Renowned economists like David Ricardo, Adam Smith and John Maynard Keynes have all supported the idea of free trade on the basis that it encourages specialisation and comparative advantage.

Although free trade has the tendency to negatively impact domestic production, the increased competition is beneficial for consumers because they receive better quality products at a relatively cheaper price. Consumption is a key determinant of economic growth. Therefore, when individuals and households increase their demand for goods and services, there is a positive spillover effect into the economy.


On the 21st of March, 44 countries gathered at Kigali, Rwanda, to sign an agreement establishing the African Continental Free Trade Area (AfCFTA). Out of the 55 African Union (AU) member states, 10 did not sign the agreement. Nigeria was one of them.

This agreement is supposed to be highly beneficial for the entire continent. It intends to encourage intra-African trade by creating a single continental market for goods and services. Furthermore, by eliminating trade barriers, reducing quotas and tariffs, there is an expectation that the agreement will boost intra-African trade by 52.3%

The African Continental Free Trade Area (AfCFTA) will cover a market of 1.2 billion people and a GDP of $2.5 trillion across all members states of the African Union.

Intra-African trade is one of the lowest worldwide (15%). This figure is particularly problematic, especially when compared to Europe (70%), North America (55%) and Asia (45%). Additionally, Intra-African trade costs are 50% higher than in East Asia (the highest intra-regional cost in developing regions). Thus, the emergence of this agreement is imperative to foster trade relations in the continent.

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Assuming its implementation is successful it will be the largest trade agreement (in terms of participating members) since the creation of the World Trade Organisation (WTO) in 1995. The agreement is said to reflect the EU model which is based on freedom of labour, people, goods and services across borders.

Why Did Nigeria Decline? 

As one of the largest and most influential economies in Africa, Nigeria’s decision not to sign the agreement did not go unnoticed. President Buhari commented on Twitter, that the reason for not joining was because Nigeria would become a dumping ground for the continent. The Nigerian government has also expressed concerns about the impact of the agreement on tax structure, fiscal and monetary policy and government revenue.

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.” 

President Buhari

Nigeria is one of the least regionally integrated economies in Africa. Although individual entrepreneurs like Aliko Dangote, have businesses widely spread across different African countries, Nigeria has shown minimal involvement in economic integration with the rest of the continent.

Nigeria currently has a trade surplus with Africa and an export value of N1.63tn with other African countries. Therefore, the establishment of a free trade area is supposed to be highly beneficial for the country. Let me put this into context; Nigeria is one of the largest producers of Palm oil. Kenya, on the other hand, imports its palm oil from Malaysia. A free trade area will enable both countries (Nigeria and Kenya) trade at a lower cost and redirect export revenues from Malaysia to Nigeria.

Nigeria’s strategic geographic position, abundance of natural resources and growing population can enable it to emerge as an unrivalled industrial hub in Africa. 

While the issue of increased competition for weak domestic businesses is a valid concern; it will create an incentive for the Nigerian government to prioritise investment in its local industries. The manufacturing sector in Nigeria has huge potential to grow. The recent crash in oil prices and the pressing need to diversify the economy offers the perfect window of opportunity for the country to start looking at alternative sources of revenue. Also, as established earlier, by exposing the economy to a wider market, domestic industries will be forced to increase efficiency and ensure their products and services meet regional and global standards.

In summary, this trade agreement is a bold step for Africa and has enormous potential in driving economic prosperity. Upon successful implementation, it could catalyze economic growth and generate wealth that could be channelled towards reducing poverty and inequality in the continent. The large number of countries that signed the agreement is commendable, and signals to the rest of the world that Africa is united and determined to ensure the continent’s incremental progress.

As for Nigeria ……. I personally don’t see the issue of protectionism as a strong enough factor in the decision to be left out of such an important agreement. At this point, Nigeria risks being left behind while the rest of the continent moves forward. They are also signalling to the world that the country is not ready for business, and this could be damaging to investment prospects in the long run.

Instead of constantly claiming to be the giant of Africa, how about we begin to act like it.

 

Thanks for Reading,

Stephannie.