A Free Trade Agreement Across the African Continent: Where Are the Export Opportunities for Nigeria?

By Enzo Dominguez Prost

After being fully implemented, the African Continental Free Trade Area (AfCFTA) is going to be the biggest Free Trade Agreement (FTA) ever in population and geographical size: more than fifty countries have been working since 2015 on tariff reductions in goods, rules of origin and procedures, technical barriers, or trade-in services, just to mention some topics. Considering that intra-regional trade is only 17% of total African exports (compared to 59% in Asia or 69% in Europe)1, this FTA could be a big step toward the goal of increasing exports (including diversification and more complex products) between African countries.

However, if we want to know where the export opportunities for a particular country are, it is hard to know where to start. The Agreement includes and addresses so many topics and issues that are easy to get lost. For instance, what are the binding constraints to intra-regional trade in practice and how is the AfCFTA going to impact them? Are those binding constraints the same for every sector in each country? What is the current situation in terms of tariffs and non-tariff barriers and how is that going to change?

I spent eight weeks trying to find an answer to these questions for Nigeria as part of a research sprint with Harvard’s Growth Lab. I analyzed the tariffs that Nigerian firms face when trying to export to other African partners. The main idea was to find and identify products where Nigeria might have comparative advantages in productive capabilities and where the other countries are currently imposing high import tariffs that the AfCFTA is going to reduce. Let’s go.

Nigeria mainly exports oil derivates (see Figure 1), and in those chapters (2-digit level of the Harmonized System (HS)) where exports were relatively high in 2019 (see Figure 2), we do not see very promising stories. In chapter 89 — which represents ships, boats, and floating structures — exports are mainly scrap vessels. In chapter 83, the data is just capturing a sporadic and unique export of metal articles that occurred in September 2019 and were not repeated in any other year. In chapter 18, we only find exports of raw or roasted cocoa beans with no further industrial processes.

Figure 1: Nigeria’s exports by sector

Nigeria's Export by Sector

Figure 2: Nigeria’s exports in 2019 by Chapter (HS 2)

Nigeria's Exports in 2019 by Chapter

Therefore, for Nigeria, we need to dig deeper to look beyond the exports that dominate current trade and to those that might be nascent now but represent strategic growth opportunities. To find products with potential export opportunities we need to develop a systematic methodology that could be applied to every HS chapter. To develop such an approach, I take advantage of a detailed dataset that includes every import tariff that Nigeria is paying when trying to export to African countries.

Nigeria is part of ECOWAS, a custom union composed of 15 countries2, so for these countries, Nigeria is already paying 0% of import tariff. However, for the rest of the countries, the average levels are considerably high, as shown in Figure 3.

Figure 3: Tariff faced by Nigeria when exporting, Simple and Weighted (Exports 2019) Average

Figure 3: Tariff faced by Nigeria when exporting, Simple and Weighted (Exports 2019) Average

Considering that Nigerian exporters face high tariffs in some countries, a natural question arises: which products are going to have the highest tariff reduction? Additionally, it is useful to focus on products that have two characteristics: (1) they are being exported somewhere by Nigeria (let’s say, exports were higher than USD 3 MM in 2019), and (2) they faced a high average tariff (let’s say higher than 20%). Figure 4 shows products along these two dimensions.

Figure 4: Nigeria’s Total Exports and Tariffs faced in African Countries (excluding ECOWAS)

Figure 4: Nigeria's Total Exports and Tariffs faced in Africa Countries

If we focus our attention on those products that have these characteristics, we find 10 products where Nigerian exporters would be likely to benefit from the FTA. These represent perhaps the clearest opportunities to increase exports on the intensive margin. Let’s look at some of these products, for example, crustaceans and beers, to understand the opportunity space better.

In the first case, a quick analysis in Table 1 shows us that Nigeria is exporting more than 90% of its crustacean exports to European countries, and that the effectively applied tariff in those countries is around 5%, while the average tariff to export to African countries is greater than 20%. Considering that Nigeria is the second-largest producer of farmed fish in the continent, and that many businesses are small and medium firms, it would be relevant to understand what type of characteristics the exporting firms share and how they succeeded in obtaining the required certifications to access into markets with high-quality standards such as the European Union or the US. On the other hand, the current production in Nigeria seems to be lower than its local demand. Therefore, to increase exports to African partners, Nigeria would seem to have to increase the local production3.

Table 1: Total Nigeria’s Exports 2019 of Crustaceans (HS4 0306)

Table 1: Total Nigeria’s Exports 2019 of Crustaceans (HS4 0306)

The second case, beer, is quite different. As shown in Table 2, Nigeria exports to countries with 0% of applied tariff but also to Cameroon, which represents more than 20% of exports but where the tariff is 30%. This is in line with the average tariff across all the African countries, 26%. How is Nigeria successfully exporting to Cameroon even when the applied tariff is so high? How many firms are exporting beer to Cameroon? Is the tariff reduction going to incentivize more exports? To answer these questions, it would be indispensable to better understand the business profile and perspectives of the largest companies, like Nigerian Breweries.

Table 2: Total Nigeria’s Exports 2019 of Beer (HS4 2203)

Table 2: Total Nigeria’s Exports 2019 of Beer (HS4 2203)

The same analysis for the other 8 headings also gives interesting results. In general, Nigeria is currently exporting these products to countries with low tariffs, so it is possible that the AfCFTA could increase export opportunities in those products (and perhaps in other goods that are not being exported due to high tariffs and we are not detecting in our exercise).

This analysis is my first attempt at combining data from current exports and import tariffs in a systematic way to identify where export opportunities could be. The cutoff could be modified (1 instead of 3 MM, or 15% instead of 20% of import tariff), and one could also study or analyze the imports of the other African countries to better understand Nigeria’s role in those markets and the potential advantage that Nigeria could have with the AfCFTA compared to other exporters.

Since we are just using import tariffs and trade data, we must continue asking questions and exploring other trade aspects, such as non-tariff barriers or rules of origin and procedures or studying specific industries that could get positive and significant gains with the Agreement. Analyses like this are nevertheless important because within the complex spaced of trade and industrial policy in the context of new developments, like AfCFTA, it is often difficult for policymakers and other stakeholders to know where to start looking for opportunities.

A key advantage of this approach is that it can be easily repeated in any other African country, and by using it we can get initial ideas of which industries (in each country) could benefit through AfCFTA in terms of tariff reductions, and therefore inform local strategies in support of local businesses.

1See https://www.brookings.edu/blog/africa-in-focus/2019/02/22/figures-of-the-week-increasing-intra-regional-trade-in-africa/

2Benin, Burkina Faso, Cabo Verde, Cote d'Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo.

3See https://www.feedstrategy.com/africa/nigerian-state-attracts-fish-farming-investors/

Enzo Dominguez Prost is currently pursuing a master’s degree at Harvard Kennedy School (MPA/ID, expected graduation in May 2023). Previously, he worked in Argentina for five years in the Ministry of Production on topics related to industrial policy and international trade. He has a BA (2012-2015) and a MA (2016) in Economics from "Universidad de San Andrés" (Argentina).