Revenue, welfare and trade effects of African Continental Free Trade Agreement (AFCFTA) on Nigerian economy

Abstract

AbstractAfrican Continental Free Trade Agreement (AFCFTA) is gradually becoming a reality and there are needs now more than ever to investigate how African countries will thrive under this new trade regime. Based on this consideration, this study seeks to investigate the revenue, welfare and trade effect of ACFTA on Nigerian economy with the Partial Equilibrium Analysis approach using the World Trade Integrated Solution‐Single Market Partial Equilibrium Simulation Tool (SMART) model. SMART is a trade simulation model developed by the World Bank and the UNCTAD using trade flow data and tariff data from Trade Analysis and Information Systems, the World Trade Organization Integrated Database and Consolidated Tariff Schedule. The findings from the study show that AFCFTA is a trade creating Free Trade Agreement in Africa and sectors like petrochemical industries, textile and maritime products are the leading trade creating sector in Nigeria. On the other hand, manufacturing activities in the production of sanitary, papers, electronics and automobiles are trade diverting in Nigeria. Overall, the total trade effect in Nigeria is US$ 145 million with an accompanying welfare effect of US$ 13 million. However, the Nigerian government might experience a loss of revenue of US$104 million as a result of tariff removal. Thus, this study concludes that AFCFTA is a trade creating and expanding policy but it comes at a huge loss of revenue on the part of the Nigerian government and this can be ameliorated with the introduction of the more comprehensive consumption tax system.