FINANCE & ECONOMICS
AfCFTA – Will Nigeria’s Erratic Power Allow Economic Gains for New Trade Agreement?
Finally, Africa’s two biggest economies, Nigeria and South Africa, signed on to the African Continental Free Trade Agreement (AfCFTA) after initial hesitation. Both Presidents Buhari and Ramaphosa were suspicious of the agreement
The $3 trillion trade package encompassing 1.2 billion people of the continent comes with a huge advantage: Stimulating Small and Medium-size businesses (SMEs) which are responsible for more than 80% of Africa’s employment and 50% of its Gross Domestic Product (GDP). Logically, any economic policy that eliminates trade barriers offers numerous benefits to SMEs.
“AfCFTA will allow African-owned companies to enter new markets, expand their customer base and lead to new products and services, making investing in innovation viable,” says Mansur Ahmed, President, Manufacturers Association of Nigeria (MAN).
However, due to the wide variation that exists in levels of development, a major challenge is harmonizing Africa’s heterogeneous econo-mies under one agreement. For instance, over 50% of Africa’s cumulative GDP is contributed by Nigeria, Egypt and South Africa, while Africa’s 6 sovereign island nations collectively contribute just 1%.
For Nigeria, electricity supply is chaotic. Manufacturers receive barely few hours of electricity per day. At best, average daily power supply is estimated at 4 hours. Though, minor increases in average daily power supply have been reported recently. However, several days can go by without power from the grid. Manufacturers are left with no choice other than to generate their power from individual generating plants.
” Over 50% of Africa’s cumulative GDP is contributed by Nigeria,
Egypt and South Africa,
while Africa’s 6 sovereign island nations collectively
contribute just 1″
The implication is that goods produced in Nigeria cannot compete effectively under the current AfCFTA initiative,” says Ahmed. Given that Nigeria’s generation hovers around 5,000MW, commercial activities
would remain low and uncompetitive locally and regionally until the country can scale up generation to about 20-30,000MW to jumpstart economic activities.
Many have proposed that Nigeria address the energy conundrum by circumventing the complex structural problems with the country’s electricity chain by encouraging off-grid opportunities. There is also cheering news from the government. It says a new bid would be conducted to provoke and stimulate new investment in the power generation and distribution chain.
Vice President Yemi Osinbajo says government plans to further open the electricity sector to new investors after realizing that the national grid system cannot meet the power demand of consumers. He was speaking at the commis-sioning of a power substation infrastructure built by the Niger Delta Power Holding Compa-ny (NDPHC).
Another measure by government to resolve the energy crisis is the Siemens Phased Electrifica-tion Roadmap, flagged off recently by President Muhammadu Buhari. The Vice President says the roadmap would deliver 7,000MW and 11,000MW under phase 1 and phase 2 respec-tively while the target for phase 3 is 25,000MW.
Achieving these energy targets will not only jumpstart commercial activities but also make products from Nigeria competitive in the face of the AfCFTA initiative. AfCFTA could be a blessing or a curse depending on how quickly Nigeria resolves its power issue.