Trouble for SMEs as AfCFTA implementation looms?


The Africa Continental Free Trade Area (AfCFTA) is expected to boost manufacturing and intra-Africa trade, but can Nigerian small industries cope with it considering the numerous drawbacks they face; BENJAMIN UMUTEME asks.

The Africa Continental Free Trade Area (AfCFTA) which 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 refused to sign the agreement in Kigali saying it wanted to consult with all stakeholders in the country before appending its signature to 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.

The United Nations Economic Commission for Africa (UNECA) estimates that the agreement will boost intra-Africa trade by 52 per cent by 2022 involving about 1.2 billion people across the continent.

Nigeria’s refusal to sign

Nigeria’s refusal to sign up to the agreement in Kigali was greeted with disappointment and disbelief as it had over the years championed the AfCFTA cause.

However, President Muhammadu Buhari later explained that the country will not agree to anything that will undermine local manufacturers and entrepreneurs.

According to him, “We will not agree to anything that will undermine local manufacturers and entrepreneurs, or that may lead to Nigeria becoming a dumping ground for finished goods.”

Even the Manufacturers Association of Nigeria (MAN) with its 3,000 strong members hailed the government decision, stating that the deal would lead to gross unemployment at home as most local companies would die “a quicker death.”

Giving reasons for opposing the agreement the body of Nigerian manufacturers said there is no wisdom in signing on to the agreement only to end up struggling to find space in the accompanying protocols and annexure.

According to them, the pact has no credible country specific study to show its potential impact.

“No specific attention was given to determine the cost and benefit analysis of the agreement; the sectors/sub-sectors that would benefit or be worse off as a result of the agreement are unknown; no clear-cut recommendation on strategies that government would adopt to enhance the capacity of the manufacturing sector to compete effectively,” the Association stated.

However, many believe it may not be as bad as it is being painted by MAN.  ‘Enormous benefits’

For development consultant, Mr. Joe Afolayan, the trade agreement will bring enormous benefits to Small and Medium Enterprises (SMEs).

Responding to a question by Blueprint Weekend, Mr. Afolayan said the AfCFTA will facilitate and increase intra-African trade which will invariably increase economic activities in the SME sector.

“With increased intra-trade also comes with Economics of Scale and cheaper raw materials and other inputs in the SME sector,” he said.

He further said with increased internationalisation of their products and services, SME players will benefit from Standardization 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.”

However, a public affairs analyst, Mr. Godwin Ubochi, does not share Mr. Afolayan’s optimism.

In chat with this reporter, Mr. Ubochi insisted that with Nigeria’s infrastructure still in the stage it is at the moment it would be difficult for small businesses to compete when implementation of the agreement starts in 2020.

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?”

He noted that with the poor road network, the cost of production is bound to rise.

“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.”

According to him, 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 shutdown and left the country.

“The policies that will put these things in place are also not there as government is not running with the right policies that will make these things happen.”

Even the president of MAN), Engr. Ahmed Mansur, at a forum last weekend in Lagos, stressed that despite the opportunities that will come to the economy and manufacturing sector with the implementation of the AfCFTA, the potential threats are also worrisome.

Engr. Mansur, said, “The possibilities of people bringing goods that are sub standard, not necessarily into our country directly but into our neighbours and then bring it into the country as part of made in Africa goods. This poses a new challenge for all regulators in the country.

“This creates a new a new demand to the Standards Organisation of Nigeria and other regulators to scale up their activities to ensure that this doesn’t happen because now we are not only going to protect the interest of the Nigerian manufacturer but the interest of the African manufacturer.”

Light at the end of the tunnel

For Engr. Ubochi, the agreement ought to be in Nigeria’s favour as the biggest market and economy on the continent.

In spite of fears that the country may become a dumping ground for all types of goods and services, he believes that a political will to understand the import of the task ahead of the country will go a long way to address the fears.

“Nigeria needs to work hard to improve our infrastructure, policy, even policing our borders because we need to know what is coming in and what is going out. If the borders are not policed, we will still not be able to control the exclusive ones that are not in the list.”

However, Afolayan stated that for Nigerian SMEs to benefit from the AfCFTA implementation, the issue of ‘good’ enabling environment (adequate infrastructure, access to finance, adequate security, etc) will be critical.

“It is for the Nigerian government to seriously realise this fact and provide the Enabling Environment for Nigerian SMEs to benefit from the enormous opportunity aFCFTA presents.”

Meanwhile, analysts are of the view that for Nigeria to gain maximally from AfCFTA, government at all levels must work together to promote the ease of doing business. This goes beyond making affordable land available to investors, quick clearance of goods from the ports and easy visa requirements to significantly reduce the cost of doing business.

They insist that “we must fix our decadent social infrastructure such as roads, rail, air and water transport, provide affordable and constant electricity supply, make available interest free or low interest rate on loans, longer moratorium for debt repayment, reasonable taxation and adequate security.”

These things, according to them, will help improve SMEs and boost production and make them produce at competitive prices.

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