‘Crucial factors Nigeria must address for MSMEs to survive new AfCFTA regime’
Nigeria became the 34th country to join the African Continental Free Trade Agreement (AfCFTA), a regional economic bloc, when on July 7, 2019, President Muhammadu Buhari endorsed the trade document. There is a general consensus that African countries will benefit hugely from the agreement, as it would foster intra-African trade and increase access to cheaper goods and services. Inter-regional integration trade within Africa is said to stand at 17 per cent in 2020 relative to Europe’s 68 per cent and Asia’s 59 per cent. Nigeria signed to be part of the bloc, because it feels it could benefit from AfCFTA. As of 2018, Nigeria’s import from the African region relative to total imports was at 3.2 per cent, while the share of Nigeria’s exports to the African region relative to total exports was 13.2 per cent. However, how the Micro, Small and Medium Enterprises (MSMEs) could maximize the benefits of AfCFTA was the focal point during a one-day stakeholders sensitisation and consultation, organised by the Civil Society Legislative Advocacy Centre (CISLAC) and OXFAM Nigeria in collaboration with the Chartered Institute of Taxation of Nigeria (CITN). GBENGA SALAU reports.
The potential of AfCFTA is huge. It nourishes a market of over a billion people. But the enormous advantage could be eroded if businesses, especially of the Micro, Small and Medium Enterprises (MSMEs) are not safeguarded and protected from undue competition. Otherwise, the advantages would be eroded with Nigeria becoming just a market destination instead of being an investment destination.
In his lead paper, CITN Professional Chair, Babcock University, Ogun State, Professor Ishola Akintoye, was optimistic, saying with AfCFTA, micro and small businesses can expand, which also means engaging the services of consultants like tax practitioners and auditors.
He also believed that AfCFTA would help in diversifying Africa’s trade and encourage a move away from extractive commodities, such as oil and minerals, which have traditionally accounted for most of Africa’s trade.
“AfCFTA will also produce more jobs for Africa’s bulging youth population, as well as easier supply of inputs to larger regional companies, who can then export finished goods. AfCFTA will create additional opportunities of adding value to natural resources and diversifying into new business areas.”
With AfCFTA, Akintoye argued that Africa would achieve larger economies of scale, a bigger market and improved prospects for the continent to attract investment. He added that the trade agreement has the potential to boost intra-Africa trade and build an integrated market in Africa that will see a market of over 1billion people with a combined GDP of $3.3 trillion.
In spite of the huge advantage AfCFTA offers, he said Nigeria must tread softly because the agreement would breed increased competitive pressure. “Many emerging African markets are traditional economies that rely on farming for employment. These small family farms can’t compete with large agri-businesses in high-income African countries such as South Africa, Kenya, Ethiopia, Egypt and Nigeria. As a result, they may lose their farms, leading to high unemployment, crime and poverty.”
If the system is not properly perfected to key into AfCFTA, Akintoye warned that the agreement could lead to the choking of local SMEs, since consumers often prefer cheaper products.
He stressed that, “This may lead to local producers losing huge sales to foreign suppliers, because the latter can lower the cost of their products by leveraging the reduced tariffs imposed on imported goods.
“Labourers from poorer countries may be forced to work long hours and to live in shanties without basic amenities such as drinking water and electricity, in order to send money to their families. Some workers might even be forced to accept lower wages and be prevented from joining labour unions, under threat of losing their jobs. This may explain why the Nigerian Labour Congress (NLC), in their refusal to endorse the agreement, describes the trade agreement as a “renewed, extremely dangerous and radioactive neo-liberal policy initiative.”
He said tough competition may lead some companies to disregard the environment and patent protection rules when it comes to making products and disposing of waste, so that they can survive in their industry.
“Many SMEs are likely to cut costs, including those related to manufacturing and the proper dumping of waste. Many African countries don’t have laws in place that protect patents, inventions and new processes. The laws they do have aren’t always strictly enforced. As a result, companies’ ideas often get stolen.”
The Executive Director of CISLAC, Auwal Musa Rafsanjani, said the impact of AfCFTA cannot be determined by government policies alone, but also by how much the private sector leverages the abundant opportunities available in the free trade agreement.
“In Africa, despite sensitization and consultation campaigns in all the geo-political zones, there is a seeming lack of mass enlightenment on AfCFTA with only 30 groups and 2317 natural persons sensitised and consulted on the trade agreement.
“Without an active strategy to ensure that MSMEs are aware of the AfCFTA and put in a position to capitalise on the agreement, the AfCFTA’s positive impact on the Nigerian economy will remain minimal,” CISLAC boss said.
For CITN President, Adesina Adedayo, AfCFTA has the potential of contributing greatly to the movement of capital, human resources, and facilitating investments across borders by laying the foundation for the establishment of a continental customs union at a later stage.
“MSMEs remain critical constituents of the Nigerian economy as they represent 96 per cent of Nigerian businesses and contribute 75 per cent to national employment. MSMEs will benefit from access to new markets and the economic transformation that competition promotes.”
Reviewing the likely effects of AfCFTA on Nigeria’s economy, Adedayo said the concerns can be addressed positively by the government putting in place measures to protect vulnerable industries.
According to him, these measures include, improving transport infrastructure and enforcing policies, which would see a reduction in the cost of production with much consideration and easier access to credit facilities by the MSMEs.
“This would in turn make goods export competitive and promote rapid growth in industrialisation which in return boost our nation’s economy,” he stated.
On his part, the former Director General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf stated that countries with strong productivity and competitiveness would benefit more.
“Benefits and costs would vary from country to country. Countries with a quality investment environment would emerge as key destinations for investment; countries with weak investment environments will be market destinations.”
He, nonetheless, noted that multiplicity of membership, slow ratification of protocols and reluctant implementation of agreed plans, lack of complementarities of African economies, socio-economic policy divergence, inadequate infrastructure, limited national and regional capacities, and lack of full private sector involvement at both planning and implementation stage, as part of challenges of the AfCFTA.
For MSMEs to benefit from AfCFTA, former Director-General, Abuja Chamber of Commerce and Industry, Dr Chijioke Ekechukwu, said Nigeria must be deliberate, serious minded, result oriented and focused. “Then we can be seen to be positioned to take advantage of the AfCFTA opportunities, but until then, we are not yet ready.”
Similarly, West Africa Global Trade Advisory Lead at Deloitte, Chijioke Odo, said to drive competitiveness of Nigerian MSMEs under the AFCFTA, government and businesses would need to properly strategise, collaborate and implement policies and schemes to enhance current performance of MSMEs and ease of cross border trade.