How Nigeria can harness the full potential of the AFCFTA

Nigeria is the largest economy in Africa, with a nominal GDP of $479.2 billion (2022 estimate). The country has a population of over 200 million people and a diverse range of natural resources, including oil, gas, minerals, and agricultural products, yet the economy grows at a tepid rate (3.25% in 2022).

Trade is an important sector of the Nigerian economy, contributing about 12.3% to the real GDP and 16.9% to total employment in the country. Interestingly, foreign trade plays a huge role in the growth of the Nigerian trade sector, helping in driving economic development and diversification.

According to the National Bureau of Statistics (NBS), Nigeria’s total trade in goods amounted to N52.4 trillion in 2022, representing 26.3% of the nominal GDP. The breakdown of the data shows that imports accounted for 48.8% (N25.59 trillion) of the entire trade, while exports accounted for 51.2% (N26.79 trillion). This leaves a trade surplus of N1.2 trillion in 2022, in contrast to a deficit of N1.94 trillion in the previous year.

Further analysis showed that most of Nigeria’s exports go to Europe, which accounts for about 44% of the total export, while the African region only accounts for less than 10%, representing the second lowest region behind Oceania (0.4%). A cursory analysis of the data from the NBS showed that exports to other African countries by Nigeria has been on a downtrend over the years, averaging at N2.74 trillion in the last five years.

This statistic is significantly underwhelming considering that Nigeria is a member country of the African Continental Free Trade Area (AfCFTA) agreement, which was aimed at improving regional trade in Africa.

The AfCFTA, which is more of a regional trade agreement came into effect on the 1st of January 2021 and covers 54 out of 55 African countries. The Agreement aims to create a single market for goods and services, facilitate the free movement of people and investment, and establish a unified customs union across the continent.

It is projected to boost intra-African trade by 15-25% between 2021 and 2040 by removing tariffs and non-tariff barriers. Nigeria signed the AfCFTA in July 2019 and ratified it in December 2020. Expectedly, Nigeria stands to benefit from the AfCFTA by expanding its export opportunities, diversifying its economy, attracting foreign investment, and integrating into regional value chains.

According to the United Nations Economic Commission for Africa (UNECA), the AfCFTA could boost Nigeria’s exports by 19%, increase its income by 2.5%, and lift 3.6 million people out of poverty by 2035. However, Nigeria is yet to see the effect of the agreement, owing to some challenges in implementing the AfCFTA, such as improving its infrastructure, enhancing its productivity and quality standards, addressing security issues, and harmonizing its policies and regulations with other members.

Challenges against regional trade in Nigeria

Just like many other policies and reforms, the AfCFTA have also been met with several challenges, especially for the Nigerian economy. Some of the challenges impacting Nigeria’s trade with other regions include infrastructure deficit, relating to transportation, logistics, communication networks amongst others.

The lack of adequate infrastructure In Nigeria has negatively impacted the cost of production and transportation, which disincentivizes the importation of Nigerian goods. Also, the performance of the manufacturing sector over the years, which involves adding value to raw goods through industrialization, has limited the availability of valuable goods for export. The manufacturing sector slowed to 2.45% in 2022 from 3.35% in 2021, having endured recurrent contractions in recent years, an indication of low level of transformational activities in the manufacturing industry.

Low diversification is also a major challenge affecting trade in Nigeria. Nigeria’s export basket is dominated by crude oil, which accounts for about 90% of its total exports. This makes Nigeria vulnerable to external shocks, such as changes in oil prices and demand. Low diversification also limits the potential for value addition and industrialization in Nigeria’s economy.

In addition, some other factors include exchange rate volatility or the lack of a single trading currency, insecurity, smuggling amongst others.

Bottom line

To overcome these challenges, Nigeria needs to implement various reforms and policies that will improve its infrastructure, reduce trade barriers, stabilize its exchange rate, curb corruption and insecurity, ensure policy coherence, and diversify its export base. These measures will enhance Nigeria’s international trade performance and contribute to its economic growth and development.

Millions of Nigerians struggle daily with food insecurity as a result of the alarming rate of food price increase, coupled with the imbalance between food demand and production in the country. Food inflation rose to a 17-year high of 24.61% in April 2023, further eroding the purchasing power of average Nigerians.

According to Cadre Harmonisé, a government-led and UN-supported food and nutrition study conducted 2022, about 25 million Nigerians are at risk of being hungry. Notably, armed banditry and abduction in states like Katsina, Sokoto, Kaduna, Benue, and Niger, as well as ongoing insecurity in the north-eastern regions of Borno, Adamawa, and Yobe, have had a negative impact on farming activities and the resulting food scarcity.

The National Emergency Management Agency (NEMA) also stated that extensive flooding during the 2022 rainy season destroyed over 676,000 hectares of croplands in the country, significantly affecting harvests and increasing the risk of food scarcity. Future forecasts have shown that there will be more severe weather patterns that threaten food security in the future.

In addition to the climate and security factors, structural issues in Nigeria has also limited its ability to achieve food security. Despite having a wealth of diverse and rich agro-ecological resources, Nigeria has grown to be one of highest importer of food in Sub-Saharan Africa.

The agricultural sector of the nation is plagued with low productivity, poor infrastructure, limited research and extension services, insufficient access to inputs and markets, weak institutions and governance, and environmental degradation, leading to a 0.9% contraction in the agricultural sector in Q1’2023.

Meanwhile, to address these challenges, Nigeria must embrace creative solutions that make use of technology, research, and entrepreneurship to improve food security for its expanding population. Agritech, as the name indicates is the application of data and digital technology to enhance agricultural practices and results.

Agritech can enhance food production, processing, distribution, and consumption by increasing efficiency, reducing costs, improving quality, creating value addition, and facilitating access to information, finance and markets. Some examples of agritech applications that can benefit Nigeria’s food production and distribution include:

Precision farming

This involves the practice of monitoring crop health, soil conditions, weather patterns, and insect infestations using sensors, drones, satellites, and artificial intelligence. It also involves optimizing inputs like seeds, fertilizer, water, and pesticides, and giving farmers fast and precise recommendations.

Smart irrigation

Smart irrigation controls water distribution to crops, reduces water waste, and increases water usage effectiveness by utilizing sensors, weather predictions, and mobile devices.

Digital Extension

This involves the dissemination of agronomic knowledge, training, connecting farmers with specialists, and building peer-to-peer learning networks via mobile phones, radio, the internet, and social media.

E-commerce

This relates to connecting farmers with buyers through online platforms, mobile applications, and delivery services to minimize middlemen, boost transparency, cut costs of transactions, and enhance market access.

Other areas of technological application in agriculture include using blockchain technology to record, verify transactions and improve quality assurance. Also, using genetic engineering, tissue culture and biofortification to develop improved crop varieties; enhance resistance to pests, diseases and drought; increase yield; and improve nutritional value.

Bottom line

These agritech solutions have the capability of revolutionizing Nigeria’s agricultural industry and help the in achieving its goals for food security. However, it is important to note that they also face various risks and obstacles, which include lack of regulation, bad infrastructure, talent gap, inadequate data, and lack of funding.

To address these barriers, Nigeria must create a favorable environment that promotes and facilitates agritech innovation and adoption by promoting a cooperative and coordinated effort from multiple players, including the government and the private sector,