Nigerian prospects for joining the AfCFTA

Garba Shehu, a spokesperson for Nigerian President Muhammadu Buhari, stated on 9 May that a Presidential Steering Committee impact report on the African Continental Free Trade Agreement (AfCFTA) had found that joining the agreement would make a positive economic effect on the country, and that the president would sign the trade agreement "soon". This follows the requisite 22 countries ratifying the agreement on 2 April; the agreement is due to come into operation in July.

As Africa's largest economy, Nigeria joining the African Continental Free Trade Agreement (AfCFTA) would increase the AfCFTA's effectiveness, likely compelling other countries that have yet to sign the agreement onboard and reducing the proliferation of illicit trade flows in the long term. Currently, only 23 of the African Union's 55 member states have ratified the agreement. This means that the AfCFTA will be implemented unevenly across Africa. This will not only inhibit the overland transport of tariff-free goods, undermining the agreement's success, but also create tariff disparities between AfCFTA's implementers and all other states. In turn, this is likely to incentivize smuggling of import goods from low-tariff to high-tariff areas, and that of export goods from high-tariff areas to low-tariff areas. Therefore, continent-wide AfCFTA membership, aided by Nigeria joining the AfCFTA, would reduce smuggling in the long term and increase intra-African trade.

Although Nigeria appears increasingly likely to sign the AfCFTA, the country is unlikely to implement the agreement in the one-year outlook because of elite business interests opposing the agreement, and the likely stipulation of completing a national policy program to prepare Nigeria for AfCFTA membership. An August 2018 independent survey by the Nigerian Office for Trade Negotiations (NOTN) of 512 business leaders and owners reportedly showed an "overwhelming expectation of positive impacts of AfCFTA on businesses and the economy". Nevertheless, powerful domestic businesspeople are highly likely to exert continued influence over the government to inhibit the signing and implementation of the AfCFTA. They would seek to limit commercial competition and maintain large market shares and high profit margins in their respective industries. Many of these businesspeople have close relationships with this administration, which has pursued an industrial growth policy largely premised by protectionist tendencies like import restrictions. In part to assuage this constituency, before joining the AfCFTA, the government is likely to complete a policy program set to prepare Nigeria for a liberalized trade environment such as improving Nigeria's poor physical infrastructure. This would probably include development of the cross-border infrastructure such as the Trans-African Highway in Nigeria, including the prioritization of repairs to the Lagos-Badagry Highway.

Even if Nigeria implements the AfCFTA, the liberalizing effects of the agreement are likely to be mitigated by non-tariff barriers (NTBs) such as infrastructure and customs checks. Despite the AfCFTA committing to remove tariffs on 90% of goods in the free trade area, the cost of transporting goods will probably remain prohibitively high for many businesses. According to the International Growth Centre, in 2017, transporting goods in Nigeria reportedly cost four times that in the US, despite much-higher wage demands in the US. Furthermore, the implementation of tariff liberalization under the AfCFTA is likely to be flouted by its members. The AfCFTA currently lacks a robust enforcement mechanism to hold its members to the terms of the agreement, indicating that violations of AfCFTA terms are likely to remain unpunished and thus likely widespread.

The influential labor union the Nigeria Labor Congress (NLC) is likely to invoke strike action if Nigeria joins the AfCFTA, having publicly opposed the agreement it deems "extremely dangerous" to its members. As Nigeria progresses with the AfCFTA, the NLC is likely to organize strikes with thousands of participants across sectors nationwide, drawing upon its membership of about 7 million, which would probably cause widespread business interruption for several days and include non-armed violence between protesters and security forces despite being largely peaceful.

Indicators of changing risk environment

Increasingly likely to implement the AfCFTA

• Buhari referring to the AfCFTA as part of his second term policy agenda at his 29 May inauguration.
• Influential Nigerian manufacturers such as Aliko Dangote expressing enthusiastic support for the AfCFTA.
• Government of Nigeria announcing a time-bound policy strategy towards ratifying the AfCFTA.

Increasingly unlikely to implement the AfCFTA

• Nigeria not signing the AfCFTA before mid-July 2019, when African leaders supportive of the AfCFTA aim to have the agreement come into force.
• NLC announcing large-scale strike action to protest the AfCFTA.
• Nigeria failing to reduce tariff and non-tariff barriers with fellow ECOWAS states other than Benin, which has also failed to sign the AfCFTA.

Posted 23 May 2019 by William Farmer, Analyst, Sub-Saharan Africa, Country Risk, S&P Global