New African free trade accord to hurt Nigeria’s small units - GulfToday

New African free trade accord to hurt Nigeria’s small units


A worker at an envelope making unit in Lagos, Nigeria. Reuters

On cusp of the pan-African trade deal, Nigeria clings to protection. Nigeria signed Africa free trade deal in July and businesses there fear a flood of cheap goods, which will hit profits of local companies. Analysts say Nigerian protectionism could undermine the pact.

Adeleke Adeleye stands in front of a bank of whirring printers spinning out dozens of envelopes a minute in Nigeria’s commercial capital of Lagos. His stationery company, FAE Limited, is thriving and will move into a larger factory nearby by the end of next year.

But he sees trouble on the horizon in the form of a new African free trade agreement aiming to unlock a market of 1.3 billion consumers - but which many in Nigeria, the continent’s largest economy, view as a threat. “It’s definitely not a level playing field,” he says.

Africa is forging ahead with the African Continental Free Trade Area (AfCFTA) - a project to create a $3.4 trillion economic bloc - even as world powers such as the United States and Britain back away from multilateral trade pacts. Its champions - South Africa and Kenya among them - say the deal will provide a shot in the arm to trade between African nations, which accounted for just 17% of exports in 2017, and give their companies access to millions of new customers.

But Nigeria is worried it could be flooded with cheap goods from more competitive neighbours, undermining its efforts to revive local manufacturing and expand farming to reduce dependence on crude oil exports. It was one of the last of 54 nations to back the agreement, only signing on last month. Just Eritrea, which did not participate in the negotiations, has not approved the deal. Now that Nigeria is in, however, some trade experts fear its long history of economic protectionism and tepid support for the AfCFTA will undermine the bloc. “If Nigeria, after signing, decides not to implement, there will be a problem. There are so many administrative ways in which Nigeria can frustrate this agreement,” said Bismarck Rewane, CEO of Lagos-based consultancy Financial Derivatives Company (FDC).

The size of Nigeria’s economy - a gross domestic product of nearly $400 billion and a population of some 190 million - belies major weaknesses. Reliance on crude oil sales for around 90% of foreign exchange earnings led to neglect of other sectors. Once thriving automobile, textile and agricultural industries atrophied.

While nations including Ethiopia and Kenya are investing heavily in railways, highways and power projects with a view to becoming manufacturing hubs, Nigeria’s infrastructure remains antiquated. With a population less than a third its size, South Africa, the continent’s second largest economy, produces roughly 10 times more electricity than Nigeria. South African brands, including supermarkets and telecommunication firms, are already conquering Africa. Nigeria garnered just 23 points out of 100 in the World Bank’s “trading across borders” scoring due to its jam-packed ports and pot-holed roads, which add significant costs and delays to trade. Kenya, by comparison, scored 68. President Muhammadu Buhari’s government is working to catch up. But those efforts in many cases run counter to the spirit of free trade the AfCFTA embodies. Nigeria has placed import controls on a broad range of items, from rice, Cocoa and tomatoes to furniture and footwear. Total duties - tariffs, fees and other taxes - on some imports can top 70%. The central bank has also restricted access to foreign exchange for imports of more than 40 items it says Nigeria should produce itself.

Nigerian Customs Service, Nigerian Central Bank, US International Trade Administration Some of these policies have backfired. A cap on gasoline prices requires heavy subsidies on refined petroleum imports, and the artificially low prices mean 10% to 20% of Nigerian fuel is smuggled to neighbouring Benin, according to estimates by the Major Oil Marketers Association of Nigeria (MOMAN).

Import controls on rice, imposed even as local farmers fail to meet demand, have kept prices artificially high and led to smuggling from Benin into Nigeria. Still, the measures are largely supported in Nigeria, particularly among manufacturers such as Adeleye, who says fellow stationers have benefited from a ban on imports made from a type of paper that would compete with their products. He fears joining the African free trade area could sweep away such advantages. “They have to stay in place,” he said.

Having now signed onto the AfCFTA, Nigeria’s presidency said last month it will set up a committee of government agencies and private sector groups to chart the way forward. But it made clear that requesting carve-outs for specific economic sectors would be a part of the process. “We viewed this as both an opportunity and a threat,” Buhari told a group of business leaders in July. Analysts worry Nigeria’s attempts to reconcile its strategy of ring-fencing domestic industries with its membership in a free trade zone could pose a major obstacle to implementing the agreement.


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