As both the largest economy and the most populous nation on the African continent, Nigeria has significant geopolitical relevance. Over the course of its post-independence history, it has been a key regional power and an instrumental player in both the African Union – known as the Organisation of African Unity from 1963 to 2002 – and the Non-Aligned Movement. Nigeria also helped create ECOWAS, a regional political and economic union of 15 countries in West Africa, with its headquarters in Abuja.
The country committed to the African Continental Free Trade Area (AfCFTA) on July 7, 2019, joining the agreement alongside Benin. Nigeria’s decision to sign the agreement was a boon to the AfCFTA, making it the largest market to participate in the free trade area. Moving forwards, leveraging the AfCFTA’s potential as well as Nigeria’s powerful diaspora and global influence will help the country overcome domestic challenges. This will ensure that Nigeria keeps pace with international politics, trade and commitments to regional security.
Trade Potential
Nigeria stands to benefit from the AfCFTA, as the agreement would help to reduce trade barriers and open the economy to international competition. According to the World Bank, a full implementation of the AfCFTA could raise average incomes in all member states by 7% by 2035 and curb the incidence of extreme poverty.
While trade liberalisation offers significant opportunities to leverage the potential of most African economies, the World Bank projects that of members in the AfCFTA, countries in West Africa will record the greatest inward foreign direct investment (FDI) and outward FDI growth. Indeed, by 2035 Nigeria’s outward FDI is slated to rise by 26% relative to the 2018 baseline. As outward FDI is widely acknowledged to contribute to an economy’s long-term competitiveness and sustainable growth, this could represent a crucial milestone for the economy by giving it an established footprint of external investment, thereby providing an impetus for economic diversification.
The AfCFTA’s digital convergence initiatives could also help limit the prevalence of informal trade and piracy. This could have a protective effect on one of Nigeria’s key exports: output from its burgeoning film industry. The country produced 2599 movies in 2020 and 1051 films in the first half of 2021.
Digital Mandate
Digital development presents opportunities for countries to accelerate their economic growth. This model is significant in Africa where, according to a July 2022 report from independent think tank ODI, 30% of the population engages in online shopping, around 30% use the internet, and 40% use bank accounts and mobile money.
Covid-19-induced lockdowns provided a boost to the digital economy in many African countries. Linking those markets and unlocking the potential of intra-African digital trade and e-commerce are among the ambitions of the AfCFTA. While South Africa rates the highest in terms of e-commerce and internet connectivity on the continent, Nigeria is the leader for transaction volume and tech sector growth. Even without the full implementation of the AfCFTA’s protocol on digital trade, Nigeria stands to become a key player in the global digital economy (see ICT chapter). Regional digital policy alignment will provide a catalyst for this development. Negotiations in 2022 between Nigeria, South Africa, Kenya and Senegal highlighted issues ranging from the regulation of e-signatures to cross-border data flows and Customs duties on electronic transmissions.
Even as global e-commerce expansion moderates, Africa is expected to become a frontier growth market as internet penetration rates increase. Indeed, the digital economy could add up to $180bn to Africa’s GDP by 2025 and as much as $712bn by 2050, according to the “e-Conomy Africa 2020” report by Google and the International Finance Corporation.
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