Earlier this month, Africa made economic history. The Gambia’s parliament ratified the trade deal and, as the 22nd nation to give its approval, paved the way for it going into effect.
The African Continental Free Trade Agreement (AfCFTA), which represents the largest free trade initiative since the formation of the World Trade Organisation (WTO), will reduce import duties, simplify customs, and allow for the free movement of goods and people, boosting intra-African trade by 15 percent. But, amid ratifying countries, there is a glaring absence: Nigeria, Africa’s largest economy, has withheld its signature.
Given the catalytic benefits of free trade, especially for local small and medium enterprises (SMEs), Nigeria only stands to gain from joining the AfCFTA and it should stop delaying and sign the AfCFTA. To fully reap the benefits, though, it must revolutionise its broken logistics sector, which is a huge obstacle to trade.
A stronger logistics sector could catalyse economic growth, slash prices of goods and services and enable Nigeria to evolve into West Africa’s key trade hub, if not the leading intra-African trading hub.
Nigeria’s logistics sector is highly fragmented, underdeveloped and informal. Its fragmented nature comes from the disjointed relationship between supply, trucks and transporters, and demand, cargo, which results from a chaotic and opaque marketplace.
The informal nature of the sector leads to a lack of standardisation in pricing and services and creates operational inefficiencies in delivering goods to isolated areas. In addition, concerns regarding quality control and service guarantees are widespread. As the majority of the trucking fleet is old and spare parts can be difficult to obtain, or drivers lack the working capital to buy them, breakdowns are frequent. Moreover, there is no good system to vet truck drivers for reliability.
As Nigeria strives for greater economic growth, and as it moves towards a service-oriented economy, a strong and expanding logistics sector is key, as this will reduce the cost of doing business, increase integration with regional and global value chains and support competitiveness and international trade.
A stronger logistics sector in Nigeria could also significantly reduce the cost of goods, resulting in a series of positive ripple effects on both the Nigerian and the broader regional economies. One industry in which these positive effects would certainly be seen is food and agriculture.
Despite the fact that agriculture is the largest sector in the country, Nigeria has faced significant production and logistics hurdles which have resulted in rising food imports and declining levels of national food self-sufficiency. The mass importation of food items such as rice, wheat, sugar, and fish, costs the economy $22 billion every year. The inefficiency of the Nigerian logistics sector further augments these costs, as imports are subject to the expensive process of moving goods.
In addition, because these added costs are typically borne by the consumer, food prices have surged. However, with investment in Nigeria’s logistics sector, the cost of moving goods will significantly decrease, particularly for imported food items, which will subsequently decrease food prices, therefore reducing the burden on consumers.
In addition, the development of the country’s logistics sector can also ensure the quality of foodstuffs during transit, which is critical given the volume of Nigeria’s food imports. Overall, these shifts will aid in boosting the nation’s economy.
An improved logistics sector will also allow Nigeria to develop into a regional trading hub. Currently, trade in West Africa amounts to approximately $300 billion, and Nigeria is the most active nation in the region, accounting for almost 76% of total trade.
However, despite the fact that Nigeria plays an immense role in shaping West Africa’s economic outlook, it still has not lived up to its potential to develop into the region’s trading powerhouse. By investing in the development of its logistics sector, Nigeria can better assume this role. The country’s logistics industry already has a far greater scale than neighbouring nations, and with added investment, Nigeria’s logistics industry will be able to dominate in terms of capacity and efficiency. Expansion of the sector will also significantly benefit Nigerian businesses, as it will facilitate an increase in cross-border trade.
Nigeria cannot afford to miss out on Africa’s historic economic integration, and it’s not too late for it to sign the AfCFTA. Its – hopefully – eventual ratification of the agreement will require nothing short of a revolution in its logistics sector if Nigeria wants to become the region’s trading heavyweight.
Lanre Akinlagun is the Nigeria Country Director of Lori Systems, a tech-enabled logistics company that seamlessly connects cargo owners to transportation.