What you should know about AFCTA?
The 54-member nation free trade area has been acknowledged as the world’s largest free trade area since the formation of the World Trade Organization (WTO). However, it is worthy of note to understand that the Free Trade Area should not be confused with the Africa Free Trade Zone (as will be explained in subsequent articles).
A free trade area is a group of countries that have little or no barriers to trade in the form of tariffs and/ or quota.
AFCTA was founded in March 2018 and officially commenced operations on the 1st of January,2021 with its headquarters in Kigali, Rwanda. This trade area was created by the African Continental Free Trade Agreement to facilitate trade majorly on the African continent (among its member countries). A United Nations estimate reveals that by 2022, AFCTA will boost Intra-African trade by 52%.
The general objectives of the agreement are to:
- Create a single market, deepening the economic integration of the continent
- Establish a liberalized market through multiple rounds of negotiations
- Aid the movement of capital and people, facilitating investment
- Move towards the establishment of a future continental customs union
- Achieve sustainable and inclusive socioeconomic development, gender equality and structural transformations within member states
- Enhance competitiveness of member states within Africa and in the global market
- Encourage industrial development through diversification and regional value chain development, agricultural development and food security
- Resolve challenges of multiple and overlapping memberships
What are the perks for Nigeria?
Nigeria being a predominantly import-based economy and for the longest time, experts have clamored for, not just increased but diversified exports. This Agreement could be a step in achieving this goal. To ultimately achieve this goal, Nigeria would have to focus on products in which it has significant comparative advantage, to offer her export produce at lower prices to foreign customers relative to foreign competitors.
Also, Nigeria can harness the advantage of Africa’s large population which accounts for 16.72% of the world’s population (one-sixth of the world’s population). This relatively large population could present an opportunity to local companies by contributing to increased market share. In return, this would boost the revenue of local companies and the overall export earnings of Nigeria.
In addition to this, by being a part of this agreement, to a reasonable extent, Nigeria’s output will be met with more acceptability on the African continent than it would in the “white man’s country”. This is because Nigeria is perceived to be one of Africa’s greatest countries and popularly referred to as the “Giant of Africa”.
Furthermore, with the objective of the country being to increase its output and export earnings in the nearest possible future. Nigeria’s output meets with lower level of competition in these other African countries, indicating higher chances of increased earnings for the country (Although, this is no way an excuse to produce less quality goods that do not match international standards). But we propose that in the next 1 to 2 years, if Nigerian manufacturers can successfully dominate the African continent with consistency in quality and output, expanding to other continents in the world will come easy.
What can the Nigerian government and regulatory authorities look out for?
For every merit, comes a demerit. However, with the implementation of AFCTA, let us consider how Nigeria can successfully navigate the tides of the seemingly bad side of the AFCTA agreement coin. Now that the Nigerian government and policy makers have agreed to be a part of this agreement, what measures can be implemented to make the most of it?
The Nigerian government is known for inconsistent policies, some of which prevents foreign investment. The government should implement policies that would promote favorable working conditions in Nigeria and improve the ease of doing business, thereby attracting foreign investors. These foreign investments pose a lot of advantages like increased level of local production, increased availability of capital and even foreign exchange, increased employment of manpower all contributing to increased level of outputs available for “cheap” exports.
In addition, policies should be implemented that will prevent Nigeria from being a dumping ground to these other African countries, now that barriers have been removed.
Also, the government should establish alternative revenue stream sources to make up for income lost in form of taxes (tariffs, custom duties etc previously recognized).