Nigerian manufacturers are already battling with operating in a very volatile business environment, and with the AfCFTA in operation since January, can they compete favourably; BENJAMIN UMUTEME asks in this report?
The Africa Continental Free Trade Area (AfCFTA) is a trade agreement between 44 African Union member-states without major economic blocs of Nigeria, South Africa. It was signed in Kigali, Rwanda, on March 21, 2018, but on July 7 in Niamey, Niger Republic and Nigeria signed the AfCFTA, making Nigeria the 53rd country to sign the agreement.
Nigeria had earlier refused to sign the agreement in Kigali, saying it wanted to consult with all stakeholders in the country before ratifying the agreement. Regarded as the largest in the world in terms of participating countries since the formation of the World Trade Organisation (WTO), the agreement initially requires members to remove tariffs from 90 per cent of goods, allowing free access to commodities, goods, and services across the continent.
According to experts, the agreement will boost intra-Africa trade by 52 per cent by 2022 involving about 1.2 billion people across the continent. They opined that when it comes into effect, the trade agreement will create a single market for goods and services in Africa. By 2030, the market size across the continent is expected to include 1.7 billion people with over $6.7 trillion of cumulative consumer and business spending – if all African countries join the agreement.
Yet, despite these prospects, and Nigeria’s positive outward stance, analysts continue to see the implementation of the agreement as a double edged sword. For over a year, Nigeria closed its land borders with Benin, Niger, and Cameroon in order to stop smuggling of food items which it says undermines local agricultural businesses. However, many say it as a protectionist move that’s in line with previous policies under the current Buhari administration despite little evidence of efficacy.
Experts’ views
In a chat with this reporter, a development consultant, Mr. Joe Afolayan, said the trade agreement would bring enormous benefits to manufacturers especially Small and Medium Enterprises (SMEs).
He noted that increased intra-trade comes with Economies of Scale and cheaper raw materials and other inputs. He explained that with increased internationalisation of their products and services, real sector players will benefit from Standardisation and Quality Assurance when dealing with continental firms. Just as he opined that it will ease access to finance and capacity building across the continent.
“Above all, due to access to one single AfCFTA market across Africa, there will be reduced regulations and customs issues for SME exporters in Nigeria. For dispute settlement nearness of the AfCFTA secretariat based in Accra-Ghana is another plus for Nigerian SMEs,” he said.
Despite this optimism, many small businesses are unaware of details of the trade deal according to a recent survey by the Organised Private Sector, raising concerns about Nigeria’s implementation strategy. A large majority expressed worries about increased competition from other countries, despite the challenging business environment in the country.
Electricity, fuel tariff price hikes
The story of electricity increase continues to be a pain in the mouth for most Nigerians. After the privatisation of the Power Holding Company of Nigeria (PHCN), tariff increase has been an ever present sore point in the electricity sub-sector with the Multi Year Tariff Order setting how tariff is increased. This has not gone down well with consumers, especially manufacturers who have not ceased to lament the yearly increase in tariff by its operators. This they say has impacted on the cost of production of goods and services.
Even at the beginning of this year, the government approved an adjustment in tariff rate for different sets of electricity consumers. The adjustment approved by the Nigerian Electricity Regulatory Commission (NERC) is over 50 per cent payable by customers of the 11 Distribution Companies.
The Multi Year Tariff Order (MYTO) signed by the new chairman of NERC, Sanusi Garba, on December 30, 2020, showed that the new tariff adjustment took effect on January 1, 2021, but it was later delayed till the end of January. The new increment came barely two months after the implementation of the controversial hike proposed in 2019.
In the new order, NERC said it considered the “…14.9% inflation rate rise in November 2020, foreign exchange of N379.4/$1 as of December 29, 2020, available generation capacity, US inflation rate of 1.22% and the Capital Expenditure (CAPEX) of the power firms to raise the tariff…”, the NERC said.
Manufacturers’ lamentations
Meanwhile, the umbrella body of manufacturers in Nigeria has been lamenting the adjustment in electricity tariff barely three months after a huge increment. MAN described the action of the government at the commencement of the African Continental Free Trade Agreement as insensitive. According to MAN, the increase in electricity tariff was not only ill-timed but also not manufacturing friendly.
Its director-general, Segun Ajayi-Kadir, said the increment would exacerbate the already high manufacturing cost environment, worsen competitiveness, further depress productivity in the sector and may exclude Nigeria from the list of beneficiaries of AfCFTA.
Ajayi-Kadir said, “The recent increase, which is following a major review three months ago, is not in the best interest of the Nigerian economy, judging from the prevailing economic ambience of the nation and its impact on vital manufacturing, economic, social and development indicators.”
According to him, the new tariff would have escalated cost of production and eroded the headways already made in the sector because most MAN-member companies are classified in the ‘D’ categorisation, where tariff is the highest.
Ajayi-Kadir said the manufacturing sub-sectoral groups with higher energy consumption, which include basic metal, iron and steel and fabricated metal products; domestic and industrial rubber and foam; non-metallic mineral product; and chemical and pharmaceuticals sectoral groups, would be worse-off.
Data showed that local manufacturers spent about N70 billion on self-generated energy in 2020.
Tempered optimism
For economist Friday Efih, the twin issue of fuel price and electricity hike will be a drawback to manufacturers as costs of production are bound to rise.
“With this increase, what the federal government is telling manufacturers is that we don’t want you to be competitive in the African market. This is not good for real sector players. With cheaper goods coming in from other trading blocs, it is going to be a real challenge for our manufacturers,” he said.
In the same vein, a public affairs analyst, Mr. Godwin Ubochi, insisted that it is going to be difficult for Nigerian businesses to compete.
He said, “When it comes to this kind of agreement you need to make sure that infrastructure is working. In our case where power is vanishing with very few people in the industrial sector connected to the national grid, how would one be able to compete?
“Unfortunately, we know how people are frustrated when they transport their goods on Nigerians roads. These are the things that are supposed to encourage manufacturing which are lacking.”
He said further that Nigeria signed the agreement with the expectation that things will get better, which according to him is a gamble.
“It is purely based on expectation because as it is now there is nothing to write home about with regards to our road network which is part of the things that encourage manufacturing and production. Then there is power which has been an issue for a long time. Many factories have shut down and left the country.
“The policies that will put these things in place are also not there as the government is not running with the right policies that will make these things happen.”
