By Eniola Idris
A new report published Brookings has revealed the areas of benefits and losses to be accrued to Nigeria as African Continental Free Trade Agreement (AfCFTA) gradually goes into full force.
The report exclusively obtained by SlyeNews titled: “Quantifying the impact on Nigeria of the African Continental Free Trade Area” and published by Yewande Olapade and Chukwuka Onyekwena, reveals that AfCFTA would lead to reductions in prices of agricultural and manufacturing commodities, while will it would lead to increase in prices of non-tradable services such as information services; transportation and warehousing; and finance and insurance services.
Olapade is a Quantitative Fellow, Federal Reserve Bank of Minneapolis and Nonresident Fellow, Centre for the Study of the Economies of Africa; while Onyekwena is the Executive Director, Centre for the Study of the Economies of Africa.
Proponents of the treaty expect that AfCFTA would reduce poverty, increase firm competitiveness, and boost intra-African trade and investment. Nigeria signed into AfCFTA on July 7, 2019, becoming the 34th member of the trading bloc.
The report said 6 out of 10 businesses expect the treaty would lead to a reduction in material and labour costs, increase production capacity, expand market and consumer size, and reduce prices.
Nigeria’s small and medium-sized businesses are optimistic about the opportunities created by AfCFTA, although with mixed feelings about rising foreign competition and dumping of substandard goods.
Since AfCFTA is modeled after regional tariff reduction, it expected higher productivity, as it leads to a reduction in relative prices and has implications for the exchange of goods across countries and regions.
“In this framework, households and firms then purchase more imported articles at cheaper prices, raising trade volumes and increasing household welfare. For the same reason, changes in relative prices of exports and imports induce higher demand for non-Nigerian-made products, depending on the variation in prices across sectors and countries. Therefore, even though there is a presumption of a positive impact, which may not be the case,” it stated.
Quantifying the real wage, price, trade, and welfare effects, the report reveals that: “Nigeria will experience a 1.43 per cent gain in value added compared to 2014 levels. Notably, the effects for Nigeria, although positive, are modest relative to the gains in real wage for other African countries. Our findings show that the AfCFTA will deliver larger gains to African countries with prior larger shares of imports from the region.
“Moreover, impacts of trade liberalization on real wage across African countries will be uneven: For example, Botswana, Angola, and Ghana will experience percentage changes in real wage of 16.6 per cent, 12.5 per cent, and 6.5 per cent respectively, due to the AfCFTA.
“Nigeria gains 1.55 per cent in welfare. Decomposing welfare effects into effects due to change in volume of trade (1.14 per cent) and effects due to change in terms of trade (0.41 per cent) highlights the sources of Nigeria’s positive gain by sector.
“Agriculture and fishing and other manufacturing industries account for 73 per cent of the gains from volume of trade. A decline in terms of trade translates to a larger decline in export prices relative to import prices. Other manufacturing goods accounts for most gains in terms of trade while the agriculture and mining industries combined dilute gains by 32.6 per cent.” It stated.
It however noted that prices for agricultural and manufacturing commodities will go down, but some others will go up.
“Based on our simulations, the AfCFTA will lead to reductions in prices of agricultural and manufacturing commodities. In fact, the decline in sectoral prices ranges from 0.8 per cent in electrical and machinery to 8 per cent in metal. Moreover, through sectoral linkages and changes in relative prices of imported goods, we find the AfCFTA will lead to an increase in prices of non-tradable services such as information services; transportation and warehousing; and finance and insurance services.
“Even with better infrastructure under the AfCFTA and the under-construction train networks between Kaduna and Lagos (the commercial center of Nigeria, which hosts the maritime ports for articles traded to/from the southern and western parts of Africa), intra- and international transportation costs remain high in the short run,” it added.
Before the AfCFTA, 38 percent of Nigeria’s exports were in the mining and petro-chemical industries. Now, the report suggests a slight decline in exports for the following sectors: mining; wood and paper; petro-chemicals; metal products; and other manufacturing articles.
However, it noted that successful implementation of AfCFTA would also induce a 6.3 per cent increase in exports of agricultural products and 1.3 per cent increase in food and beverage exports.
Noting that AfCFTA has the potential to lift Nigerians out of poverty and raise manufacturing output, it noted that to realize this potential, Nigeria must follow targeted industrial policy and structural reforms; upgrade customs infrastructure; address the domestic cost of doing business; reduce bottlenecks, port processes, and transportation costs; promote digital marketing and e-commerce; and create targeted awareness about the AfCFTA policy.
