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Wednesday,
August 07, 2019 /11:28AM / By CSL Research / Header Image
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Yesterday, the African
Development Bank (ADB) Group signed a US$4.8m institutional support grant to
the African Union (AU) for implementation of the African Continental Free Trade
Area agreement (AfCFTA). The grant, approved by the Groupís Board of Directors
in April, forms part of a series of interventions by the bank in its lead role
to accelerate the implementation of the free trade agreement, seen as a major
force for integrating the 55-nation continent and transforming its
economy.
AfCFTA is a free trade area,
outlined in the African Continental Free Trade Agreement among 54 of the 55
African Union nations. The agreement was championed by the African Union (AU)
and was initially signed by 44 of its 55 member states in Kigali, Rwanda on
March 21, 2018. Currently, all African countries except Eritrea have now
signed the agreement. The AfCTA trade deal creates a borderless market
for African products. The agreement requires immediate removal of tariffs on
90% of goods while an additional 10% of goods classified as îsensitive goodsî
would be negotiated on a later date. Interestingly, the free-trade area is the
largest in the world in terms of participating countries since the formation of
the World Trade Organization
(WTO).
Although, critical parts of
the agreement have yet to be finalized, formal trading among member countries
is set to commence on 1 July 2020. Accordingly, we believe for member countries
such as Nigeria who were initially reluctant to assent to the agreement owing
to concerns around the negative implications it could have on their domestic
economies, now need to act swiftly by putting the right structures and
framework in place that will improve their level of competitiveness and enable
them benefit from the agreement.
Specifically for Nigeria,
there is the need in our view for fiscal policies to complement the efforts of
the monetary authorities in strengthening the medium to long term growth
prospects of the country. While the CBN has adopted unorthodox policies geared
towards compelling commercial banks to improve lending to the private sector
and encouraging local production through its revised Loan-Deposit Ratio (LDR)
guidelines and the restriction on access to FX for certain commodities, we
believe we may not see the desired impact of these actions in the face of
supply side shocks such as security challenges and bottlenecks in the operating
environment.
In our view, supply
side measures that will raise potential output and improve domestic
productivity should be of immediate concern to the fiscal authorities. First is
the need to tackle the security challenges across the country particularly in
food producing states where farmers have deserted their farmlands.
Additionally, the forward and backward linkage between the agriculture and
manufacturing sectors should be enhanced by improving infrastructure
especially power and ensuring good road network between the rural and urban
areas.
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