Nigeria and Countdown to Africa Continental Free Trade Area

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The take-off of the African single market is months away and Nigeria needs to urgently address its huge infrastructure deficit, fix the nation’s micro-economic policies as well as the challenges of access to market and finance for it to compete favourably and derive any meaningful benefits from the largest single market in the world

By Anayo Ezugwu

IT is unfortunate that Nigeria may not be able to benefit from the Africa Continental Free Trade Area, AfCFTA, agreement unless the country is able to improve on its infrastructure, which will attract investors. For instance, no industrialist or manufacturer will like to produce his products with generators and be competitive.

But this is the current situation of manufacturing in Nigeria. The electricity supply in the country is one of the lowest in Africa. Nigeria still staggers around 4,000 megawatts of power generation for a country of nearly 200 million people. For businesses to boom and investors to come in, Nigeria needs steady power supply. This pathetic narrative is the story of Nigeria despite the huge amount of money successive governments have invested in the power sector.

For instance, President Muhammadu Buhari-led administration has invested over N900 billion in the power sector without any result to show for it. This story is quite different when compared to some African countries, including Ghana that have not spent a quarter of what Nigeria has wasted to supply darkness to her people.

Ghana has celebrated not less than three years of uninterrupted power supply. South Africa, with a population of about 60 million, produces 51,309mw, while Nigeria, with a population of more than 190 million, produces just 4,000mw.

Apart from the epileptic power supply, another fact why investors will continue to avoid Nigeria is security. The country houses one of the most dangerous terrorist organisations in the world. Apart from Boko Haram, the government has also designated Indigenous People of Biafra, IPOB and Islamic Movement of Nigeria, IMN as terrorist groups. Also the notorious activities of the Fulani herdsmen, bandits, kidnappers are at their peak in the country.

Unless Nigeria improves on current infrastructure decay in the country, it might lose out on the African single market. The decision of Toyota Motor Corporation to build its assembly plan in Ghana shows that Nigeria need to address the issues of electricity supply, security, fiscal policies as well as enabling business environment.  The automobile company chose Ghana over Nigeria despite President Muhammadu Buhari’s overtures to the car manufacturing company to establish the plant in Nigeria.

Surprisingly, the decision to establish the assembly plant in Ghana was announced on Thursday August 29, at the 7th Tokyo International Conference on African Development, TICAD 7, in Japan, where Buhari had canvassed for a Toyota assembly plant during a meeting with Ichiro Kashitani, president and chief executive officer, CEO of the company.

Imai Toshimitsu, chief operations officer, Toyota in charge of Africa Division, said the company chose Ghana because of its favourable economic climate. “We are willing to participate in the automotive industry in Ghana… I am very happy that we have reached the consensus and principal agreement to start the Toyota and Suzuki assembly plants. We are planning to kick-off the project immediately, and, hopefully, we will have the first car made in Ghana this time (August) next year. Thank you very much for your support.

“The products to be assembled in Ghana include the Toyota Hilux pickup, which is already popular in Ghana. Since it will be locally produced, I hope it will be more popular. We are also planning to introduce small passenger cars, with two Suzuki brands. So, Suzuki products will be assembled and sold in Ghana. The cars which will be produced in Ghana are our core models for Africa and Ghana customers,” he said.

With the free trade agreement in effect, Nigeria will depend on Ghana to import Toyota vehicles. This will be a huge market for Ghana as it will be the West African hub for Toyota vehicles and Nigeria is expected to be one of the importers and key drivers of sales.

The assembly plants will also help boost job opportunities in Ghana and the more demand they receive for Toyota export, the more jobs and revenues created by the company. But with Honda and Peugeot having assembly plants in Nigeria, and VW as well as Nissan planning to have theirs, it’s only a matter of time for Toyota to join the rank.

The position of Toyota has justified those who said that Nigeria is not ready for the free trade zone in Africa. It also meant that Nigeria will be a victim of dumping of relatively cheaper consumer goods made in China and other African countries.

Apart from Toyota citing its plant in Ghana, other manufacturing companies in Nigeria like Dunlop Nigeria Plc; Michelin; Patterson Zochonis, PZ; Cadbury Nigeria Limited, Unilever among others are manufacturing 70 percent of the products in Ghana and supply to Nigeria. The reason for this abnormality is not farfetched.

In acknowledging the weakness of Nigeria’s economy, Timothy Olawale, director general, Nigeria Employers Consultative Association, observed that Nigeria lacks the infrastructure to participate in AfCFTA, which he, however, thinks has immense potential benefits.

He points to the disadvantaged environment with regard to infrastructure, among which is the power and road network. Infrastructure deficiency places Made-in-Nigeria goods at a disadvantage when compared with cheaper and higher quality products that will enter its market through conniving African nations.

Mansur Ahmed, president, Manufacturers Association of Nigeria, MAN, said inferior goods do not stand a chance to compete in the AfCFTA market. He therefore charged Nigerians, “We have to raise the quality of our products. But you need massive investments in infrastructure, human capital, and research and development, to achieve this.”

Likewise, the National Association of Government Approved Freight Forwarders, NAGAFF, said the federal government must establish necessary structures that would enable the country to maximise the benefits of the AfCFTA. Increase Uche, president of the association, said when necessary structures are put in place, the current trend whereby Nigeria is known as an import dependent country will be reversed and the economy diversified.

“The current stand by the government to implement the African Union policy is a welcome development, coupled with the fact that some technocrats have assembled to look at the issues of the agreement. With the opportunities that are inherent in being part of the moving trend, what Nigeria needs now is to put the necessary structures in place to ensure its applicability which will diversify the economy,” he said.

For Nigeria to compete in the Africa free trade, Johnson Chukwu, chief executive officer, Cowry Assets Management Limited, called for appropriate policy mix for the country. “So, we need to look at the activities that would spur growth in the manufacturing sector.

I think one fundamental thing that we must understand is that consumption level is low, so we need to stimulate consumption. This is because without consumption, there won’t be manufacturing. So, the demand level in the economy is very weak, which is why a lot of Nigerians are worried.

“One of the ways to stimulate consumption at a time like this is through public works. Unfortunately, government is not in a position to fund public works. So, the appropriate way to respond is to come up with public-private partnership initiative to attract private capital, so as to restore consumption,” he said.

According to Chukwu, there is need to review the power sector privatisation and see how to make it more effective.

Tunde Olatunji, economy and finance development expert said the Africa free trade zone has the potential of boosting the Nigerian economy if well utilised. He said Nigeria as a nation must look at the benefits and opportunities that would accrue from the agreement.

He warned that the agreement might come with a ‘threat’ just like every other economic policy and programme. He noted that the opportunities and benefits the country would likely gain from the agreement are significant and massive. The government, according to him, only needs to put in place measures that will counter the risk and threat that may come with it.

“With the agreement, we are looking at economic upsurge through the opportunity of doing trade and businesses with over 1.2 billion people with a cumulative Gross Domestic Product, GDP, in excess of $2.2 trillion. This is too significant for us to ignore as a nation and it will be out of place for Nigeria as the giant of Africa not to be part of the agreement and utilise its economic benefits,” Olatunji said.

Likewise, the African Export-Import Bank, Afreximbank, has approved a $500 million facility to enable Nigerian manufacturers take full advantage of the opportunities offered by the AfCFTA. Prof. Benedict Oramah, president and chairman of board of directors of Afreximbank, said the $500 million facility would providing financing to Nigerian manufacturers and companies engaged in intra-African trade under the AfCFTA, which implementation begins in 2020.

Oramah in his presentation titled “From Commodities to a Global Manufacturing Hub: The Road Ahead for Nigeria,” at the 2019 Manufacturers Annual Lecture/Presidential Luncheon” of the Manufacturers Association of Nigeria, MAN, in Lagos, said with AfCFTA coming into force, the benefits Nigeria would derive therein would depend on how prepared the country is, for instance, in participating actively in the negotiations such as the rule of origin.

He said other areas that should be addressed to allow Nigeria benefit include fixing the nation’s micro-economic policies and addressing issues of quality infrastructure, access to market and finance. The Afreximbank chief, therefore, said the $500 million facility for manufacturers will help support and retool their operations with a view to improving their competitiveness in Africa and globally.

Whether Nigeria has what it takes to compete in the free trade zone or not, the country must encourage large scale production by fixing its infrastructure to attract investors. Anything less than this, the country will definitely become a dumping ground for other African countries.

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