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Continental Integration & the Nigerian Economy: The Effect of the African Continental Free Trade Area on Medium Small and Micro-scale Enterprises in Nigeria

Executive Summary

Africa is at a historical crossroads. The launching of the operational phase of the African Continental Free Trade Area (AfCFTA) Agreement during the 12th Extraordinary Session of the Assembly of the African Union (AU) in Niamey, Niger on 7 July 2019 marks the most significant event in the decadeslong project of African integration. If managed efficiently, this newly formed market of 55 nations, 1.2 billion people, and an aggregate GDP of up to $6.7 trillion Purchasing Power Parity (PPP) has the potential to bring unprecedented stimulus to African economies by unlocking the historically low level of intra-continental trade and attracting long-term, stable investments from around the world.

While there is general optimism surrounding the promise of AfCFTA to support economic development, there must also be a recognition that, like all Free Trade Agreements (FTAs), the AfCFTA will inevitably create winners and losers. Whether for their own inefficiencies, or the sub-optimal business environments they may find themselves in, some businesses – or even entire sectors of national economies – will not be in a position to make the most from the expanded market opportunities and may be unable to compete with the influx of new competitors from other economies.

These were just some of the considerations that sparked considerable opposition to the deal in Nigeria prior to its signing. Unfortunately, there has previously been a general lack of data and information regarding how the national economy will react, leaving plenty of room for speculation. In this report, CSEA employs a two-pronged strategy to begin filling in the knowledge gap that exists about the possible effects of the AfCFTA on Nigeria’s economy.

First, we zero in on Nigeria’s Micro, Small, and Medium Enterprises (MSMEs). It is no overstatement to say MSMEs are the backbone of the Nigerian economy. In fact, more than 96 percent of all business – contributing to 75 percent of national employment – qualify for MSME status. No trade deal can be good for Nigeria without it benefiting at least the majority of MSMEs. Too little is known about how MSMEs will be affected by the introduction of continental free trade.

In the production of this report, we conducted a representative survey of more than 1,800 MSMEs in five Nigerian states that covered the country’s various sociocultural zones to evaluate MSME awareness and preparedness to take advantage of the AfCFTA Agreement. We also gauged their most urgent needs to make the most of the opportunities presented by AfCFTA and to recover efficiently from the impacts of the COVID-19 pandemic.

Through this process, we found a worrying degree of unawareness about AfCFTA. Two-thirds of MSMEs surveyed declared not knowing of the deal’s existence. This lack of knowledge is particularly acute among smaller businesses and can represent an enormous obstacle to the successful uptake of AfCFTA. The knowledge deficit is compounded by the reported under-utilization of previously-enteredinto FTAs as a result of their complicated compliance requirements. We therefore recommend a targeted, context-specific knowledge dissemination strategy as a key requirement for MSME success in a post-AfCFTA economy.

Among respondents aware of the Agreement’s existence, we found general optimism about businesses’ ability to make the most of its opportunities. Nevertheless, many were somewhat worried by the prospects of more competition and reported a strong need for government investment in electrification and general transport infrastructure to enable them to compete effectively. These problems are, of course, not new in Nigeria. Nevertheless, our findings reinforce the need for a national concentrated effort to ameliorate the business environment to ensure Nigeria thrives in the newly integrated continent.

Finally, the majority of businesses surveyed declared that, in their view, the most effective government relief strategy in the wake of the pandemic would be making business loans more readily available. While we do not take a position on the matter, the findings can certainly be beneficial to national policymakers as they plan the recovery strategy.

The second prong of this study takes a more general look at macroeconomic reactions and trade creation/diversion in the Nigerian economy as a result of AfCFTA. Here, we employed a Computable General Equilibrium (CGE) Model to simulate the general movements of the Nigerian economy, as well as those of other economies across the continent. Our result shows modest positive welfare gains to Nigeria with machinery, other transport, textile and metal products as well as textile industries accounting for most of the positive effects on real wage. Sectors with large tariff reductions recorded higher volume of trade. AfCFTA led to changes in pattern of trade flow across Africa. The African countries facing the possibility of the most gains from AfCFTA are Angola, Botswana, and Seychelles.

It is clear from both sections of this study that the mere signing of the AfCFTA Agreement will not guarantee increased economic prosperity in Nigeria on its own. There is therefore no room for complacency. In this report, we highlight some of the most salient issues that may arise from the implementation of the AfCFTA Agreement and contribute to the foundation and accessibility of knowledge required to effectively set this historic Agreement in motion.

 

This report was first published here

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Green Finance Mechanisms in Developing Countries: Emerging Practice

To counter the devastating impact of COVID-19, calls are growing for countries to ‘build back better’ in an effort to create a more inclusive and sustainable economy that is climate resilient. Africa is facing glaring development and climate risk challenges, but the post-COVID-19 recovery plan offers it an opportunity to revitalise its economy using a green framework. In particular, green finance mechanisms can be employed for the continent’s green recovery. The objective of this policy briefing is to explore best practices in channelling investment towards a green economic recovery to promote inclusive and sustainable investment. Examples of such best practices include investment infrastructure and renewable energy, green/environmental funds and other market-based mechanisms, ensuring stimulus investments focus on green fiscal reform, redirecting existing funding, greening the financial sector and developing green segments.

This article was first published on SAIIA

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Accelerating green energy transition in Africa through regional integration

This brief examines the challenges towards green energy transition in Africa and the prospect of regional integration in fast-tracking this process. Regional integration as being proposed among African countries can sidestep some of the constraints that countries, individually, face in the areas of finance, human capital and technology needed for transition. The study also reflects on the proposed Africa-Europe partnership as an important tool to strengthen this effort with support for regional integration and access to finance and innovations needed for green energy adoption.

Recommendations:

  • National government: Domestic actors have a role to play in aligning their policy and regulatory frameworks with regional requirements. Specific interventions include: support with domestic resources (land, finance, inputs) to encourage regional infrastructure linkages, and appropriate legal measures to encourage local and foreign entries into the green sector.
  • Regional Institutions (African Continental Free Trade Area Secretariat and AU): Gains and burdens from regional approach to energy transition are not expected to be shared equitably. A framework for compensating possible losers will be crucial to ensure broader support for renewable energy transition.
  • EU: A shift in development assistance to encourage a regional approach in transiting to green energy in Africa is required when regional solutions prove more efficient and cost-effective.

This policy briefing has been published as part of a series under the project Partnership for a Green Transition and Energy Access: Strategic priorities for Africa and Europe. The project is a partnership between SAIIA and the Konrad Adenauer Stiftung’s Regional Programme on Energy Security and Climate Change in Sub-Saharan Africa.

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Reopening Schools For Learning

As part of its response to combat COVID-19, the Nigerian government temporarily closed schools. To reopen schools, effective guidelines must be developed and implemented to protect students, staff, parents, and communities against the spread of the virus. In addition, it is imperative to mitigate the effect of COVID-19 closures on learning, and reopening presents a critical opportunity to recover these losses and build a strong foundation for the future of Nigeria’s education system. This policy brief by IDinsight and CSEA, contains: i) guidelines for reopening schools safely, and ii) recommendations for reopening schools to recover learning losses in Nigeria.

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Assessing Digitalization and Data Governance Issues in Africa

The growth of digitalization and digital technology adoption in Africa holds the key to strengthening and diversifying economies across the continent. Although these developments offer potentially life-changing benefits for consumers, businesses and governments, the inherent flaws in the digital market mean these benefits are not guaranteed. As most gains from the digital economy are largely concentrated in the United States and China, the digital divide may widen the gap between the Global North and the Global South. 

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