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The African Continental Free Trade Area (AfCFTA) and Opportunities for MSMEs in Nigeria

Key Takeaways

  • The African Continental Free Trade Area (AfCFTA) agreement is the largest trade area agreement in the world.
  • The Trade Agreement seeks to facilitate the free flow of African-made goods and services on the African continent.
  • Countries are expected to tax only three (3) per cent of produced goods.
  • The trade agreement pilot program is underway with eight participating countries.
  • LSETF remains committed to supporting MSMEs in Lagos to tap into opportunities around them.

 

The African Continental Free Trade Area (AfCFTA) agreement was launched in 2019, marking a shift in the terrain of international trade. The Trade Area agreement comprises 55 African Union member-states, constituting an economic community. The AfCFTA seeks to create a single market for goods and services to facilitate the continent's economic integration in the pursuit of the Agenda 2063 of the African Union. It is a trade agreement that brings together a population of over 1.3 billion people and a combined economy of about USD 3.4 trillion. The AfCFTA is expected to increase intra-African trade from the current 14.4 percent of total African exports to over 40 per cent.

Although trade officially commenced in January 2021, the Guided Trade Initiative (GTI) was introduced in 2022 to test the waters of the legal, operational, trade and institutional environment of the Trade Agreement with the participation of eight countries – Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania and Tunisia. In November 2022, Kenya shipped its first batches of products to Ghana in a landmark development. Feedback is expected from the participating countries in the GTI to understand further intricacies and measures to introduce to facilitate seamless trade.

Benefits of the AfCFTA Agreement to MSMEs in Nigeria

The African Continental Free Trade Area (AfCFTA) is the largest trade agreement globally. It is expected to primarily benefit African Small and Medium Enterprises (SMEs).

  • Reduction of tariffs

AfCFTA can potentially lower or eliminate tariffs on intra-Africa trade, with not less than 90 per cent of the liberalised goods by 2030 and a further 7 per cent by the end of 2035. Only 3 per cent of the goods produced will be liable for tariffs under the Trade Agreement. This is expected to improve the ease of doing business and lead to accelerated growth and development among member states.

  • Access to a large market

In Nigeria, the AfCFTA is expected to create opportunities for MSMEs by providing access to a larger market, increasing their competitiveness and profitability. The AfCFTA will also help MSMEs in Nigeria to expand their businesses beyond the country's borders.

  • Access to infrastructure

The Trade Agreement has generated several moves at national and regional levels to improve road infrastructure to ease logistics amidst further calls for infrastructural investment. Improved infrastructure will enable businesses on the continent to engage in seamless trade, reducing the cost of doing business and enabling MSMEs to increase their productivity and profitability.

These benefits are expected to contribute to the exploration of the region's $21.9 billion export potential, raise income and lift more than 40 million Africans out of poverty.

Harnessing the AfCFTA Agreement Opportunities

The focus on value chain development in the manufacturing sector has been seen by experts as a critical factor that would ensure that trade under the AfCFTA translates into poverty and unemployment reduction. As a result, MSMEs need to key into the AfCFTA by ensuring they possess adequate knowledge in their trade while embracing collaboration across the value chain.

Moreover, as the Federal Government has set the ball rolling through stakeholder engagement and the review of the National Trade Policy, ensuring compliance with established guidelines and the Rules of Origin (RoO), amongst others, will enhance the potential of tapping into the opportunities highlighted significantly.

Meanwhile, ensuring that formal procedures such as business registration, tax filing, and maintaining a business account are completed in due time will enhance the readiness of MSMEs to tap into the free trade agreement.

Concluding thoughts

Although much is still needed for Nigerian MSMEs to be ready to tap into the AfCFTA, the Lagos State Employment Trust Fund remains committed to supporting MSMEs to explore opportunities in their environment to facilitate job and wealth creation. Hence, keying into our diverse programs, from loans to business support, employability trainings, and technology-focused interventions, will further enhance the readiness of businesses in Lagos State to leverage the opportunity to expand their reach and contribute to growth and development within the State and beyond.

 

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