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Nigeria: How effective compete can thrive under AfCFTA

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Since the Africa Continental Free Trade Agreement (AfCFTA), came into effect on January 1, 2021, not much trade has happened for different reasons. Situated within the context of Africa Agenda 2063, also known as “The Africa We Want,” it is supposed to be a strategic framework developed by the African Union (AU) to guide the continent’s development from 2013 to 2063. Despite many promises from the Nigerian government and stakeholders in almost three years, the country has done nothing to trade under the agreement and missed the last two deadlines to join the Guided Trade Initiative (GTI), a situation that local manufacturers have decried and described as worrisome, TOBI AWODIPE reports.

Manufacturing, a major aspect of any nation’s economy, is a key driver of economic transformation and industrialisation, capable of generating employment, fostering intra-African trade, technological advancement and reducing poverty. In light of this, the emphasis on manufacturing in both the AfCFTA and Agenda 2063 is not surprising, given that the manufacturing sector accounts for 70 per cent of global trade and between 30-55 per cent of service jobs are related to the manufacturing sector. 
   
Over the years, experts have pointed out that Nigeria, being the largest economy in Africa, should have a bigger manufacturing sector and become a production hub for the rest of Africa.
   
However, despite this optimism and the numerous advantages cross-border and regional trading can offer Nigeria, the country has failed so many times to grow and bolster this market, with any cross-border and regional trade happening informally or privately.
  
At the third Adeola Odutola Lecture, which formed a part of the 51st Yearly General Meeting (AGM) of the Manufacturers Association of Nigeria (MAN), former minister of industry, trade and investment, Olusegun Aganga, said low international freight costs, technology and unprecedented levels of information available over the Internet have transformed the world into a single accessible market and if Nigeria and the rest of Africa intend to compete on a global level with other players, they must develop an intentional, precise, and intense approach to nurturing and expanding industrial activities beyond what is currently on.
   
Speaking on ‘Setting the Agenda for Competitive Manufacturing under the AfCFTA: What Nigeria Needs to Do’, he said the many weaknesses beleaguering the sector make it difficult to progress under the trade agreement. He added that these weaknesses must be addressed before setting any agenda for competitive manufacturing under AfCFTA.
   
“In setting an agenda for Nigeria’s competitive manufacturing, I would first of all like to share some of the initiatives and actions other countries, particularly Nigeria’s competitors in and outside Africa have taken to improve their competitiveness. China remains the largest exporter into Africa and will remain the biggest competitor in Nigeria and other African markets even with the AfCFTA in place.”
   
Listing some steps China took in order to make its products competitive in the global market including heavy investment in infrastructure, establishment of Special Economic Zones (SEZs), tax incentives, streamlined regulations and focus on manufacturing products for international markets. Others include contract manufacturing to specifications, incentives to foreign investors, bilateral and regional trade agreements and so on.

     
“Nigeria cannot afford to be left behind as it competes with leading importers and export-oriented African countries to meet the demands of consumers in Africa. Competitiveness drives productivity and will determine the long-term prospects of our economy. Investors go to China because it is cheaper to produce there and they know they can get world-class skills and technology, without paying too much. That is competitiveness. In 2005, landed costs to manufacture in China and deliver to the US were 25 per cent to 30 per cent less than manufacturing in the US. This led to a huge reallocation of capital and capacity towards Asia. It is not just about becoming competitive but staying competitive.”
     
He revealed that with trade agreements such as AfCFTA, Common External Tariff, EPA, and Preferential Trade Agreement, Nigerian businesses are now open to competition from all over the world and must act quickly or be swallowed up.
   
“Agree on a vision for industrialisation with targets that the whole country will buy into; develop a policy and plan of implementation. The Nigeria Industrial Revolution Plan (NIRP), which MAN helped develop, is a good starting point. Nigeria has been de-industrialising due to external intervention and lack of support from Government and yet wants to be prosperous, create job opportunities, generate significant non-oil foreign income, have a strong Naira, large foreign reserves and a stable exchange rate. This is wishful thinking.”
     
“Government must create a strong and stable macroeconomic environment, streamline customs procedures and regulations to simplify and reduce cost of cross-border trade, promote true ease of doing business, ensure security of lives and property as well as update and implement Nigeria’s Industrial Revolution plan. Nigeria does not need to start from scratch; it just needs to find genuine manufacturers in the identified sectors with potential, invest heavily in them and put a robust governance system in place.”
   
The former minister also urged heavy development of the MSME sector, saying they are the primary drivers of employment and economic growth. “The last survey conducted by the NBS and SMEDAN in 2020 identified 40 million MSMEs, employing 76.5 per cent of Nigeria’s workforce, accounting for 49.78 per cent of the GDP and 7.64 per cent of exports. Nigeria’s 40 million MSMEs comprise 96.7 per cent of all businesses in Nigeria and 98.8 per cent of them are in the micro cadre. We must focus on export-oriented growth, as the only way to strengthen the Naira is to increase productivity and capacity and become export-oriented. Our export to GDP ratio is very low and we will need to earn about $72 billion from non-oil exports to achieve 15 per cent.”

     
Adding that incentives should be offered to attract foreign investors and multinational corporations to set up manufacturing facilities in the country, he said the country’s infrastructure must be revamped as poor economic and trade-related infrastructure limits capacity, productivity and increases production costs and logistics. “Funding is also poor and when Nigeria has relied on borrowing, proceeds have not been allocated to infrastructure projects that will expand the economy. The application of funds has been driven more by politics and personal interest rather than by the economy. Also, apart from a very low manufacturing value add base, the major problem with Nigeria’s export of non-oil commodities and competitiveness is standards/quality. Poor compliance with phytosanitary measures has caused Nigeria to have one of the highest levels of rejects of agricultural produce exports to Europe and the US. This results from the excessive use of agrochemicals that exceed the maximum residual level permitted, use of banned agrochemicals and the presence of aflatoxin in agricultural commodities.”
  
Urging better access to affordable finance, he regretted that FX shortage for the importation of intermediate inputs and machinery for manufacturers continues to be a problem with the cost climbing daily due to the exchange rate. “If not well managed this could lead to the collapse of some industries and scarcity of products. Nigeria must work towards consuming what it produces and producing what Nigerians consume. Otherwise, with AfCFTA in place, Nigeria will be flooded by cheaper and substandard goods.”
     
Adding that MAN has a lot to do, he urged the body to speak with one voice, advocate for policies and reforms, work with relevant agencies on initiatives related to skill development and education to address talent needs of industries, enhance the employability of the workforce and provide a platform for businesses to network and collaborate both domestically and internationally.
Urging the government to declare the industrial sector a national priority sector and back it with plans, policies and funding, he said instead of defending the Naira that continues to fall, the government should invest in genuine manufacturers and exporters of high-value products that would earn the country FX. “The Naira will continue to be weak if Nigeria remains an import-dependent country and does not produce for local consumption and more importantly for export,” he said.

Speaking, MAN president, Francis Meshioye, said beyond rhetoric, Nigeria must develop the right strategies and concerted efforts to position the country’s economy as the number one manufacturing hub of the African economy. “Evidence from several parts of the world have shown the importance of this sector in building a resilient economy. In 2021, average manufacturing output accounted for as high as 35 per cent of Ireland’s GDP growth; 27.44 per cent for China, and 48 per cent of Puerto Rico’s economy. In the US, it accounted for more than 60 per cent of the total exports and about 35 per cent of the US economy’s total productivity growth. In Nigeria, the contribution of the manufacturing sector to the total output is not higher than 10 per cent, with an average growth rate of approximately 2.3 per cent over the last five quarters; we cannot compete with this poor numbers.”

Speaking on challenges preventing national and regional expansion, he regretted that they were still battling over 30 different forms of taxes, fees, and levies leading to rising cost-of-doing business and rapid divestment in the manufacturing sector; high cost of borrowing and high interest rates; poor infrastructure, including inadequate power supply, poor road networks and inefficient port facilities; low local content development and patronage of made-in-Nigeria products; poor sectoral integration of the manufacturing sector; FX shortage among other issues.

Meshioye said all these and many more problems prevent Nigerian manufacturers from being able to compete well and setting a comprehensive agenda for the sector’s transformation will enhance its competitiveness and lock its full potential.

SOURCE: AfCFTA NEWS

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