Improving Nigeria’s Manufacturing Through Trade

In recent years, in large part thanks to its growing population and expanding middle class (now estimated to be in excess of 50 million people), Nigeria has witnessed a surge in the demand for manufactured goods.

With this increased demand, it is critical for Nigerian manufacturers to recognize the enormous opportunities presented by the African Continental Free Trade Area (AfCFTA). In this piece, we take a look at why and how Nigeria can position itself to benefit from liberalised trade with 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 by Nigerian businesses, as current statistics show an annual importation of goods worth $53.61 billion.

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

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

With fewer trade barriers under 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 look for opportunities like this.

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.

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

Currently, the future of this industry looks bleak due to high production costs and a lack of access to the African market. Yet, under the AfCFTA, Nigerian textile manufacturers can work 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 as a whole has a high unemployment rate of 7.1 percent. Furthermore, Nigeria has a staggering 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 create 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.

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.

A version of this article was first published in Business Day.

Chiamaka Adinnu