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.
For Nigeria to fully reap the benefits of a closer Africa, it needs to think beyond the ancient focus on goods and position itself to win in the services game.
AdvertisementTight access
Sitting across me in his office is Mr Lanre Fashakin, the MD/CEO of Lagos based Communication and Marketing Research Group (CMRG). His work takes him to more than eleven countries in Africa.
Going to Ghana to conduct a survey was a pleasant experience for him. But getting access to other African countries was a different story.
“Before we get to the level of tariff and non-tariff barriers, let’s look at it from the basic requirements to travel to these countries – visas, for instance. It wasn’t quite easy,” Fashakin says, recounting his experience.
“My experience with Zimbabwe was very harrowing. We couldn’t even get it [a visa] after meeting all the conditions; they still doubted our intentions. Angola was the same. We had a situation where we had to provide somebody with landed property in Abuja, somebody who could speak Portuguese and a list of strange requirements before Angola could issue a visa to allow us to travel there.”
These mundane requests are part of why less than 2% of world services exports originate in Africa. The new agreement (ACFTA) recognises this and aims to improve the current statistics which show that barriers to services trade are four times higher in Africa than OECD countries.
But large multinationals have successfully bypassed this access issue because they set up branches in other African countries where they employ their indigenes.
Take the ‘Big Four’ as an example, the four largest professional services networks in the world – PricewaterhouseCoopers (PWC), Deloitte, Ernst & Young (EY) and Klynveld Peat Marwick Goerdeler (KPMG). These firms have decades of presence in most African countries and they are able to leverage their highly skilled local workforce and network across Africa to serve clients across the continent. This means that they do not generally experience the hostility that comes with approaching any country as a foreign service provider.
As Mr Fashakin’s story revealed, local companies aren’t so lucky. But the ACFTA will try to bridge that gap. For example, there will be free access to conduct business in any African country once a company obtains the certificate of origin from the international trade authority in Nigeria.
More hurdles
Doing business across Africa isn’t only hampered by visas. Other challenges exist.
Permits and payments to regulatory bodies are examples of other barriers Fashakin encountered. “In Chad, we had to pay some fees to their research association before we could get the kind of information we got with no stress in Ghana, Sierra Leone and Liberia,” he says.
While the barriers for goods such as import tariffs, are more obvious to identify, services restrictions are harder to spot.
For example, different qualification requirements on the continent can restrict professionals attempting to teach or provide legal services in another African country.
If a Nigerian trained doctor wants to provide their services in Morocco, they would not be required to sit for a registration exam. But, the doctor must have an equivalent of the necessary medical qualifications degree obtainable in Morocco.
These professional services requirements make sense. They ensure that we maintain a certain level of quality. Often, though, these qualifications have the same standard across the different countries.
All it takes is for countries to investigate and recognise that these qualifications are indeed the same. For example, an agreement that says anyone who goes to law school in say Nigeria has the same level of expertise as attending the Ghana School of Law.
The ACFTA is moving towards that direction. It recognises five priority services sectors – transportation, communications, tourism, financial services and business services – where all nations will agree on harmonising the regulatory criteria to carry out such activities.
Nigeria and its services sector
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.
Leveraging its people
Services are all about people. And Nigeria doesn’t lack on that front – we’re estimated to become the third most populous in the world by 2050.
Already, its people are making a mark with the services they offer. The country’s services industry ranks 27th in the world and first in Africa.
But the success of the industry needs more government support. Olufemi Boyede, an International Trade & Policy expert shared this sentiment in a survey by the Nigerian Office for trade negotiations:
“Nigeria’s services sector is currently yet to be mainstreamed into the nation’s economy. Progress in the industry is despite the absence of, not because of the presence of, support frameworks, instruments, strategies or plans. In a government-led economy, the government must genuinely do much more than celebrating success worked for by the private players in the services sector,”
While we have more people to provide services, training is needed to harness the value of such a vast population.
Displacing countries like Egypt, Morocco or South Africa as the continent’s current top services exporters would take much more than having a large population.
To correct the first statement in this section – services are not all about people but *smart* people.
And that requires significant training, which India took advantage of to boost its Information technology sector’s contribution from 2.3% in 2000 to over 9% of GDP in 2013.
The Indian model
India recognised the opportunities that lie in technology and innovation. It enabled the creation of clusters such as its Software Technology Parks.
Through them, the government provided tax incentives, incubation services and access to infrastructure that would have otherwise made business difficult, such as electricity.
The government increased funding of its tertiary education so that the projects and investment in the parks are sustainable.
The ACFTA will reduce barriers across the continent and open up sectors to more competition. Indigenous companies need to be strengthened so they can stand on their own when they are exposed to more open borders.
2021 is precisely six months from the time of writing. If Nigeria is to prioritise for preparedness, things have to move quickly.
The infrastructure required to boost the trade heavy- agriculture and manufacturing sectors may take a while. As that gets ready, let’s reach for the low-hanging fruits by expanding the opportunities for short-span technology and skills training in Nigeria, to improve the capacity for offering services.
Thus, capitalising our most valuable resource – the Nigerian people.
Subscribe to read more articles in our newsletters here, and check out our COVID-19 live monitoring page.
Copyright Stears News Limited 2020. All rights reserved. You may only share
Stears Business content using our sharing buttons.