The Federal Executive Council ratified Nigeria's membership of the African Continental Free Trade Area (AfCFTA) on the 11th of November 2020. This occurs more than a year after Nigeria signed the African Continental Free Trade Agreement (the "Agreement") in July 2019. The Agreement establishes a single market for goods and services across 54 countries, allows for the free movement of business travelers and investments, and creates a unified customs union to streamline trade on the continent.
The AfCFTA Agreement comes into effect on the 1st of January 2021. Although, full implementation of the Agreement may take some time as countries would have to negotiate aspects of the Agreement such as trade, dispute settlement processes, tariffs and intellectual property rights.
Nigeria is however poised to gain from the investment and trade opportunities that the AfCFTA will inevitably bring. In this article, we highlight some of these benefits.
Size of the Nigerian Market
Nigeria has the largest economy and population in Africa with more than $500 billion in GDP and a population of 200 million. This market size allows manufacturers to increase capacity and expand into other African countries. This enables investors benefit not only from the Nigerian market but from other countries on the continent as well.
To put this in context, Nigeria contributes an estimated 76% of total trading volume in the ECOWAS region. This is made possible because of the ECOWAS treaty which provides for the free movement of people and goods throughout 15 West African countries. The AfCFTA grants access to 54 countries with a population of 1.2 billion and a market worth a combined $2.6 trillion in GDP.
Supply Chain Infrastructure
Producers and retailers expanding their operations to other markets would depend on a distribution network that can efficiently deliver goods to their intended markets. This would give rise to increased investments in the distribution and logistics supply chain to ensure the infrastructure needed for transportation of goods is available. The winners would be investors who invest in the logistics and transportation space to cater for the large volume of goods which would be involved in cross-border trade.
The AfCFTA also seeks to create a single liberalized market for trade in services for the continent. Countries such as Nigeria which have an abundant supply of professionals in various services industries such as construction, engineering, technology, and financial services would see increased movement of such professionals to countries with a demand for their services. In addition, labour-intensive trade across borders would require the services of low skilled workers and the free movement of persons guaranteed by the AfCFTA will bring with it the free movement of services these persons will render.
Although, there have been valid concerns about the effect the AfCFTA would have on the Nigerian economy, these concerns can be addressed by the government putting in place safeguards to ensure vulnerable industries are protected. Safeguards include improving transport infrastructure and enforcing policies which would see a reduction in the cost of production. This would in turn make goods export friendly.
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