May 12, 2020

Evaluating the Impact of AfCFTA on MSMEs

Highlights from the Webinar on Evaluating the Impact of AfCFTA on MSMEs

The Centre of the Study of the Economies of Africa (CSEA) in collaboration with the Center for International Private Enterprise (CIPE) and the Organized Private Sector organized a webinar to discuss the research methodology and gain insight from key stakeholders for the project , ‘Evaluating the Impact of the African Continental Free Trade Area Agreement (AfCFTA) on Nigerian Micro, Small, and Medium Enterprises (MSMEs) ’. The broad aim of the project is to highlight the economic outlook and growth potential of AfCFTA and to provide a cost-benefit analysis of the AfCFTA’s impact on MSMEs in Nigeria.

Dr. Chukwuka Onyewkena, Executive Director of CSEA, set the tone for the Webinar with an introductory speech. He noted the relevance of the AfCFTA in regional integration as a means to boost trade in the region and invigorate productive capacity. However, the current Covid-19 pandemic has shown the overreliance on importation and has made evident the relevance of improving supply chains within the region.

Session One

The Background and Survey Presentation

In this session led by Dr. Adeniran Adedeji, Senior Research Fellow at CSEA, the presentation focused on providing a background of economic integration, highlighting the relevance of MSME’s within Nigeria, as well as outlining the objectives of the study.

Within Africa, intra-regional trade accounts for 12%, this is low compared to Latin America (17%) and the European region (68%). This limited activity limits gains in ease of doing business, trade creation and limits foreign investment. The widespread nature of economic integration means the Nigeria is not unfamiliar with the criteria required to succeed within a trade agreement. Currently a member of ECOWAS the nation has an opportunity to learn from its actions and negotiate favorable terms for its nation.

Figure 1: ECOWAS Experience in Economic Integration

MSME’s Account for 49.78% of GDP and employ 76.5% of the total work force. Thus, the pivotal role of these enterprises mean that they must be brought to the table to ensure inclusive and favorable decision making.

How do we achieve this? This can be achieved by the evaluation of MSMSE’s to understand the policies against comparative advantage and understand relative competitiveness. This objective of this study is to examine the likely impact, threats and opportunities of the AfCFTA on MSME’s within Nigeria. This is particularly relevant as the AfCFTA has the potential to expose short term industry weaknesses and divert trade.

Survey of MSME

Four states have been selected for the survey. They include: Abia, FCT, Kano and Lagos states. These states would provide a sample total of 1,600. The survey would be conducted over 4 sectors: Wholesale/ Retail trade, Agriculture, Manufacturing and Food service, and would be distributed to cover location, industry and sectorial concentration.

The questionnaire would be divided into five sections with focus on obtaining the required information:

  • Basic business information
  • International business operation
  • Export and import operations
  • Awareness and perception about AfCFTA
  • Gauging MSME’s competitive capacity to meet process requirements of the AfCFTA

Session Two

The Computable General Equilibrium (CGE) Model Presentation

This session was led by a presentation from Lateef Akanni, research associate at CSEA. The presentation focused on introducing the CGE model, explaining its structure and noting the expected outcome.  This Computable General Equilibrium (CGE) model provides a quantitative means to note the impact of the AfCFTA on the MSME’s in the nation. The CGE model also offers a computer-based simulation of the broad impact of the trade agreement.

The model would expose the:

  • output effect across sectors
  • employment (high & low skilled) effect across sectors
  • Price effect across sectors

It would also provide a basis for dialogue with Nigerian MSME stakeholders and policy makers as links between the AfCFTA efficiency and distribution links would be revealed.

Model Structure 

A base date would be utilized from the latest GTAP data (2014) to reveal the impacts of the change from the AfCFTA.

Expected Outcomes

  • The Macroeconomic Outcomes will include how the AfCFTA will propel change in income, gross domestic output wages, etc .
  • For Sector specific outcomes, the CGE model will provide outcomes per sector such as output effects, employment effects and changes in value of imports and exports.

Stakeholder Comments

  • There is the need to include questions on non-tariff barriers as SME’s may face other barriers which would be excluded by limited questions in the questionnaire.
  • It is also important to include questions that will elicit discussions on the impact of COVID-19 on MSMEs and present the questionnaire in a precise format
  • It was suggested that the scope of the survey area should be expanded to accommodate other areas in Nigeria most especially Onitsha
  • It was also suggested that we leverage on the online platform and other electronic means to reach out to respondents in an effort to avoid the spread of the coronavirus.
  • Participants suggested that the study could also address how the Nigeria MSMEs could operate their business online and feature on the e-commerce platform.
  • Furthermore, CSEA should liaise more with Nigeria’s AfCFTA secretariat to communicate output and inform their negotiations of the AfCFTA protocols.
  • The participants concurred that while the CGE is the best model to use for the analysis, the market analysis tool should also be employed to compliment the CGE as well as other analysis.

This webinar was a successful attempt to curate the unique expertise of key stakeholders within the MSME sphere.