Nigeria: Courting China in the AfCFTA Courtyard
Dataphyte’s policy brief discusses Nigeria's position in the African Continental Free Trade Area (AfCFTA) and its relationship with China in the context of the agreement. The AfCFTA aims to increase intra-African trade by liberalizing tariffs on up to 97% of goods produced within the continent.
However, Nigeria's reliance on oil and gas exports and its low productive capacity reduce its competitiveness in the free trade area. To strengthen its position, Nigeria needs to better leverage its partnership with China, which has its own investment and trade interests to protect.
The agreement has benefitted from high political will, with 54 African Union (AU) Member States signing and 46 ratifying it. Nigeria has signed and ratified the AfCFTA agreement, but it has faced resistance within the country due to its dependence on oil and gas exports and poor manufacturing competitiveness.
Nigeria is entering the AfCFTA primarily as a major importer with limited productive capacity to meet the demands of the continent. China, on the other hand, is argued to be one of Africa's major trading partners and is well-positioned to benefit from the AfCFTA due to Africa's dependence on its exports, capital, and expertise.
Teniola Tayo and Muhammed Badamasi, project that “if President Bola Tinubu’s new government accepts the task of providing leadership in Africa-China affairs, this could launch a new era in Nigeria’s external relations.”
Nigeria: Beyond Protectionism
Nigeria was initially reluctant to sign the AfCFTA agreement in line with its protectionist approach to trade, but eventually signed it on July 7, 2019. The country's reliance on oil and gas exports and import of manufactured goods reduce its competitiveness in the free trade area. Additionally, Nigeria faces various business environment challenges and low productive capacity, which further reduce its overall competitiveness.
Figure 1: Petroleum Oil and Gas made up 88.5% of Nigeria’s Export Basket, 2021
Source: TradeMap (Accessed May 2023)
Source: oec.world (Accessed April 2023)
The industrial development disparity between Nigeria and South Africa may affect their gain from the AfCFTA. South Africa is far ahead of Nigeria in terms of industrial development, with manufacturing value added per capita at US$596 in 2021, compared to Nigeria's US$213. A study predicted that South Africa would gain US$1.46 billion from the agreement, while Nigeria would gain US$146.12 million.
This has led to Nigeria focusing on services trade under the AfCFTA, but to fully leverage it, Nigeria needs to invest in improving the business and export environment, attract foreign and domestic capital, and strengthen its manufacturing sector.
China’s Proactiveness Before AfCFTA
China has emerged as the top trading partner for many African countries, with a US$ 37.9 billion and US$46.98 billion trade surplus with Africa in 2021 and 2022, respectively, and the highest among Africa's major partners. While increased intra-Africa trade is expected to result in a diversion of trade from China, it may take some time for African-made goods to compete favorably with Chinese imports.
Figure 3: Africa’s imports from major partners - China, the EU and the US (2018 - 2022)
Source: TradeMap (Accessed May 2023)
Depending on the final Rules of Origin requirements for the different goods and services to be traded under the AfCFTA, China is in a position to be the preferred source country for manufacturing inputs. Chinese infrastructure investment and development also strengthen its position within the AfCFTA.
Figure 4: Africa’s share of Chinese exports (2018-2022)
Source: TradeMap (Accessed May 2023)
However, the full implementation of the AfCFTA could eventually lead to a diversion of trade from China to proactive countries on the continent. More important is the potential for African industrialization, which may make raw material and commodity imports less available for China.
African countries need to be more tactical in their engagement with China in light of the AfCFTA, and Nigeria, in particular, can either be one of the biggest winners or losers under the agreement.
Nigeria: Positioning as a Free Agent in AfCFTA
African countries need to have more agency in their relations with China, with several African countries, like Tanzania, leveraging their strengths to negotiate more value from their relations with China.
Nigeria and China have a strong trade and investment relationship, with Nigeria being China's largest export market in Africa. However, China has been the more strategic of the two partners, and Nigeria is shifting into an era of dependency on China in trade, infrastructure development, loans, and investment.
Yet, compared to its pairs on the continent, Nigeria has shown less political dependency on China. Furthermore, the AfCFTA might present an opportunity for Nigeria to demonstrate more agency in its relations with China.
Figure 5: Number of African Leadership Visits to China
Source: Development Reimagined, as cited by The Diplomat 2021
Nigeria may have an opportunity to provide leadership in Africa-China relations at the regional level of the Economic Community of West African States and potentially at the African Union level. As the objectives of the Belt and Road Initiative (BRI) and the AfCFTA are quite different, strategic negotiation may be required to find mutually beneficial arrangements.
Additionally, African leadership in the engagement with China will require a more pragmatic assessment of Chinese interests within the AfCFTA. Despite Nigeria's struggles with its foreign policies, taking on this responsibility will also be in its own interest. By negotiating better relations with China in light of the AfCFTA, Nigeria can launch a new era in its external relations and better position itself in the changing world, thus:
Understand the status quo: There is a need for Nigeria to carry out a pragmatic assessment of its strengths and vulnerabilities within the AfCFTA while mapping out a plan for enhancing its position. It is essential that this assessment reflects current realities and comprehensively audits Nigeria's relations with China.
Plan for the future: Nigerian officials should map out intersections between its aspirations under the AfCFTA and opportunities presented by improved relations with China. Broad consultations should be held across government agencies and other non-governmental stakeholders to validate a strategic engagement plan with China.
These efforts should contribute to a more holistic China Strategy that will include other issues such as concerns about the operations of Chinese firms in Nigeria and the welfare of Nigerian citizens in China.
Provide African leadership: Targeted advocacy led by the Nigerian foreign ministry should be held with other African governments and the African Union towards a continent-wide China Strategy that aggregates and coordinates the interests and concerns of member states.
These policy documents should cover both the immediate and long-term engagement needs and provide for medium to long-term scenarios of China's evolving role in the global economy. They should also cover both soft and hard approaches to China engagement.
Mitigate risks: Strengthening relations with China should not come at the expense of other global partnerships, including with the United States and the European Union. Ties also need to be strengthened with other actors in Asia and Latin America. To mitigate the risk of Chinese actors being more knowledgeable on Nigerian and African issues, Nigeria should close the knowledge gap between the two actors by leveraging its academic and policy communities with advanced expertise on China.
Nigeria needs to seize the opportunity of a new administration to redefine its relations with major partners. The AfCFTA holds immense advantages for Nigeria, but only if it can create conducive business and policy environments and leverage partnerships. Engaging China strategically towards AfCFTA objectives and providing African leadership on China engagement will be a challenging task that can help launch Nigeria into a new era of stronger foreign policies.