July 09, 2021 / 12:59 PM / By FBNQuest Research / Header Image
Credit: Nevada News
In December '20, Nigeria became the 34th African country to fully ratify and submit its Instrument of Ratification of the African Continental Free Trade Area (AfCFTA). According to the World Bank, full implementation of the agreement could increase Nigeria's real income gains by 4% by 2035 and lift seven million Nigerians out of moderate poverty. Implementation of the AfCFTA agreement officially commenced on the 1st of January '21. However, Nigeria and some other member countries are yet to effect the agreement, mainly because rules of origin criteria are yet to be defined. To harness the agreement's potential gains, Nigeria needs to position itself strategically and actively address key areas of challenges.
The AfCFTA is expected to positively impact domestic manufacturing. Manufacturing is currently the second-largest sector in the Nigerian economy (12.8% of GDP in 2020 at current prices), and the FGN has set an ambitious target of 20% manufacturing share of GDP by 2023. The aspiration is drawn, we assume, from East Asian success stories where commercial agriculture provides the raw materials for a wide range of manufacturing goods. The damper in Nigeria's adoption of this model is the agriculture sector's underwhelming growth, despite substantial credit interventions by the CBN and state-owned development banks. Insecurity lies at the heart of the sector's many challenges.
Stakeholders in the Nigerian manufacturing sector have repeatedly expressed concerns that with the advent of the AfCFTA, weak or mismanaged rules of origin could make Nigeria a dumping ground for foreign manufactured goods. These fears are not unfounded. In Q1 '21, Nigeria's trade deficit in manufactured goods amounted to NGN4.3trn. In response to this, the minister for industry, trade and investment gave assurances that the agreement has provided a platform to ensure that every product comes with an identification of origin.
Quality and sustainable infrastructure is crucial to effective intra-African trade. Nigeria has a huge infrastructure deficit, currently estimated at 30% of the GDP, which falls far below the international benchmark of 70%. And according to the National Integrated Infrastructure Master Plan, about USD3trn is required over a 30-year period to effectively tackle Nigeria's infrastructure challenges.
The Infrastructure Company (Infraco), an infrastructural development vehicle recently established under a Public-Private Partnership could be a game-changer for Nigeria in this regard. The company, set up with an initial seed capital of NGN1trn and expected to grow its capital and assets to NGN15trn over time, is expected to facilitate the development of critical infrastructure across the country so as to bridge its infrastructure deficit.
The success of AfCFTA also depends on the financial services sector's ability to serve as an effective intermediary. The CBN's recent town-hall meeting with stakeholders of the financial sector highlighted that even as Nigerian financial institutions look to maximize gains that the AfCFTA agreement presents, including potential expansion to new markets and potential growth in assets, there is a need for preparedness to tackle key risks such as increased competition, and compliance challenges due to differing regulatory requirements in member states.
The AfCFTA agreement holds great opportunities for Nigeria. It is therefore imperative for stakeholders in the country to harmonize the various sectoral strategies for effective maximization of these opportunities.