Happily Ever AfCFTA?

In 2018, agriculture contributed around 25.1% of Nigerian GDP up from 20% in 2000.[1] There is considerable potential for the sector to perform better, yet farmers are hamstrung by inadequate funding, a lack of expertise and poor product quality.

Over the past few weeks, we’ve had the privilege of speaking with stakeholders across the agriculture value chain in Nigeria to ask them of their thoughts around AfCFTA and its impact on the status quo. We grouped them into three camps: 1) ‘The Remainers’ who favour the status quo; 2) ‘The Believers’ who are optimistic about AfCFTA and 3) ‘The Cautious Camp’: who sit in the middle.

The Remainers

Competition from non-locally-produced goods is the most common concern among The Remainers. Indeed, with nearly three-quarters of households living below  $2.50 per day[2], smallholder farmers are constrained from investing in quality seeds and equipment. The handling of produce after harvesting is also problematic because if not done properly, can lead to losses, undermine quality and limit the chances of successful export. Legborsi Naiwbu of the Nigeria Private Sector Alliance, a multi-sector stakeholder platform, understands this well. “Nigeria has not promoted the export of agricultural produce to understand market needs…if you ask chambers of commerce, they will not have [a] concrete response. There are international standards which we often don't meet.” 

The Believers

Currently, Africa barely trades with itself: 16% of African exports are destined for other African countries, far less than the 59% of trade within Asia and 68% within Europe.[3] The high cost of tariffs is a barrier but under AfCFTA, tariffs will come down by 90% - by 2022, intra-African trade is expected to increase to 52%.[4] Legborsi is excited about AfCFTA because “relaxed quality criteria” will result in easier exports to the region compared to Europe, opening up a huge market. 

Finance sectors will benefit because there’s opportunity to provide added products and services on both sides of transactions. Now, regional banks will have a chance to facilitate trade as “more companies should be interested in export”, as expressed by Bamidele Ayemibo of 3T Impex Trade Consulting.[5]

Companies that already have a regional perspective will likely find the transition to AfCFTA much easier. As the largest free trade zone in the world, AfCFTA has the potential to carry a strong voice at the negotiating table, which AFEX West Africa Regional Director, Ayodeji Balogun describes as “collective bargaining…which could make Africa become a price determiner rather than price taker.”   

The Cautious Camp

Negotiations are still taking place, for instance on rules of origin. It is not just Balogun that asks : “What constitutes made in Africa? 30% or 60% African? It must be clearly defined for each class of traded products (agriculture, mining, automobiles).” Rules must be simple and cost-effective for the private sector to take advantage.[6] 

Standardisation is also a significant factor for the success of AfCFTA. A commitment to bringing down Technical Barriers to Trade (TBTs) is enshrined AfCFTA.  This is to ensure that the collective goals of meeting health, environmental, safety and other standards are achieved in a harmonised fashion, such that “standardisation works for all,” according to Balogun. 

Recommendations

The Agriculture experts identified three areas in which they need to see improvement:

Stakeholders’ sensitization and empowerment: Consistently identified as one of the biggest challenges of AfCFTA, governments must raise public awareness, particularly for stakeholders such as smallholder businesses, explaining how they can benefit and even have a say in AfCFTA negotiations. 

Policy alignment:AfCFTA will alter existing laws and national policies should be in line with it, or risk eroding its benefits. For example, Nigerian law says you cannot import birds, eggs or fruit juice.[7] Policy makers must be strategic to rethink Nigeria’s import and export strategy in order to break into new markets, not close them off.

Business environment:Connecting infrastructure is essential for AfCFTA to thrive. Our respondents need the critical infrastructure that will reduce business costs and enhance product movement across borders. This includes having efficient rail and transport systems, reduced energy costs, air freight  and silos for grain storage. 

Without these shifts, those that should benefit most from AfCFTA will not have the knowledge, infrastructure and policies needed to reap its rewards. Instead, the fears of The Remainers could well be realised, leaving Nigeria’s already struggling agriculture sector with a whole new set of challenges.

This blog post was produced in collaboration with ONE. ONE is a global movement campaigning to end extreme poverty and preventable disease by 2030. To discuss further with the team, please do drop us a line: questions@songhaiadvisory.com

[1]NBS 2019 https://nigerianstat.gov.ng/resource/Final%20Draft%20Q4%20GDP%202018.xlsx

[2]Working Paper_CGAP Smallholder Household Survey_NGA_Oct 2017.pdf

[3]https://unctad.org/en/pages/PressRelease.aspx?OriginalVersionID=520

[4]https://www.cfr.org/blog/african-continental-free-trade-area-new-horizon-trade-africa;https://unctad.org/en/PublicationsLibrary/webditc2016d7_en.pdf

[5]http://www.3timpex.com

[6]https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2128

[7]https://www.premiumtimesng.com/news/top-news/219768-25-items-banned-imported-nigeria-full-list.html