After overcoming its initial fright of a parasitic relationship that may arise from signing the African Continental Free Trade Area (AfCFTA), the Nigerian government a fortnight ago in Niamey gave its assent to the agreement.
The move, according to latest report from the Financial Derivatives Company (FDC), is rich in benefits for the continent’s largest economy, but fraught with disadvantages.
Nigeria’s population size naturally plays a positive role in attracting huge benefits once the AfCFTA is implemented says the FDC.
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Its 196 million population shows the country has a readily available market, and participation in a trade area such as what AfCFTA offers, provides a larger market for Nigerian goods, the FDC further noted.
Such development, the report said, will bring about intense competition and rivalry between domestic industries and other African industries. “However in a perfectly competitive market where competition is at its peak and there are no barriers to entry or exit, it should lead to efficiency as it produces the best possible outcome for consumers and the society.
The report noted that, while smuggled goods can be found everywhere in Nigeria at the moment, the AfCFTA would not stop smuggling (one of the reasons being Nigeria’s very porous borders), but it will create more competition which is good for the industries and the economy as a whole.
Another highlighted benefit of the AfCFTA is Nigeria’s good location for industries, as well as currently being the abode to some big global brands such as Nestle, Lafarge and Unilever. These brands who would need to expand their business to meet the growing demand would benefit from economies of scale created by the AfCFTA, the report said.
Similarly, an enlarged market would require that production increases so as to meet growing demand, thus proving positive for the economy as more jobs are created, and employment levels in the country is raised.
The report pointed out that, one of the factors that influence localization of industries is nearness to the market. Industries tend to site their factories close to the market, where the goods can be easily purchased, hence saving on cost of transportation.
On the other hand, tariffs gotten from trade partners may significantly dwindle once the agreement kicks off.
Loss in government revenue through the reduction and eventual elimination of tariffs may arise as tariffs are a major source of the government’s revenue asides taxes.
FDC also sees the risk of the country being turned into a dumping ground for sub-standard goods and increased competition, which will negatively affect the domestic industry.