Nigeria and AfCFTA

Membership of the African Bloc

Nigeria is now effectively condemned to become a huge manufacturing hub.

Nigeria was remarkably hesitant to join the AfCFTA. The country had demonstrated its willingness to join the agreement several times but later changed its mind just before signing. However, it finally joined as the latest signatory on July 7, 2019, and the free trade agreement formally came into existence in April 2019, when 22 of the signatories ratified AfCFTA.

The agreement came into full force in January 2021, forming the largest free trade bloc in the world.

Nigeria’s unwillingness to join AfCFTA was largely due to potential threats to the country’s already troubled manufacturing sector caused by the inflow of cheaper foreign products. The Manufacturing Association of Nigeria (MAN) was particularly vehement in its concerns over the agreement and what it could do to Nigerian manufacturers.

And the association’s concerns are not entirely unfounded. In the last few years, the naira has undergone several phases of devaluations, and if Nigeria gets to a point where it imports most of its requirements from fellow AfCFTA members, a weak naira will be a huge setback for the Nigerian economy. Nevertheless, this very problem may be a blessing in disguise.

Having a relatively weak and devalued national currency means that if Nigeria strives to stay ahead of the curve in manufacturing, the money that the nation’s manufacturers earn and bring back home will be worth more when exchanged into naira.

Some East Asian countries have, in the past, intentionally devalued their national currencies—especially against the US dollar—to discourage imports, while encouraging exports. By joining the FTA, Nigeria will find itself in a similar position: if it continues to import a large amount of goods, its economy will suffer; meanwhile, if it manages to turn into a proactive manufacturer and exporter, it will be a winner. Nigeria is now effectively condemned to become a huge manufacturing hub.

Many may be wondering how Nigeria is setting the stage ahead of AfCFTA coming fully into effect. There are some efforts by both private manufacturers and federal and state authorities to rebrand Nigeria as a high-quality manufacturer across the continent. In addition, a larger-than-usual number of industrial enterprises have been launched since the beginning of 2021.

A PPP called the Special Agro-industrial Processing Zone (SAPZ), for example, was launched recently with great support from the federal government and the state governments of Oyo, Kaduna, Kano, Kwara, Imo, Cross River, and Ogun. SAPZ is projected to raise the processing capacity of the country’s agriculture sector, thus generating more exportable products with added-value and earn foreign exchange.

A senior adviser on industrialization to the African Development Bank (ADB), Oyebanji Oyeleran-Oyeyinka has pointed out that the “zone model is an explicit industrialization strategy to transform poor rural spaces into zones of prosperity, stem rural-urban migration, end human insecurity induced by herder-farmers clashes, and provide employment to Nigerian youth,“ according to Premium Times Nigeria.

The initiative will undoubtedly further industrialize Nigeria’s mostly traditional farming sector, ensuring greater food security for the nation as well as giving Nigeria a chance to become a major exporter of processed food products across the AfCFTA bloc.

There are yet other projects in the pipeline that might increase Nigeria’s exports with AfCFTA coming into effect. The Nigerian government is particularly looking into the privatization of poorly performing, state-owned manufacturing businesses, as private businesses have greater agility and can operate in a more profitable manner. In September 2021, the federal government announced its intention to hand over dozens of state-owned businesses to private investors.

If the previous experience of the privatization of some 230 businesses by the Bureau of Public Enterprises (BPE) is anything to go by, the privatization of more businesses has the potential to boost Nigerian exports across the bloc and beyond. BPE has recognized that the majority of previous privatizations in the telecoms, transportation, and energy sectors have led to increased profitability and the implementation of better management models. A package of incentives, meanwhile, has been designed for potential buyers of public enterprises that are up for grabs, which includes duty-free import of the necessary equipment and machinery, among other things.

It should be noted that even in the unlikely event that Nigeria fails to achieve its objective of immediately becoming a dominant manufacturing hub within AfCFTA, the advantages of joining the largest free trade agreement in the world still outnumber its downsides in the long run. True competition with other African manufacturers is the only way to foster organic growth in the manufacturing sector in Nigeria—even if it initially puts an extra burden on the shoulders of the nation’s industrialists.

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