The Federal Government of Nigeria has ratified the nation’s membership of the African Continental Free Trade Area (AfCFTA) ahead of the December 5, 2020 deadline.
This was announced on the official twitter account of the government, yesterday, November, 11, 2020. The AfCFTA Agreement comes into effect on the 1st of January 2021as initial schedule date of July 1, 2020 was cancelled due to the outbreak of coronavirus pandemic.
The AfCFTA was established in 2018 with the aim to create a single market for goods and services. With it’s headquarters in Accra, Ghana, AfCFTA main objectives are to create a continental market for goods and services, with free movement of people and capital, and pave the way for creating a Customs Union.
Most African countries trade less with themselves with many preferring to trade with third countries. This often leads to huge dependence on foreign market and importation. However with AfCFTA, intra-African trade will grow through better harmonization and coordination of trade liberalization across the continent.
But why should owners of Small and Medium Enterprises be excited about AfCTA?
The implementation of AfCTA offers great opportunities with several benefits for SME business owners. Some of the opportunities are presented below:
- AfCFTA is expected to eliminate tariffs on intra-African trade. Import duties, in due time, will be reduced. Therefore, it will make it easier for African businesses to trade within the continent and cater to and benefit from the growing African market.
- Many SMESs find it difficult to break into more advanced international markets. They can use the opportunity of regional export destinations to tap into overseas markets at a later point with AfCFTA.
The AfCFTA will allow African-owned companies to enter new markets, thereby, expanding their customer base.
- Foreign direct investment will also flourish. With restrictions on foreign investments are lifted, it will open doors for investors into the continent. “This adds capital to expand local industries and boost domestic businesses. New capital enhances an upward productivity cycle that stimulates the entire economy. An inflow of foreign capital can also stimulate banking systems, leading to more investment and consumer lending.”
- When there are more businesses thriving through AfCFTA’s promotion of more labor-intensive trade, there will be more employment and job opportunities. World Bank’s Chief Economist for Africa, Albert Zeufack says “the AfCFTA is expected to lift around 68 million people out of moderate poverty and make African countries more competitive”
- Aside job creation, it will increase specialization and industrialization. Multinationals will partner with local firms to develop raw materials, training them in best practices and transferring technology in the process.
- To World Bank, full implementation of AfCFTA would reshape markets and economies across the region and boost output in the services, manufacturing and natural resources sectors.
- The AfCFTA is further expected to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access and better reallocation of resources.
- African union also says that AfCFTA will make it easier to supply inputs to larger regional companies, who then export. For instance in the exportation of cars, leathers for seats are first sourced from regional markets. Thus, it will ease the process of importing raw materials from other African countries and ultimately reduce input costs.
World Bank reports that AfCFTA will cover a market of 1.2 billion people and a gross domestic product (GDP) of $2.5 trillion, across all 55 member States of the African Union. In terms of numbers of participating countries, AfCFTA will be the world’s largest free trade area since the formation of the World Trade Organization.