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Analysts have predicted that the African Continental Free Trade Area (AfCFTA) will produce winners and losers, but actions, not mere talk, determine which side anybody will be.
From January 2021, Nigeria will begin to trade with the rest of Africa, which will open new vistas of opportunities.
Hence Nigerian companies will compete with counterparts from Ghana, South Africa, Egypt, Kenya, Ethiopia and the rest of Africa. Bismark Rewane, CEO of Financial Derivatives, warned in an interview with Channels TV that any ineffective government would fail within the AfCFTA environment. This also applies to firms.
Analysts predict that there will be collaborations, mergers and acquisitions (M&As) with a view to capturing and dominating the market. World over, M&As help firms to achieve economies of scale and grow local economies.
There is also an expectation that any firm without a good business model might crash. Many businesses in Africa, not just Nigeria, may not be able to sustain the heat, but analysts expect that large enterprises will naturally drive many SMEs. More so, a number of SMEs with excellent business models could transform into large enterprises due to expansion and growth opportunities that will be presented by the trade deal.
Nigeria can win from the deal, but Africa’s most populous country can also fail completely. Perhaps, free movement of firms will wake up policy makers in Nigeria and push them into doing the right things for businesses.
It will be an exciting opportunity, according to analysts, with many companies free to leave an underperforming country for another without much barrier. Borders will be open, but countries have a leeway to regulate certain actions.
The African Continental Free Trade Area (AfCFTA), the largest trade agreement after the World Trade Organisation (WTO), is touted to open up a $3.4 trillion opportunity for a continent barely trading at 16 percent with each other.
For Nigeria, continent’s most populous nation, it is an opportunity for firms to grow revenue, profits and a lagging gross domestic product, while creating jobs for a country with 27 percent unemployment rate and misery index of 43 points.
Nigeria can win from the deal, but Africa’s most populous country can also fail totally. Perhaps, free movement of firms will wake up policy makers in Nigeria when companies begin to leave for Ghana, Botswana, Kenya or other better-performing economies. Here then lies a pig puzzle, is Nigeria ready for the AfCFTA?
Many Nigerian manufacturers, exporters and farmers interviewed by BusinessDay have said that the country is ready, but how ready is it?
First, the model of farming in Nigeria does not put local farmers in the driver’s seat. In terms of mechanisation, Nigeria has a capacity of 0.067 per square kilometre of arable land, whereas South Africa’s is 43 per square kilometre. Egypt has 400.09, while Rwanda’s and Ivory Coast are 1.3 and 0.32 respectively, according to the Food and Agricultural Organisation (FOA), World Bank and Index Mundi.
Many African countries are more mechanised or have more tractors than Nigeria with 200 million people, which means that their costs of production will likely be lower than Nigerian farmers’.
Similarly, yield per hectare in Nigeria is lowest among emerging African peers. In tomato, average yield per hectare is 7 metric tons (MT), whereas it is 20 MT in Kenya, 8.6MT in Ghana, and 86.8 MT in South Africa. Despite being the largest maize producer in Africa, Nigeria has an average of 2 MT per hectare as against 3.8 MT in Ethiopia and 6 MT in South Africa. For potatoes, Nigeria’s yield per hectare is merely 3.7 MT whereas Ethiopia and Kenya have 15.1 MT and 15.1 MT respectively, with South Africa ahead with 38.8 MT.
“We must invest more in research to increase farmers yield per hectare,” Abiodun Olorundenro, managing director of an agro-based firm, Aquashoots, said.
“What crops are we going to sell to other African countries under AfCFTA when we are currently not growing enough to feed ourselves?” he asked.
He said farmers must make mechanisation and innovation the centre of farming methods to boost productivity and maximise cost.
Moreover, most of Nigeria’s agriculture is done on a subsistence level and are seasonal, unlike South Africa with large extensive farms with markets in Europe and the Americas. Olorundenro explained that the game-changer is to adopt an all-year farming to minimise the impact of changing climate patterns on Nigerian crops.
Research is still problem among farmers and manufacturers, making production costs very expensive. Nigeria’s products are still rejected due to an inability to meet set standards, including poor packaging and use of obnoxious chemicals during storage. Christanah Adeyeye, director-general of the National Agency for Food and Drug Administration and Control (NAFDAC), said over 70 percent of Nigerians products were being rejected abroad.
Victor Iyama, president, Federation of Agricultural Commodity Association, said this must end for Nigeria to be competitive under the AfCFTA.
“Farmers need to adhere to standards and good practices. The issue of standards is key in any trade, be it inter-regional or global trade,” he said.
“We must avoid monetary policies that make it difficult for manufacturers and exporters to access foreign exchange.”
Nigeria’s pharmaceutical industry may be dominated by Egypt’s and others. The industry needs support to be able to compete. But it is not just drug makers that need support, many manufacturing firms need to be supported with funding and policies to thrive under the AfCFTA regime.
Analysts say the state of Nigeria ports, especially Apapa and Tin Can, must change for Nigeria to make headway in AfCFTA era. In Apapa, the cost of moving goods in and out of the ports has doubled in the last 12 months with officials asking for bribes. About 5,000 trucks seek access to Apapa and Tin Can ports in Lagos every day whereas an earlier plan was for only 1,500 to access the ports, according to the Lagos Chamber of Commerce and Industry (LCCI). Scanners are not working and delays are common, putting perishable export products at risk. However, logistic is still a major problem across Africa, as roads are still bad.
“Logistic is still a big problem. It takes 14 days to ship goods from Brazil to Nigeria and takes a month to ship goods from South Africa to Nigeria,” Ibrahim Kabiru, national president, All Farmers Association (AFAN), said, adding, however, that Nigeria is currently at advantage of AfCTA because it feeds the whole West-African region.
The Nigeria-Benin border must be open for the trade to happen between Nigeria and the rest Africa. Most Nigerian exporters cannot move their goods to West Africa due to the closure as they move their goods to Europe by sea first before waiting for return vessels.
Tony Ejinkonye former president of Abuja Chamber of Commerce and Industry and director of Business Development,(Africa), Eskilroad Network Limited, said infrastructure needs to be improved to lower cost of production and put Nigerian businesses on the competitive edge.
“The primary change that must be done is for all relevant infrastructures that will support and enhance competitiveness to be undertaken by government. Without being repetitive, our roads, power, and transportation that will bring down the cost of goods and services and make us more efficient are the keys to our socioeconomic survival in the new African landscape,” he said.
Celestine Okeke, associate consultant of the Department for International Development (DFID), noted that Nigeria must implement reforms.
“Low yield and good agricultural practice are big concerns. We must have sectoral policies that address specific needs to give us competitive edge. NAFDAC needs to up its game in regulatory functions. The competition is getting continental and global now.”
The fact is that Nigeria is Africa’s biggest economy and it has the capacity to dictate the tune from January. But analysts want to see visible signs that show the country’s readiness.
