Nigeria has finally agreed to join the African Continental Free Trade Area (ACFTA) after developing cold feet for a while. Many thought that arguably the largest economy in the continent, might take the earliest opportunity to grab the leadership since all vectors that are being played out would help the largest economy in Africa to muster market and arm twist the other competing players to kneel down to its dominance. Many conspiracy theories are dished out to explain the tardiness in its commitment to the free trade.
Widely held view is that industry associations, trade unions and other vested interests have come together and lobbied against the opening up of the economy apprehending that the competition would adversely affect the domestic manufacturing sector because of the inflow of goods from neighboring countries, where the wage levels are much lower. Their fear was that many of the multinational corporations taking advantage of the situation will set up production bases in the neighboring countries for fast moving consumer goods (FMCGs) and gobble up the Nigerian market. Even without piggy-riding with the so called MNC’s, countries such as South Africa, Kenya and some North African states can throw challenges to Nigeria due to their relatively high levels of industrialization and efficient supply chains.
Also, manufacturing sector in Nigeria is relatively fragile. Manufacturing as a percentage of GDP, for example, is hovering around 10%, rising slightly to 13% in 2018. The perception among policy makers is that under the right conditions, Nigeria should be able to increase this to over 40% by 2030, given the support it would get from the booming hydro carbon sector and the up and downstream industries coming there, using gas and oil as feedstock. The services sector has over stripped agriculture and industry and has accounted for 58% of the GDP in 2017. The brain driven services sector is mostly driven by expatriates and the local population may not stand to gain much when there are influx of skilled people from outside as a part of the free movement of people envisaged under the ACFTA. That was perhaps the reason for the trade unions to oppose the move.
However, the other theory for developing cold feet for opening up stems from the votaries of protectionism. Many of the billionaires in Nigeria, including the cement baron Aliko Dangote, have made a killing taking advantage of protectionism
Import restrictions have been a policy tool since the 1970s. Later, they were replaced by tariffs as an enabler of growth and a counter to the competition posed by imports to local producers. There were outright prohibitions and import licensing. For instance, in 1978, import restrictions were there on 76 broad items, which constituted about 40% of agricultural and industrial products. When such items were taken out from the negative list, they often attracted high duties and tariffs to serve the same end. The beneficiaries of these regimen were mostly smugglers or other vested interests, who took advantage of scarcity created by these dispensations.
Now, there is a new awakening in Nigeria that signing the free trade agreement may be painful for Nigeria for a while but it also may be the first step forward in realizing the enormous potential of its business sector as a competitive force in Africa. That said, how long can Nigeria keep away from the free trade grouping, when its competitors like South Africa, Tanzania and Egypt are trying to gear up their manufacturing and services strength to go beyond the narrow national boundaries.
