous Structural Adjustment Programme of the 1980s, the AfCTFA was designed and proposed by Africans in order to benefit their continent as a whole. It is deeply ridiculous to conflate it as a neoliberal “foreign interference” as this case is different.

Although the Nigerian president had set up a committee to conduct extensive consultations with local stakeholders in March 2018, there has been no any meaningful outcome to date, signifying slow pace of decision-making on an important issue especially considering that the deadline for signing the deal is only a few months away.

The reasons echoed in Nigeria in opposition to the deal are mistaken in fundamental ways. The dumping argument has been historically employed by developing countries in order to protect their “infant industries” from fierce competition from technologically advanced competitors in advanced countries. Therefore, it’s a development opposition that does not hold in the present situation involving only African countries, where there are no substantial gaps in manufacturing efficiency as shown in figure 1.

Figure 1: Manufacturing value added in selected African Countries 2017 (%GDP)

What would Nigeria gain from the deal?

Although Nigerian officials seem to hold an unenthusiastic view of the AfCFTA, it can be argued that the deal provides enormous economic opportunities for Nigeria as much as it does to other countries. Intra-African trade is not necessarily a mutually exclusive phenomenon but a win-win case where all African countries stand to benefit together. For Nigeria, it provides a unique opportunity for its booming local businesses and tech start-ups to prosper by tapping into other African markets easily, thereby creating jobs and promoting economic diversification, which are central to the recent government’s recent Economic Recovery and Growth Plan.

Far from being a dumping ground, Nigeria would potentially become a magnet for foreign investors who would be attracted not only by its huge population and economic size but also by the possibility of easily accessing other countries in Africa. On the other hand, opting out from the deal would signal future risks and uncertainty to investors who are willing to benefit from larger African markets and stronger intra-African trade. As result, Nigeria would potentially miss future foreign direct investments to other more outward-oriented African destinations.

Moving forward

Nigeria should play a crucial role in making this deal a success not only for its own economic benefits but also for its strategic role as the continent’s largest economy and powerful actor. If it fails to do that, other countries would take lead, making Nigeria the isolated giant of Africa and barring it from being involved in critical decisions that would shape the continent’s future.

Rather than stoking up irrational fear of domination from economies smaller than its size, Nigeria should vigorously move on to provide enabling environment that would facilitate its structural transformation while consolidating its regional competitiveness. This would require overhauling its institutions, revamping its infrastructure, implementing business-friendly reforms as well as providing incentives for exports. In this regard, Nigeria could learn a valuable lesson from Ethiopia.

Nigeria should quickly sign and ratify the AfCTFA before the time runs out.