What are the possible benefits of the AfCFTA agreement for Nigerian SMEs and businesses?
Possible benefits for Nigerian SMEs include:
1. Removal of barriers against Nigerian products
2. Easier access to the continental markets for manufactured goods and services, thereby stimulating a slight shift towards the manufacturing sector
3. Diversification of the export portfolios of SMEs
4. Easier access and connection to regional and continental value chains, access to cheaper raw materials from economies of scale
5. Protection from unhealthy competition and dumping practices
6. Better access to funding and investments for capital ventures
7. More jobs for the youth, especially in the services sector, e.g. cross border technology services
Can the AfCFTA agreement solve the problem of Nigeria’s over-dependence on oil exports?
Following the oil prices crash of 2018, Nigeria’s economy has been under a lot of pressure. Nigeria’s oil-export-dependency is a well-known fact, having started in the ’70s during the OPEC crisis to push agricultural exports to a near-extinct state. In recent years, with half-hearted attempts to diversify the exports basket, oil still accounts for about 80% of Nigeria’s exports. Non-oil exports are mainly from the telecom, agricultural and manufacturing sectors.
The trade agreement can, no doubt, help Nigeria to become less dependent on oil exports. According to modelling results by ECA (Economic Commission for Africa), it is expected that the trade agreement will add value to intra-African exports. Removal of tariffs will increase the value of intra-African trade by between 15-25% by 2040, depending on the extent of liberalization applied1. ECA’s results also showed that intra-African trade resulted in a more significant transfer of knowledge, manufactured and processed goods, thereby creating more value. Manufactured goods made up a higher proportion of regionally-traded goods (41%) compared to 14.8% of exports in 2014. In the video below, The CEO of FemiBoyede Consulting also discusses the problems arising from Nigeria’s over dependence on Oil exports
Nigeria, however, is not the only country over-relying on its oil exports. Reports show that between 1990 and 2014, most African countries (apart from Sudan, Egypt and Rwanda) hardly diversified their industries and almost totally relied on rents from extractive industries.
For Nigeria to benefit from reducing its overdependence on oil exports, strategies need to be put in place. A few of them will include:
1. Capacity building for SMEs expansion and diversification into non-oil exports.
2. Effective government policies and provision of incentives for SMEs to discover and target new markets.
3. Government-enhanced programs; provide upskilling, technology, and knowledge transfer to increase production capacity and build competitive value chains in non-oil sectors.
4. Building trade-related infrastructure, proper governance while facilitating access to the banking, investment and financing sectors.
5. The need to create a platform and the infrastructure and governing bodies that will ensure enhanced monitoring of unified standardization of goods and industry regulations
6. Provide platforms for educating SMEs, filling policy and procedural knowledge gap issues, thus enabling the SMEs to maximize all the potential benefits of AfCFTA.
7. Every other strategic activity to build the capacity of the Nigerian SME for international competitive bidding, enhancing their export competitiveness.
1. United Nations Economic Commission for Africa. 2018. “An Empirical assessment of AfCFTA Modalities on Goods.” UNECA.