Continental Integration & the Nigerian Economy: The Effect of the African Continental Free Trade Area on Medium Small and Micro-scale Enterprises in Nigeria

02 January 2021- The Centre for the Study of the Economies of Africa (CSEA) on behalf of The Organized Private Sector of Nigeria - OPSN – (comprising of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA), Nigeria Association of Small Scale Industrialists (NASSI), Manufacturers Association of Nigeria (MAN), Nigerian Association of Small and Medium Enterprises (NASME) and Nigeria Employers Consultative Association (NECA)), Federation of Agricultural Commodity Association of Nigeria (FACAN), the National Association of Nigerian Traders (NANTS), the Association of Nigerian Women Business Network (ANWBN), and supported by the Center for International Private Enterprise (CIPE), carried out a survey on the impact of the African Continental Free Trade Area (AfCFTA) on Nigerian Micro, Small, and Medium Enterprises.

The broad aim of the project was to highlight the economic outlook and growth potential of the AfCFTA and to provide a cost-benefit analysis of the AfCFTA’s impact on Micro, Small and Medium Enterprises (MSMEs) in Nigeria.

Free Trade Agreements (FTAs) are established components of regional integration and have been known to promote commodity trade and investment flows by creating an enabling and improved environment for cross-border transaction (Kawai & Wignajara, 2008). The processes may also prompt a diversion of trade and investment away from countries with less favourable business conditions (Yunling, 2010). Thus, the impact of FTAs widely differs across countries on account of a multitude of factors that affect the business environment. For Nigeria, the impact of AfCFTA as with any other FTA, could vary on account of several market opportunities and constraints to production. Amidst this discourse, the potential impact of the AfCFTA on micro, small and medium enterprises (MSMEs) is the least understood. MSMEs are critical constituents of the Nigerian economy, as they represent about 96 percent of Nigerian businesses and contribute 75 percent to national employment (SMEDAN, 2019). One predominant concern is that the deficient human and technological capacity of MSMEs in Nigeria predisposes them to the negative spillovers potentially associated with free trade and investment exchanges within the continent. However, MSMEs can benefit from greater access to new markets and the possible economic transformation that competition could promote. With the conversation on the recent ratification of the AfCFTA in Nigeria growing, it is therefore imperative to evaluate the extent to which the economic expectations and growth potential of the AfCFTA will benefit Nigerian MSMEs and the cost of these economic opportunities.

This report aims to delve comprehensively into the costs and benefits arising from AfCFTA on Nigeria’s economy at large, while simultaneously paying particular attention to the fate of MSMEs. The framing of this report reflects the importance of small businesses in the national economic picture. The wider macroeconomic focus, and the concurrent ground-level interest in MSMEs, are reflected in the choice of research strategy and the structure of this report.

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