By Dike Onwuamaeze
A study initiated by the Nigerian Economic Summit Group (NESG) on the impact of the implementation of the African Continental Free Trade Area (AfCFTA) agreement on Nigerian economy has revealed that it would have positive impacts on Nigeria’s exports.
The study titled, “Impact Assessment Study and Economy-Wide Implications of the AfCFTA on the Nigerian Economy,” stated that if linear cuts would be applied to tariff elimination, the country’s aggregate export will increase by 0.02 per cent in both the first and second five-year implementation periods respectively.
But, “if the tariff elimination is back-loaded, aggregate export is expected to increase by 0.01 per cent and 0.03 per cent in the first and second implementation periods respectively.
“Even when tariff elimination is front-loaded, aggregate export will still increase by 0.02 per cent in both the first and second five-year implementation periods respectively.
“When sensitive products are protected from tariff cuts, aggregate export will also increase by 0.02 per cent in both the first and second five-year implementation periods respectively,” the study said.
The study, which was carried out by the Centre for Petroleum Energy Economics and Law (CPEEL) at the University of Ibadan, in conjunction with Equilibria Consult, however, estimated that Nigeria’s government revenue would decline by 0.21 per cent with the implementation of the continental pact.
It projected that government revenue during the first period of five years of the implementation of the AfCFTA would increase by 0.42 per cent before declining by 0.13 per cent if the government could increase its investment by 10 per cent.
It attributed the envisaged reduction in government revenue to the decrease in tariff revenue, which constituted a major source of government’s non-oil revenue.
It, however, noted that government revenue would be in positive direction in both the first and second period of the AfCFTA implementation if foreign investment inflow and an increase in labour supply were assumed.
The study further indicated that the AfCFTA would have a trade-diverting effect on the country as Nigeria’s imports from non-African countries would be substituted by imports from African countries.
“The AfCFTA implementation in Nigeria is expected to create the phenomenon of trade-diversion and this will be more prominent in Nigeria’s imports from West African countries and South Africa,” the study said.
Nevertheless, simulations carried out by its researchers according to the report indicated that the AfCFTA tariff liberalisation would cause a negligible decline in the household’s income.
It showed that the decline in household income would be more severe for rural rich households and urban-rich households than on the poor households in both urban and rural households, which would only experience a marginal decrease in income at the average of about 0.01 per cent for both rural and urban poor households.
“The expected decrease in income of rural and urban rich households will be an average of about 0.02 per cent for each household type. However, when government intervention and inflow of foreign investment, as well as the increase in labour supply, are simulated, the tide of negative household income changes is reversed,” the study stated.
The study, however, warned that that reliance on foreign saving inflows to grow the economy might not pay-off readily and recommended that the country should embark on massive infrastructure upgrade and institutional reforms to improve its business environment.
“The infrastructure upgrade could be realised through the concession of major infrastructural projects like 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.
It added that Nigeria should, “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.”
It also recommended a combination of trade liberalisation and increased drive for inflow of foreign saving/investment into the Nigerian economy as measures that would counter the expected negative impacts of AfCFTA on government revenue.
“The government can complement this with a programme of diversification of the Nigerian economy. If successfully pursued, diversification of the Nigerian economy will, in turn, boost the tax revenue base of the Nigerian government.
“The government may begin to undertake deliberate measures that will strengthen sectors including health, education, electricity, transportation, textile, apparel and footwear to maximise the benefits that are likely to accrue to them when the AfCFTA agreement comes into force.
“This can be done by recognising these sectors as AfCFTA priority sectors for immediate government support.
The government support may include tax breaks/rebate, government-backed preferential loan arrangements from commercial banks, etc.”
The study tipped the chemical, chemical products, electrical, wood and wood products, cement and construction as sectors that would suffer the greatest with the implementation of the AfCFTA and urged government to create safeguards or incentives for them by including the sectors in the sensitive list.
“This will help delay liberalisation of these sectors to a later period and allow for the adjustment of the sectors to realities of the AfCFTA agreement,” the study said.