January 4, 2021

Continental Integration & the Nigerian Economy

The Effect of the African Continental Free Trade Area on Medium Small and Micro-scale Enterprises in Nigeria

                The roadmap towards a regionally integrated Africa formally commenced with the signing of the African Economic Community (AEC), also known as Abuja Treaty, in June 1991. The Treaty established the building blocks towards the completion of the AEC by 2028. With the Treaty coming into force in 1994, African countries were expected to complete six consecutive regional integration steps which would lead to a fully integrated market at the continental level within a 34-year period.

These steps included (i) strengthening of intra-regional integration and the harmonization between the blocs; (ii) creation of regional blocs (that is, the Regional Economic Communities or RECs); (iii) establishment of free trade areas (FTAs) and customs unions in each the RECs; (iv) creation of a continental free trade area and customs union; (iv) creation of an African common market; and (vi) establishment of an African economic monetary union and a parliament. However, the process of having a regionally integrated Africa has not been smooth and linear, both within and across all of the RECs (Mevel and Karingi, 2012). FTAs are established components of regional integration and have been known to promote commodity trade and investment flows by creating an improved enabling environment for cross-border transactions (Kawai & Wignajara, 2008). The processes may also prompt diversion of trade and investment away from countries with less favourable business conditions (Yunling, 2010). Thus, the impact of FTAs widely differs across countries on account of a multitude of factors that impact the business environment. Intra-continental trade in Africa is the lowest among all other regions in the world. This poor trade performance is both a significant cause and an obvious effect of the poor social and economic development of the region. Another crucial factor that could explain the low intra-African trade are both trade and non-trade barriers to exchange of good and services. The recent progress with the establishment of AfCFTA as endorsed by 54 African countries in July 2019 is therefore reassuring, given its potential to reduce the presence of barriers to trade on the continent.

However, the economic impacts of an FTA are unlikely to be the same across participating countries. There will be winners, and there will be losers. To this point, an in-depth literature review by Stevens et al. (2015) concludes that FTAs have positive effects on trade growth in at least some cases; however, the picture is mixed, with a range of widely-varying estimated effects. Even for a country benefiting from the ratifying of an FTA, the gains will be unevenly spread across sectors. This implies that, while aggregate trade and development gains from AfCFTA are likely, little is known on inter-and intersectoral gains within individual countries as well as the disparate effects in different nations.

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