NESG: Implementation of AfCFTA Will Cut Govt Revenue by N132bn Annually


Ndubuisi Francis in Abuja

The implementation of the African Continental Free Trade Area (AfCFTA) would increase the demand for Nigeria’s products and services on the continent, with a rise in the price of exports and improved margins for Nigerian producers.

However, the policy would also trigger a reduction in government revenue by 1.5 per cent (equivalent to N131.6 billion) per annum due to the loss of revenue from import duties.

This was part of the findings of a study conducted by the Nigeria Economic Summit Group (NESG) on the impact of the AfCFTA on key macroeconomic variables of the Nigerian economy.

No fewer than 44 African countries signed the AfCFTA treaty on March 21, 2018 in Kigali, Rwanda with Nigeria among the few nations backing out in the eleventh hour due to fears that the intra-Africa trade pact might hurt domestic economy.

However, in July 2019, Nigeria signed the trade liberalisation deal and two months after, AfCTFA, which is designed to boost regional trade and allow companies to expand and enter new markets, came into force following the clearing of a key procedural hurdle and ratified by the parliaments of 24 countries.

NESG, in a study on the economy-wide implications of the AfCFTA on the Nigerian economy, said it was important to highlight that the results of its study are not far-fetched from other similar studies, adding that the expected impact of the trade liberalisation pact on economic performance, fiscal and monetary policies on the Nigerian economy represents one such area of similarity.

The group, in its study, revealed that by eliminating import duties on goods from Africa, AfCFTA would have a number of effects on Nigeria, including increased demand for Nigeria’s products and services in Africa which would result in an increase in the price of exports and improved margins for Nigerian producers.

But conversely, the regional intra-trade deal, the study observed, would reduce government revenue by 1.5 per cent (equivalent to N131.6 billion per annum) due to the loss of revenue from import duties.

The study also pointed out the need to put in place measures to counter the expected negative impact of AfCFTA on government revenue.

The recommended policy measure, it espoused, was to combine trade liberalisation with increased drive for the inflow of foreign saving/investments into the Nigerian economy, adding that the government could complement this with a programme of diversification of the Nigerian economy.

The study, which also stated that in view of findings that Nigeria’s GDP would be impacted negatively when AfCFTA fully comes into force, said there was the need to make the economy more competitive; noting that relying on the inflow of foreign savings to grow the economy may not readily pay off.

The study, therefore, recommended a number of options that the country should embark on in the course of AfCFTA implementation, including massive infrastructure upgrade and institutional reforms to improve her business environment.

To NESG, the infrastructure upgrade could be realised through the concession of major infrastructural projects (electricity, roads, bridges, airports, seaports, etc) to the private sector.

“The concessions must, however, be complemented by strong institutional reforms to effectively regulate the operations of the private sector,” it said, adding that producing highly competitive products as in the foreign market also require strengthening government regulations and internal quality control of products produced in the country.

“The Standards Organisation of Nigeria (SON) and the National Agency for Foods and Drugs Administration and Control (NAFDAC) have a crucial role to play in this respect. These regulatory institutions must be reformed to effectively perform their constitutional regulatory functions,” NESG said.

It also recommended that Nigeria needs to maximise the opportunities that are available to it in the AfCFTA agreement by enhancing the space for both domestic and foreign investments.

“Thus, there is the need to create a more business-friendly environment and reduce existing binding trade constraints in the country that has so far deterred the growth of foreign investment in different sectors of the economy. In addition to providing a reliable transportation system and power supply, the country can restore a business-friendly environment by substantially addressing all major security challenges that have in recent time inundated the country and discouraged foreign investors from doing business in Nigeria,” the study noted.