Nigeria’s GDP negatively expose to AfCFTA – NESG. As against widespread optimism that flooded the public discourse, the Nigerian Economic Summit Group, has stated in a report that the implementation of African Continental Free Trade Area (AfCFTA) would negatively expose Nigeria’s gross domestic product.
NESG www.nesgroup.org made this known in a report, where it looks at the potential impact of AfCFTA on key macroeconomic variables.
It states that the current state of infrastructure and institutional arrangements in the country will adversely expose the country’s GDP to some difficulties.
This is would be the case irrespective of the trade liberalization strategy adopted by the country.
“AfCFTA it will provide a scope for the expansion of intra-Africa trade if properly implemented”, it remarked.
NESG said the only likely remedy to the expected loss will be some exogenous intervention by the government or the rest of the world in the form of increased government expenditure or increased inflow of foreign saving/investment into the Nigerian economy.
The AfCFTA is also expected to adversely affect government revenue except when trade liberalization is combined with increased inflow of foreign saving/investment in the Nigerian economy, the report reads.
NESG said the sectors that are expected to gain the most in terms of increased average output from AfCFTA implementation are health, education, electricity, textile, apparel and footwear as well as transportation sectors.
On the flip side, the economic group said the chemical, chemical products and electrical; wood and wood products; cement and construction sectors are expected to record the greatest losses under the AfCFTA.
“Nigerian households, in general, are expected to experience a negligible decline in household’s income under the AfCFTA.
“The decline in household’s income will be more severe for the rural rich households and urban rich households while the poor households in both urban and rural households will only experience a marginal decrease in income”, the report reveals.
It stated that household consumption of the most commodities is expected to increase considerably.
According to NESG, the projected increase in household consumption is expected to offset the estimated decrease in the household’s income and increase the overall well-being of Nigerian households.
“Government intervention, by way of an increase in its infrastructure spending, will no doubt help to minimize potential losses associated with AfCFTA implementation”, NESG noted.
The group stated that arguably, the AfCFTA represents the most ambitious endeavour of the African Union that is aimed at promoting economic cooperation of the African people.
It also represents a bold attempt by the African Union Heads of States and Governments to provide or at the least, experiments with an “African solution” to “an African” problem.
“Given the huge market potential in Africa, there is a tremendous possibility that AfCFTA will become an African success story.
NESG said however, the amount of success that is achievable in this “African Project” will depend to a large extent on the quality of preparation infused into the negotiation and implementation of the AfCFTA agreement by African countries.
No doubt, there are opportunities and potential risks associated with the AfCFTA agreement, NESG noted.
Trade liberalization optimists assert that the agreement will strengthen intra-African trade which is currently low, and improve development through the free movement of capital and people.
On the other hand, the pessimists are concerned that the agreement will lead to revenue losses and further worsen the fiscal stance of many African countries.
There is also fear that foreign competition for domestic firms can reduce demand and profitability which affects productivity.
NESG said: “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.
NESG is of the view that just liberalizing trade is not sufficient to maximally benefit from the agreement.
It stated that this will have to be complemented with increased capital flows and factor mobility.
“There is a need for the Government to invest in strategic sectors that will facilitate Nigeria’s ability to take advantage of the enhanced market opportunities.
“The negative consequences of the agreement can cancel out if the infrastructure is enhanced, thus, existing supply and capacity constraints such as electricity, transportation, security, access to credits must be addressed”, NESG proposes.
In its recommendation, NESG said it is important to first note that Africa is still characterized by significant non-trade barriers such as transportation challenges, high transaction costs at the borders, etc.
“In view of the finding that Nigeria’s GDP will be negatively exposed to free trade if the country joins the AfCFTA, and considering the need to make the economy more competitive; we recognize that relying on the inflow of foreign saving to grow the economy may not readily pay-off”, NESG said.
To mitigate adverse effect, NESG advises the Government to embark on massive infrastructure upgrade and institutional reforms to improve her business environment.
The infrastructure upgrade could be realized through the concession of major infrastructural projects (electricity, roads, bridges, airports, seaports, etc.) to the private sector.
NESG said: “The concessions must, however, be complemented by strong institutional reforms to effectively regulate the operations of the private sector.
“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 reoriented to effectively perform their constitutional regulatory functions”.
The pundits remarked that Nigeria needs to maximize the opportunities that are available to it in the AfCFTA agreement by enhancing the space for both domestic and foreign investment.
The report harps on 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.
In addition to providing a reliable transportation system and power supply, the country can restore a business-friendly environment by substantially addressing all major security challenges that have in recent time inundated the country and discouraged foreign investors from doing business in Nigeria, it added.
“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.
“If successfully pursued, diversification of the Nigerian economy will, in turn, boost the tax revenue base of the Nigerian Government”, NESG noted.
The group stated that the government may begin to undertake deliberate measures that will strengthen various sectors including health, education, electricity, transportation, textile, apparel and footwear to maximize the benefits that are likely to accrue to them.
It stressed that this can be done by recognizing these sectors as AfCFTA priority sectors for immediate government support.
It advises government to protect sectors that are expected to suffer the greatest losses including the chemical, chemical products and electrical; wood and wood products; cement and construction sectors
“If the agreement comes into force, the government needs to create safeguards or incentives for such sectors”, NESG stated.
The framework requires participating countries to remove tariffs on 90% of goods they produce by 2022 and eliminate non-tariff barriers to trade, such as long customs delays at the borders, import quotas, subsidies, regulatory bottlenecks and so on.
By Oluwafemi Michael
