African Continental Free Trade Area Agreement – Does the Facts Support the Benefits for Nigeria?

Abstract

Hesitantly, but finally, Nigeria joined the African Continental Free Trade Area (AfCFTA) with the Nigerian President, Mohammadu Buhari, signing the protocol at the African Union Summit in Niamey on July 7, 2019 based on perceived benefits. This study interrogated the purported benefits for Nigeria using standard trade costs between Nigeria and peer countries in Africa. Using a content analytical framework on a dataset by World Development Indicators and World Integrated Trade Solutions, the study found that average tariff rate in Nigeria is very high when compared to that of her major trading rivals in Africa like Ghana, Egypt and South Africa. Furthermore, the study found Nigeria in a comparative disadvantaged position on the ease of doing business in the same setting. Also, Nigeria’s major export commodity is crude oil and lubricants which has little or no market in the continent. Besides, trade-related infrastructure, especially roads and maritime corridors, in Nigeria is poor even by African standards. With these structural problems, ipso facto, Nigeria may not benefit maximally and comparatively in the enlarged continental market envisioned by the AfCFTA agreement. The study therefore, recommended that Nigerian government should continue to maintain the present cautious approach and refrain from making further commitments on the AfCFTA deal. In the meantime, the country should embark on massive infrastructural and trade-related development, improve the ease of doing business and diversify the economy in order to be in vintage position to exploit the potential opportunities offered by the AfCFTA in the medium-to-long term horizon.

Trade facilitation, institutions, and sustainable economic growth: Empirical evidence from Sub‐Saharan Africa

“…Some notable empirical studies probe the significance of the emerging AfCTFA and its related nexus with trade facilitation in achieving economic growth. Among the available studies, the work of Onuka and Oroboghae (2020) on the nexus between AfCTFA and economic benefits and that Aniche (2020) on the relationship between AfCTFA and regional integration are notable. Specifically, the preponderance of the extant AfCTFA studies support the potential of the agreement and benefits therein for harnessing increased trade volume in Africa and enhancing the achievement of SEG.…”

Impact of Free Trade Area on Trade, Revenue and Welfare in Nigeria

“…It is important to note that Nigeria has a high average tariff rate compared to its peers in the African region and other European countries (Onwuka & Ozegbe, 2020; World Economic Forum, 2019). Table 3 indicates the possible implications of revenue loss for Nigeria due to the FTA agreement, which amounts to US$6,142.061 million.…”

“…A recent study by Onwuka and Ozegbe (2020) examined the potential benefits of AfCFTA agreement for Nigeria using standard trade costs between Nigeria and peer African countries. The study applied a content analytical framework on data from the World Bank (i.e., World Development Indicators) and WITS.…”

“…The most significant of these tariff-reduction measures is the Common External Tariff (CET) in ECOWAS, to which Nigeria is a signatory. However, Nigeria’s average tariff regime is still high compared to rates in other neighboring countries and Nigeria’s other external trade partners (Onwuka & Ozegbe, 2020). As shown in Table 1 Nigeria’s simple average tariff rate has hovered between 8% and 13% from 2005–2018.…”

“…Hence, Nigeria may end up being a dumping ground for manufacturing-oriented nations such as SA, Algeria, and Egypt (Azikiwe, 2018; Ikokwu, 2018; Ogunyemi, 2017). The FTA agreement might further present a serious challenge to Nigeria as the country currently has a tax-to-GDP ratio of 6%, considered the lowest in the continent (Onwuka & Ozegbe, 2020). As soon as the trade agreement comes into effect, Nigeria will need to drop 90% of its tariffs for imports from other member states, thereby depriving the country of the opportunity to generate revenue through tariffs and duties.…”