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AfCFTA: The state of the manufacturing sector in Nigeria and its ability to capitalize on open borders

Nigeria’s involvement in the AfCFTA should encourage flexible intra-African transactions while producing adequate output for generating income.

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Manufacturing sector in Nigeria and the reality of a "new normal"

The African Continental Free Trade Area was founded in 2018 across 54 African Union (AU) nations, which aimed to form a single marketplace for trades within Africa.

The agreement was brokered and signed on the 21st of March, 2018, in Kigali, Rwanda. With 1.2 billion people participating and a combined $3 trillion GDP, the African continental free trade area is the largest in the world concerning the number of contributing members.

READ: AfCFTA: Nigeria submits Instruments of Ratification, becoming the 34th State Party

Some of the African Continental Free Trade Area (AfCFTA) objectives were to strengthen Africa’s economic integration through a unified marketplace, facilitate investments and transportation, and promote competitiveness amongst member nations. The body also promotes gender equality, industrial development, and establishing a liberalized market through multiple negotiations.

The agreement required member nations to remove tariffs from about 90% of goods to encourage easy access to commodities across Africa. As said by the United Nations Economic Commission for Africa, by 2022, this agreement will increase intra-African trades by over 52%. The World Bank also sees this progress generating about $76 billion income for the world market.

READ: GDP: Nigeria’s manufacturing sector on tight ropes

However, even with the deliberate efforts to increase intra-African trade rates, the statistical values remain low. In 2017, intra-African exports recorded only 16.6% in total, which is relatively low compared to 59% in Asia and 68% in Europe.

The African Continental Free Trade Area (AfCFTA) faces multiple limitations like inadequate information about processes, inadequate infrastructure, gender inequality, post-pandemic economic stress, etc. Some also fear that the significant financial gains from the diverse economies will be distributed unequally amongst member nations.

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READ: AfCFTA: ACCI to launch Monitoring Review Roundtable to assess development

Regardless of these many limitations, there are still hopes and efforts actively made to continue pushing.

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The trade bloc’s secretariat, Wamkele Mene, told the Financial times, “We plan to transform Africa into an economy that no longer exports only primary commodities to be processed elsewhere.” He added their intention to stop using tariffs as an opportunity to generate revenues. Instead, these tariffs should be used for general economic and
industrial development.”

The state of the Nigerian manufacturing sector The National Bureau of Statistics, NBS, shows that a few major industries, including the food industry, dominate Nigeria’s manufacturing sector. Beverages, tobacco, cooking oil,
bread, and sugar have been some of the most manufactured products in the past few years.

READ: AfCFTA: Implementation will fulfill dreams of a united and prosperous Africa – Buhari

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This sector is responsible for about 10% of the nation’s GDP

Recently, the Nigerian manufacturing sector has shown significant growth owing to flexible policies that encourage local production. The government has been making efforts to reduce the costs of local consumer goods to promote more output of these products and other sectors.

In recent times, the Central Bank of Nigeria, CBN, also took steps to allow loans with single-digit interest rates for companies in the manufacturing and agricultural sectors. The Nigerian government has also adopted several useful initiatives and port reforms to improve the manufacturing of goods within the country. Following these improvements, Nigeria has successfully ranked herself from 169th place in 2016 to 145th place in 2017
regarding the ease of doing business.

READ: FG tasks state governments to embrace AfCFTA’s economic opportunities

Some of the benefits of the manufacturing sector in the Nigerian economy include job creation, increased GDP, provision of local consumer products, improved living standards, etc.

However, the manufacturing sector in Nigeria is currently underutilizing the natural resources available for processing. About 56% of the products consumed by the large Nigerian market are imported, whereas they can be manufactured locally. Common commodities like tomato purees, health products, vehicles, and even electronic devices are from foreign countries. It is a concern because most of the raw materials used to make these products are abundant and exported from Nigeria. Hence, the Nigerian manufacturing sector should expand on processing available raw materials instead of exporting them for processing in foreign countries.

The impact of the Nigerian manufacturing sector on the open borders

Nigeria has a significant impact on the African and world market, with almost 60% of its commodities imported from different parts of the world. However, The Nigerian open borders witness more imports than exports, which discourages local manufacturing and limits the revenue generated from the borders.

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One of the primary sources of income of open borders in Nigeria is through tariffs collected from international trades. But, the African Continental Free Trade area’s policies encourage member nations to eliminate taxes on almost 90% of intra-African trades. Consequently, the value of tariffs generated for open borders will reduce by nearly 59%.

Fortunately, Nigeria is blessed abundantly with natural resources for manufacturing and exportation. With the government’s further investments in the manufacturing sector, the nation will produce goods locally and trade actively internationally.

In conclusion, the Nigerian manufacturing sector can contribute to the economy’s GDP by up to 23% and increase revenues generated from open borders via trades. Nigeria’s involvement in the AfCFTA should also encourage flexible intra-African transactions while producing adequate output for generating income. The initial contribution of the manufacturing sector summed up to about 24 billion naira. Expanding the sector, however, was supposed to increase its contribute to up to 32.5 billion naira.


About author

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Andrew Omosebi is an experienced and versatile writer, familiar with a diverse range of writing styles and formats. Andrew further bolsters his resume, with his impressive knowledge, that encompasses a wide variety of topics, niches, and genres. He incorporates this knowledge in his work remarkably, as he is able to create informative and captivating content under any niche. Besides his proficiency at content creation, Andrew is a business-savvy entrepreneur and a sports and arts enthusiast, with a few articles on both under his belt.

Nairametrics frequently publishes articles from experts such as financial analysts, economists, researchers and investors. We also feature articles from guest writers and bloggers who wish to push their views and opinions through our platform.To get your articles on Nairametrics, kindly send an email to [email protected] and we will publish it within 24 hours of approval by our editorial team.

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Columnists

SEC and the proliferation of unregistered investment platforms

The recent move has generated diverse views from stakeholders with some critics classifying this action as irrational.

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Reps raise alarm over N200 billion unclaimed dividends in 2020, the Capital market, Lamido Yuguda assumes duty as new DG of Security and Exchange Commission

According to a circular issued by the Securities and Exchange Commission (SEC), it affirmed its knowledge of the existence of trading platforms that allow investors access to securities listed in other jurisdictions.

The capital market regulator further reiterated the provisions of sections 67-70 of the Investments and Securities Act (ISA), 2007 and Rules 414 & 415 of the SEC Rules and Regulations which state that only foreign securities listed on any exchange registered in Nigeria may be issued, sold or offered for sale or subscription through approved channels to the Nigerian public.

The announcement furthers SEC’s quest to strengthen investor protection, promote transparency in the operations of the Nigerian capital market and ensure all investment transactions are within the regulatory purview of the commission.

READ: Nigeria’s public debt rises to N32.915 trillion as at December 2020

Recently, the capital market regulator introduced a new requirement for the inclusion of the commission’s contact details in all prospectuses or offer documents issued to the general public in a bid to ascertain the genuineness of such securities. Besides, it is often found that the activities of illegal fund managers become prevalent during a financial or economic downturn, making the public susceptible to the juicy yet unsustainable returns promised by these managers.

The recent move has generated diverse views from stakeholders with some critics classifying this action as irrational. They cited the impact of investing in foreign stocks on portfolio diversification and the role of Fintechs in driving financial inclusion among others. On the other hand, supporters of this action argued for the need to reduce the pressure on external reserves especially at a time when the green-back is needed to stimulate economic recovery.

Also, that it helps to safeguard the country’s investing community. We recall that the recent policy by the CBN to close all accounts by Deposit Money Banks (DMBs) and Other Financial Institutions (OFIs) involved in dealing with cryptocurrencies received a lot of backlash from the public.

READ: Why SEC banned investment technology platforms from offering foreign stocks to Nigerians

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On this move, however, we opine that it is still within the legal purview of the SEC to discourage investments in foreign listed securities. Nonetheless, we are aware of the concept of globalization in commerce and thus, there might be a need for a rejig of the Investment and Securities Act 2007, and other related acts to capture current trends and developments in the investment globe.

To avoid backlash going forward, we suggest more public education for clarity with regards to future policy decisions.

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CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

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Columnists

AfCFTA to promote inclusive trades for women and youth in Africa

The SMEs and Startup ecosystem in Nigeria which are dominated by women and youths should equally take advantage of these opportunities.

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Border closure is a threat to forthcoming Lagos Trade Fair - LCCI 

Inclusive economic development remains one of the core elements of both the African Union’s Agenda 2063 and the United Nations Sustainable Development Goals (SDGs). In furtherance of this, article 3(e) of the AfCFTA main Agreement and article 27(2)(d) of the Protocol on Trade in Services specifically mandate State parties to promote gender equality and “improve the export capacity of both formal and informal service suppliers, with particular attention to micro, small and medium-sized; women and youth service suppliers.

With over 60 percent of its population being under the age of 25, Africa is regarded as the youngest continent in the world. This presents both challenges and opportunities for the continent. For instance, in Nigeria, the young population has led to attendant social risks as unemployment nears 40% creating a ticking time bomb. The popular saying is that an idle mind is the devil’s workshop.

On the positive side, however, the young population when properly harnessed will heighten productivity and provide affordable labour which in turn may lead to increase in investment. Nigerian youths just like their counterparts in other African States are known to be very innovative and enterprising. With the right policy and the enabling infrastructures, this energic population can drive the AfCFTA agenda.

Relatedly, women constitute most of the players in the SMEs ecosystem, accounting for nearly 90% of the labour force in the informal sector. A visit to the popular Balogun market in Lagos Nigeria will attest to this fact. No doubt, regional informal trades amongst women and youth within the ECOWAS region have been going on even before AfCFTA. But the new trade deal is meant to open the door to a population of 1.3 Billion people with a combined GDP of USD2.6 Trillion.

This is a huge opportunity and further buttresses the need for gender-sensitive and youth-centric implementation that will ensure sustainable and inclusive growth. As noted by a commentator, women and youth traders are less likely to be equipped with the appropriate skills, technology and resources that would enable them to benefit from trade and trade liberalization as they continue to suffer from invisibility, stigmatization, violence, harassment, poor working conditions and lack of recognition for their economic contribution.

These challenges are made worse by non-tariff barriers such as poor infrastructure, insecurity, lack of access to funds, high unemployment, weak currency, cost of capital, multiple taxations, and other regulatory hurdles.  A clear example of the hurdle being the recent intervention by the agencies of the Federal Government of Nigeria in the areas of FINTECH and Cryptocurrency.

Just last week, the Securities and Exchange Commission issued a circular advising Capital Market Operators to sever ties with platforms that facilitate access to trading in securities listed in foreign markets. While recognizing the role of the regulators to protect the investing Nigerian public and their assets, however, the interventions have been interpreted by many as capable of sending a wrong signal and acting as disincentives to innovation. Again, this brings to the fore the need for Continental Free Trade that fosters inclusiveness with member States initiating policies that create more opportunities for the youth and women.

At the webinar held on 29 March 2021 to mark the signing of the MOU on strategic partnership between the AfCFTA Secretariat and the United Nations Development Programme (UNDP), the AfCFTA Secretary-General Mr Wamkele Mene re-echoed the need for inclusiveness in the AfCFTA implementation with the following words:

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We’ve learnt from other trade agreements in the world. And the lesson to draw is that if a trade agreement neglects the most vulnerable segment of the society, if a trade agreement is perceived to benefit only the multi-national corporations, only the elite, it shall not succeed and it shall not have legitimacy as far as the citizens are concerned. And so that is why I have made it my priority in the implementation of this agreement that there should be shared benefits, there should be shared responsibility with Africans across the length and breadth of the African continent in concrete areas such as affirmative action for women in trade. We are looking at concrete ways in which we can expand the benefit for young people and for women in trade. This is the type of development that we require in order to make this agreement successful. This is the type of development that we require to make sure that the benefits are inclusive.

This Statement coming from the AfCFTA Secretariat is a clear indication of the aspiration towards gender-balanced and youth-sensitive AfCFTA. However, one is not unmindful of the limited role of the AfCFTA Secretariat in the implementation process.  The actual implementation is done at the national and regional level. And this is not to underestimate the very critical albeit complementary role that the Secretariat plays in this regard.

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Therefore, the change must start from each member country and percolate through the regional economic blocs and finally to the entire Africa. Nigeria through its agencies such as the Central Bank of Nigeria (assisted by the private sector) can support inclusiveness by providing AfCFTA-focused low-interest financing, training of the SMEs on cross-border trades as well as other incentives to promote the engagement of women and youth in trades on the continent.

The impact of the COVID-19 pandemic on youth and women-led businesses has widened the economic gap and further impoverished those at the lowest rung on the economic ladder – mostly women and youths. This calls for heightened capacity building in creating new trading and entrepreneurial opportunities for all. With the constant value erosion in the local currency and low-yield environment, entrepreneurs and SMEs in Nigeria can, through cross-border trades, hedge against business risks and equally take advantage of possible arbitrage that exists in different markets within the AfCFTA.

A shift from the business-as-usual approach on the issue of women and youth is needed under AfCFTA to ensure that the objectives are actualized. Although the AfCFTA is not the magic bullet or the cure for all the economic challenges facing the youths and women in Africa, it is hoped that when fully and equitably implemented, it will go a long way to address some of the factors inhibiting the economic growth of these vulnerable groups.

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A recent report commissioned by the UNDP and the AfCFTA Secretariat titled “The Futures Report: Making the AfCFTA Work for Women and Youth” which was published in December 2020 has shown that beyond the projections, numbers and negotiations, the realization of the AfCFTA objectives will depend on decisive actions and collective efforts of the African people. Therefore, concrete measures and investment are needed to ensure that women and youths, who account for the majority of the population, business owners and workforce can be better integrated into the value chains, jobs and opportunities available under the AfCFTA.

As shown by the Report, many entrepreneurs and SMEs across Africa are already taking steps and positioning themselves to benefit from the free trade area and scale their businesses. Some SMEs owners interviewed noted that they are increasing their production lines and sourcing for inter-continental partnership ahead of the progressive implementation of the various phases of the trade regime.

The SMEs and Startup ecosystem in Nigeria which are dominated by women and youths should equally take advantage of these opportunities. Finally, given that trades in goods and services are fast moving into the digital space, the AfCFTA members States need to invest heavily in digital infrastructures and urgently address the high cost of data in Africa which has made it difficult for the majority of women and youths to access opportunities available online.

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