Implementation of the ACFTA in 2021 to boost Nigeria service sector – Stears Business
By January 2021, the reality for 55 African countries will take a new turn. State leaders will knock down restrictions on movement across the world’s largest free trade area.
Once the African Continental Free Trade Agreement (ACFTA) kicks off, 1.5 billion people and almost all goods would have unlimited free movement. Services trade will also face less restrictions. In the past, commodities have been the focus when it comes to trade. Even the Nigerian Bureau of Statistics provides data for only trade in goods.
Many ignore services trade which accounts for almost 10% of global GDP. The service sector also makes up 65% of the world’s output and over half of Nigeria’s economy.
So where does Nigeria sit in the race for African services? Well, According to data from the UN, total services exports stood at $4.8 billion (7th in Africa). On the import side, however, Nigeria leads the continent at $30.8 billion – almost double the amount of Egypt in second place.
For extra context, Nigeria’s total goods imports in 2018 was $36 billion. So when next you see Nigeria’s trade figures from the NBS, remember the substantial services numbers that do not get reported.
Our consumption of foreign services makes sense given the large role the sector plays in Nigeria’s economy – contributing almost 60% of GDP in the last ten years. It also employs 45% of the labour force.
Despite the frequent calls to focus on agriculture, there is evidence to suggest that Nigeria should continue to position itself as a services economy.
According to a study by PwC Nigeria, growth in the services sector generates more employment than in any other industry.
A 1% growth leads to a 0.5% increase in employment. Compared with manufacturing and agriculture, where a 1% increase in growth leads to a 0.3% and -0.1% change in employment.
The larger companies in manufacturing and agriculture become, the more they replace labour with capital by engaging more technology. Services, on the other hand, require the flexibility and skill that humans bring to each peculiar problem.
Nigeria is also showing strong potential for more growth in services.
Under Nigeria’s services sector, some of the top-performing sub-sectors such as information and communication technology, trade, and the professional, scientific & technical services, fall under the priority service sectors of the ACFTA.
The telecommunications and information technology sector is Nigeria’s fastest-growing. It contributes around 11% of GDP and has the potential to kickstart high growth figures.
The Nigerian startup scene has also seen some success. Half of African ventures capital funding in 2019 went to Nigerian companies. Additionally, over 45% of the companies sponsored by YCombinator – an American accelerator company responsible for financing large tech startups such as Stripe and AirBnB – in Africa have been Nigerian.
So things look good domestically, but we’re about to see restrictions removed across the continent, Nigeria has to seize the opportunity and step up its services export game.
Nigerian exports behind counterparts
To make a significant impact under the ACFTA, Nigeria would still have to be at least on par with the leading services exporters in Africa.
Most African countries experience service trade deficits – that is, they buy more services than they provide. However, the divide is worse in some cases than others.
The top three services exporters are Egypt, Morocco and South Africa earning $23 billion, $18 billion and $16 billion in 2018. These countries also trade mostly in travel, transportation, business services and financial services which are some of the ACFTA priority sectors.
Nigeria only earned $4.8 billion from the export of services in 2018.
When the trade agreement kicks in, Nigeria’s strong import position will be a boost for its domestic sector. But there are opportunities to boost export earnings through services.
The ACFTA will enable the likes of Egypt and Morocco to expand their already dominant market shares.
The trade liberalisation aims to strengthen countries who have services to offer by giving them a larger market. It is thus crucial for Nigeria to take proactive steps towards leveraging this new access.
- Written by Gbemisola Alonge