How Free Trade can assist Nigeria’s Manufacturing Industry

In recent times, Nigeria has witnessed a surge in the demand for manufactured goods due to its growing population and current position as home to about 50 million middle-class citizens.

However, the Nigerian manufacturing sector has struggled to keep up with this demand, leading to a heavy reliance on imports. The overreliance on imported goods diminishes the national foreign reserve and impedes the growth of local industries. These factors contribute to undermining Nigeria’s economic sovereignty, despite its huge potential.

With the AfCFTA, Nigeria can transition from reliance on commodity exports to value-added manufacturing.

It is increasingly critical for Nigerian manufacturers to recognize the enormous opportunities presented by the African Continental Free Trade Area (AfCFTA) agreement and leverage them to revitalize the manufacturing sector. In this piece, we take a look at why and how Nigeria can position itself to benefit from the African market.

Vast market access, raw materials, and technology

The AfCFTA creates a single unified market of over 1.3 billion African citizens and a combined GDP of more than $3.4 trillion. However, this immense market potential remains underexplored, as current statistics show an increasing annual importation of goods worth about USD 53.61 billion.

In addition, current realities show that when African countries trade with themselves they exchange more manufactured and processed goods, since most African countries largely produce similar basic goods and raw materials.

Too much dependence on commodities export tends to limit export diversification and leave African countries vulnerable to price dips and economic downturns in importing countries.

With the no-trade-barrier characteristics of the AfCFTA, the immense market potential can provide Nigerian manufacturers with a great opportunity to expand their customer base beyond Nigeria and drive national economic growth.

Furthermore, the AfCFTA promotes product sophistication which, if maximized, will allow African countries to build resilience to movements in demand. The Dangote Group has taken the lead in capitalizing on the AfCFTA benefits by expanding its operations and production to over ten African countries. More Nigerian manufacturers need to toe in this footsteps and stimulate economic growth.

With over 30 percent of the world’s entire mineral reserves on its land, Africa is abundantly rich in natural resources. But its resource wealth is greatly underutilized. Today, many African manufacturers continually struggle with limited access to raw materials, due to the trade barriers and protectionist policies between African countries.

The AfCFTA seeks to address these challenges by facilitating the free movement of goods across the continent. By eliminating tariffs and non-tariff barriers, manufacturers in Nigeria and Africa can access raw materials more easily and at a lower cost. This access will enable them to develop a reliable supply chain and reduce dependence on imports, thereby bolstering local manufacturing industries.

Development of industrial value chains and regional integration

The AfCFTA presents a unique opportunity for Nigerian manufacturers to participate in regional value chains, promoting integration and collaboration with other African countries.

Through this integration, manufacturers can harness the respective strengths and specialization of each country to hasten the manufacturing process of high-value goods.

As an instance, the Nigerian textile industry with its fledgling growth and recurring challenges can benefit from a robust regional value chain and partnerships with other African countries.

The current future of the industry looks bleak with possible extinction by 2030 due to high production costs and lack of access to the domestic market. Nigerian textile manufacturers can establish an alliance with countries like Burkina Faso, Côte d’Ivoire, Mali and Egypt, which are renowned for cotton cultivation and textile production.

These partnerships would enable Nigerian textile manufacturers to access affordable cotton and leverage the expertise of these nations, reviving the industry and creating employment opportunities.

Moreover, such collaboration increases knowledge-sharing and technology transfer and strengthens the overall competitiveness of African manufacturers on the global stage, whilst enhancing their ability to attract foreign investment.

Job creation, industrialisation, and economic diversification

Despite its rich natural resources and capacity for industrialization, Africa has one of the highest unemployment rates of 7.1 percent and 31.1 percent working poverty rate. Nigeria tops the chart with an unemployment rate of 33.3 percent.

The significant challenges of unemployment and income poverty can be addressed through the manufacturing sector, which has the potential to generate employment opportunities and provide steady incomes. Such increased economic activity can elicit a multiplier effect by stimulating other sectors of the economy and creating indirect employment opportunities.

Additionally, the manufacturing sector plays a crucial role in promoting industrialization and economic diversification. A broad and robust domestic manufacturing base will unlock successful national economic development since it generates cumulative benefits.

With the AfCFTA, Nigeria can transition from reliance on commodity exports to value-added manufacturing. This shift will minimize the country’s vulnerability to commodity price fluctuations and enhance its overall economic resilience.

Summarily, the AfCFTA provides a unique opportunity for Nigerian manufacturers to unleash their full potential and boost the country’s industrialization. By leveraging the vast market, reducing trade barriers, and integrating into regional value chains, Nigeria can enhance its competitiveness, increase production volumes, and contribute significantly to the continent’s economic fortunes.

Chiamaka Adinnu is a trade fellow at the Ominira Initiative for Economic Advancement. She is currently studying for a master’s degree in Food Safety and Quality Engineering.

Article first appeared in Business Day.