(An Impact Asessment Study)
An Extract of the Technical Report by NESG (December 2019)
The African Continental Free Trade Area (AfCFTA) represents one of the most ambitious attempts of the African Union Heads of States and Governments to economically unite African peoples and economies. It also represents a bold attempt by the African Union Heads of States and Governments to provide or at the least, experiment with an “African solution” to “an African” problem. The AfCFTA is the first step in the implementation of African Union (AU) Agenda 2063: the “Vision” for an integrated, prosperous and peaceful Africa.
Given the huge market potential in Africa, there is a tremendous possibility that AfCFTA will become an African success story. However, the amount of success that is achievable in this “African Project” will depend to a large extent on the quality of preparation that is infused to the negotiation and implementation of the AfCFTA agreement by African countries.
It is against this background that the Nigerian Economic Summit Group (NESG) commissioned the Centre for Petroleum Energy Economics and Law (CPEEL) at the University of Ibadan, Ibadan in conjunction with Equilibria Consult, to conduct an evidence-based study that has the overarching objective of assessing the potential impact of AfCFTA on the Nigerian economy.
The study has some interesting findings with wide-ranging implications for the Nigerian economy. For instance, the results indicate that the AfCFTA will be trade-diverting as Nigeria’s imports from non-African countries will be substituted by imports from African countries.
The African Continental Free Trade Area implementation in Nigeria is expected to create the phenomenon of trade-diversion and this will be more prominent in Nigeria’s imports from West African countries and South Africa.
The implementation of the AfCFTA has positive impacts on Nigeria’s exports. If linear cuts are applied to tariff elimination, aggregate export will increase by 0.02 percent in both the first and second five-year implementation periods respectively. If the tariff elimination is back-loaded, aggregate export is expected to increase by 0.01 percent and 0.03 percent in the first and second implementation periods respectively. Even when tariff elimination is front-loaded, aggregate export will still increase by 0.02 percent in both the first and second five-year implementation periods respectively. When sensitive products are protected from tariff cuts, aggregate export will also increase by 0.02 percent in both the first and second five-year implementation periods respectively.
The above results strongly suggest the existence of opportunities and potential risks associated with the AfCFTA agreement. The results also informed some key policy recommendations that include the following:
1. In view of the findings that Nigeria’s GDP will be negatively impacted when the AfCFTA agreement comes into force, and in view of the need to make the economy more competitive; it was recognized that relying on the inflow of foreign saving to grow the economy may not readily pay-off. The study, therefore, recommends that the country should embark on massive infrastructure upgrade and institutional reforms to improve her business environment.
2. Producing highly competitive products in the foreign market also require strengthening government regulations and internal quality control of products produced in the country. The Standards Organization of Nigeria (SON) and the Nigerian Agency for Food and Drug Administration and Control (NAFDAC) have a crucial role to play in this respect. These regulatory institutions must be reformed to effectively perform their constitutional regulatory functions.
3. Nigeria needs to maximize the opportunities that are available to it in the AfCFTA agreement by enhancing the space for both domestic and foreign investments. Thus, there is the need to create a more business-friendly environment and reduce existing binding trade constraints in the country that has so far deterred the growth of foreign investment in different sectors of the economy.
4. There is a need for measures to counter the expected negative impact of AfCFTA on government revenue. The recommended policy measure here is to combine trade liberalization with increased drive for the inflow of foreign saving/investment into the Nigerian economy. The government can complement this with a programme of diversification of the Nigerian economy.
5. The Government may begin to undertake deliberate measures that will strengthen sectors including health, education, electricity, transportation, textile, apparel and footwear to maximize the benefits that are likely to accrue to them when the AfCFTA agreement comes into force. This can be done by recognizing these sectors as AfCFTA priority sectors for immediate government support.
6. Implementation of the AfCFTA is also expected to trigger a surge in imports across sectors of the Nigerian economy. The major concern here is the issue of dumping. To protect the economy from the dumping of inferior and substandard products, the Rules of Origin (RoO) needs to be well strengthened and tightened. This may require the country using the five-year transitional period to negotiate and adjust within the economy.
Overall, one thing that is certain is that AfCFTA would turn out in one of two outcomes; a win-win outcome for all African countries, or a zero-sum game in which case the gain of one country becomes the loss of another, or the loss of one country becomes the gain of another.
To read the full technical report of the Impact Assessment Study and Economy-Wide Implications of the African Continental Free Trade Area (AfCFTA) on the Nigerian Economy, visit www.nesgroup.org/research