It’s a turbulent time for currency markets. As the British pound tumbled to a record low, the Turkish lira traded at its weakest-ever levels, retreating 0.2 per cent to 18.45 against the dollar. Meanwhile, the Nigerian naira, which trades officially at N421 to the dollar, fell to N700 on the parallel market.  

Such volatility has real-term consequences. Nigeria is witnessing dramatic price hikes in imports, stoking inflation. While the supply of dollars in the country has become so tight, even big international airlines are struggling to repatriate revenue from ticket sales. 

To help get a handle on the economy and stimulate growth, Nigerian policymakers have long sought mechanisms to increase international trade. This goal has largely been elusive, with Nigeria often stuck in trading arrangements akin to their colonial-era circumstances, exporting raw materials and importing manufactured goods. Even so, the country is now on the verge of an economic transformation. 

In January 2021, Nigeria opened its markets under the African Continental Free Trade Area (AfCFTA) agreement, which is set to integrate the entire region into a unified market, bringing together a combined GDP of USD 2.5 trillion and a population of over 1 billion

The ambitious framework will tie together the biggest number of member countries of any trade agreement since the establishment of the World Trade Organisation in 1995. The World Bank estimates AfCFTA could boost Africa’s GDP by 7 per cent – almost USD 450 billion – by 2035, in part by reducing import tariffs, but also by eliminating non-tariff barriers.  

“The opening of new markets and easing of cross-border transactions envisioned under the AfCFTA are expected to increase capital funds and promote both foreign direct investment and intra-continental investment within Africa,” said Sarmad Lone, regional head of global banking for Africa and the Middle East at Standard Chartered Bank. 

Beyond stimulating trade, AfCFTA should also drive changes in how income is distributed across Africa, with 30 million people likely to be lifted out of extreme poverty and 68 million out of moderate poverty as a direct result. 

In short, the impact of AfCFTA will be game changing.  

Nigeria, the largest economy in Africa, stands to gain significantly from the agreement. At present, its intra-African trade is low. As of 2018, Nigeria’s imports from the African region relative to total imports was 3.2 per cent, while the share of Nigeria’s exports to the African region relative to total exports was 13.2 percent.  

With increased access to cheaper goods and services from other African countries, AfCFTA has the potential to unleash a wave of opportunities for small and medium-sized businesses in Nigeria. Based on a recent survey of 1,804 Nigerian manufacturing enterprises, 6 out of 10 businesses expect the AfCFTA to lead to a reduction in material and labour costs, increase production capacity, expand market and consumer size, and reduce prices. 

Nonetheless, bumps in the road remain. 

Much of the deal’s success, and its potential for countries such as Nigeria, rests on whether the continent can build the necessary infrastructure – both hard and soft – to facilitate free trade, with many countries across Africa hampered by poor transportation networks and inefficient customs procedures.  

Just as important, countries such as Nigeria will need to address the deficits in finished products. As Tony Elumelu, a Nigerian economist, explains, “if you look at Nigeria, we have rich crude oil endowment. Imagine if we could refine the petroleum products, then of course AfCFTA would make a lot of sense, because we could feed not only local consumption, but we could leverage AfCFTA to export across Africa.”

Other roadblocks include Nigeria’s ongoing case against Process & Industrial Development (P&ID), where the Government of Nigeria is being pursued for approximately USD 11 billion by a shell company, owned by the vulture fund VR Capital and an opaque Cayman Islands-based entity Lismore Capital. 

President of Buhari has described the case as a “sham” designed to “cheat Nigeria out of billions of dollars.” Indeed, the eye-watering amount P&ID is chasing is equivalent to roughly ten times the country’s annual health budget and approximately four times the size of its security budget.  

Nigeria’s long journey to prosperity would be thrown dangerously off course by paying such an egregious sum, and it would be left less able to strengthen its intra-African economic ties in the wake of such a destabilising development. 

Fortunately, the tide appears to be turning in Nigeria’s favour, with the government securing a string of recent legal victories ahead of the fraud trial in January 2023. With momentum building behind Nigeria, it is likely P&ID will be forced to step away from the case empty handed, leaving the country to focus on addressing its deficits in infrastructure and finished products to make AfCFTA as great a success as possible. 

AfCFTA clearly offers the chance of a new era for Nigeria. As Wamkele Mene, Secretary-General of the AfCFTA Secretariat, writes, “the pact will help countries to simplify and harmonise trade and transit procedures, improve infrastructure, transport and logistics and spur the flows of goods, services, capital, and people that are so vital for development.”

The benefits appear limitless. But Nigeria, and the continent at large, will need to navigate a number of obstacles to realise them. 

Sir Peter Heap is a former British Ambassador to Brazil and Sri Lanka. His diplomatic postings include three years as Deputy High Commissioner in Lagos.