African Export-Import (AFREXIM) Bank has said that Nigeria signing the African Continental Free Trade Agreement (AFCFTA) treaty is critical to maximum utilisation of of Nigeria's economic potentials including taking over from China as the world's manufacturing hub.
President, AFREXIM Bank, Cairo, Egypt, Professor Benedict Oramah, disclosed this at the Centre for Financial Journalism's fourth edition 'Bullion Lecture', held in Lagos.
Speaking on the theme: "Leveraging the AFCFTA for Nigeria's economic development", Oramah said: "Increasing intra African trade does not mean doing less business in the world. As you know the ACFTA implies a progressive reduction in tariffs, progressive elimination of non-tariff barriers, and progressive trade in services, harmonization of standards and son and so forth.
"The ACFTA increases the opportunity for economies including Nigeria to take over from China as the world's manufacturing hub. Also Nigeria stands a great access of enlarging Foreign Direct Investment flows by joining the ACFTA as the largest economy and the most populous in Africa. It will help them reduce other challenges majorly the ease of doing business across borders. We also expect the agreement to improve infrastructure, we also expect it to enlarge the market beyond Nigeria."
According to him, "The study that was done on the government shows that AFCFTA will create jobs, grow exports and also boost economic growth."
Commenting on the lecture, Director General, Lagos Chamber of Commerce and Industry, Muda Yussuff, explained that in order to achieve such benefits, stakeholders in the economy should among other issues address the challenges of Polarization in the Manufacturing sector.
He said: "The challenge we have is in terms of Polarization between those who are industrialist and those who are in the other sectors of the economy and what we find in Nigeria is that, the industrialists are very strong in advocacy. So they are able to influence the government a lot more even though the contribution of Manufacturing to GDP in Nigeria is less than 10 percent. So, most times policies win in their favour."
Oramah noted belief in colonialism is limiting regional integrations through trade adding that Nigeria needs to tackle constraints to access the potentials of AfCFTA.
He said: "Today, Africans regard foreigners and not their neighbours as their saviours why? The Colonial strategy was by some basic principles : Divide and rule ; Dependence on commodities, no industrialization/value industrialization/ value addition; direction of trade was structured to connect the colonies solely to their colonial masters. The limited infrastructure that was developed by the colonial masters was designed for resource extraction and hence followed the mines -to -coast path in colonies; and Education was biased towards humanities rather than science and technology."
Constraints limiting Nigeria
"Current macroeconomic policies may need to be tweaked towards supporting increased regional trade. At the sectoral level, there will be a need to introduce policies that encourage FDI flows to sectors that have the highest potential for regional trade, namely light manufacturing and agriculture.
"Some complain that government officials negotiate international trade treaties and make trade and investment policies without consulting those (the private sector) whom those treaties and policies are supposed to serve; Some Nigerian manufacturers worry that the AfCFTA will create an opportunity for certain goods produced outside of Africa to enter the Nigerian market from smaller African countries.
"Another constraint identified is that today, up to 50 percent of intra-African trade is conducted informally. Some have argued that unless these are formalized, government policies to boost Nigeria-Africa trade through the AfCTA would be blunted.
"Inadequate infrastructure is another important constraint many companies face. Domestically, infrastructure levels are poor, making export competitiveness hard. Due to colonial history that balkanized the continent, regional connectivity by road, sea, rail and even air is inadequate.
"The bank is creating a digital ecosystem that will eliminate major bottlenecks to trade and financial flows within the continent. We estimate that when completed, the platforms could triple the share of Intra-African trade in Africa's total trade and formalise significant proportions of the over us$60 billion annual informal cross border trade in Africa. The ecosystem will include: a Pan-African payment and settlement platform, a customer due diligence repository platform also known as Mansa platform, a trade information portal, a regulatory platform, an interstate transit guarantee platform and an Afrexim Bank credit application platform."
According to him, a survey of the business community by the Nigerian government showed that 69 percent of Nigerian businesses believe AFCFTA would be advantageous to the country. The top three advantages identified were better business environment, promotion of local business and business growth and expansion; overall , 78 percent of firms believe that AfCFTA will make a positive impact on local businesses; 56 percent of the polled respondents believe the country does not have the infrastructure necessary to reap those benefits and gains However , there is an understanding among business leaders that the country should not wait until the infrastructure gap is fully closed before participating in the AfCFTA.
Oramah noted that the study revealed 65 percent of businesses expect AfCFTA to help them overcome their top challenges, namely: Improvement in the ease of doing business across borders that they expect to accompany the trade agreement; expected improvement in infrastructure; and enlargement of markets for Nigerian producers.
Among exporting companies, 84 percent expect AfCFTA to increase their volume of exports; the enthusiasm is shared by 91 percent of small companies and 100 percent of agriculture and trade businesses.
Oramah further highlighted solutions to these constraints adding that it would help leverage AfCFTA for Nigeria's economic development.
He said: "An environment of low tariffs, and significant reduction in non-tariff barriers envisaged under the AfCFTA, will require maintaining the Real Exchange Rate of the naira at an appropriate level. This will mean appropriate management of the nominal exchange rate of the Naira, implementation of policies that promote improved productivity, appropriate monetary policies and so on.
"Since financing is a critical success factor in exporting and trading generally, it is important that the Nigerian Government develops a comprehensive solution to make Nigeria's participation in intra-regional trade beneficial. In this regard,
NEXIM should be better capitalized to a level that can make it a serious ECA. NEXIM should be equipped to develop an arrangement for offering risk-bearing facilities to enable it support exports to riskier regional markets.
"The CBN should develop arrangements to offer reasonably priced Naira-based export credit lines to NEXIM for on-lending to exporters; Government should provide counter guarantee to NEXIM and Bank of Industry to enable the moffer medium term financing for retooling factories and creating export production capacities.
"Our view is that the financing challenges for cross border investment can be ameliorated if the AFC and NSIA are encouraged and resourced to support such investments by Nigerians".