Nigeria should proactively engage China for free trade success and greater agency

Nigeria is a state party to the African Continental Free Trade Area (AfCFTA) agreement but was among the last of 54 countries to sign due to uncertainties about the deal’s impact on its domestic market.

The free trade agreement will hopefully drive the continent’s industrialisation agenda and bring prosperity to Africans. But Nigeria’s dependence on crude oil exports and the challenges facing its manufacturing sector could suppress the benefits. 

The country must engage strategically with key partners like China, and negotiate mutually beneficial deals that can increase its competitiveness under the AfCFTA. Such negotiations could be part of a broader Nigerian strategy on China in an increasingly multipolar world, a recent study by Dataphyte in Nigeria says.

Nigeria has Africa’s largest economy, and there’s a misconception that this gives it an unfair advantage in the AfCFTA. With over 200 million people, it is also Africa’s most populous country. Nigeria’s export basket is dominated by oil and gas products, with crude oil making up over 70% of its exports in 2022. This commodity dependence has negatively affected the country’s socioeconomic indicators.

Nigeria’s low industrial base and unconducive operating environment mean that in the near term, it will participate in the AfCFTA mainly as a consumer market. A 2023 study on the AfCFTA’s beneficiaries estimated a welfare gain of $146.12-million for Nigeria and $1.46-billion for South Africa, because of the latter’s much higher manufacturing capacity.

These difficulties led to groups such as the Manufacturers Association of Nigeria contributing to the country’s delay in signing the agreement. This reluctance contrasts with Nigeria’s ‘Afrocentric’ policy and the major role its officials played in actualising the free trade deal.

China is projected to benefit significantly from the agreement, even though a fully implemented AfCFTA could see trade diverted away from China as African countries do business with each other. Efforts to increase the production of goods and services on the continent may benefit China as a source of intermediate goods and machinery.

In 2017, McKinsey estimated that there were over 10,000 Chinese-owned firms in Africa, so China is well positioned to take advantage of a local manufacturing boost. The increased demand for intra-African trading infrastructure can also be met by Chinese contractors experienced in deploying such projects in Africa. The continent has surpassed Asia as the largest destination for Chinese construction projects.

Nigeria and China have strong relations, with Nigeria being China’s top African export market in 2021 and the second largest in 2022. As Nigeria’s largest import partner, China contributed significantly to Nigeria’s trade deficit of $11.1-billion in 2021. Since joining China’s Belt and Road Initiative in 2018, Nigeria has been a key destination for Chinese construction, investment and trade, receiving around $7.5-billion in Chinese foreign direct investment from 2013-21. 

In January, China’s Ambassador to Nigeria, Cui Jianchun, underscored the countries’ strong trade and investment ties. However, China seems the more strategic of the two. In 2017 for example, Nigeria asked Taiwan to relocate its representative office away from Abuja just a day after China announced a $40-billion investment plan in Nigeria. Nigeria denied any link between the events. Its Parliament has in fact actively scrutinised Chinese activities. In 2016 it criticised certain firms and, in 2020, launched an investigation into Chinese loans.

Nigeria must work better with China to strengthen its position in the AfCFTA. With foreign investment and knowledge transfer, China can help Nigeria improve its infrastructure and support its manufacturing sector. 

China already understands and successfully navigates Nigeria’s complex operating environment. So promoting manufacturing investment to the Chinese private sector may be easier than for other investors. China also understands the capacity gaps in Nigeria’s manufacturing sector and can help fill them in the medium to long term. 

But China also has its interests to protect, such as more jobs for its workers, easy access to raw materials, and selling more goods as Africa gets richer.

Navigating these diverse interests and finding opportunities for mutually beneficial cooperation should be a pillar of a Nigerian strategy on China. Such a strategy will need to consider the evolution of Nigeria-China relations and both countries’ expectations of each other in order to address Nigeria’s growing dependency on China. 

Chinese-operated Special Economic Zones in Nigeria make it difficult to boost local manufacturing — something a strategy should confront. Twenty-eight thousand Nigerians reportedly lost their jobs in the textile industry due to cheaper Chinese imports. 

African nations have shown varying levels of agency in their relations with China, but China still appears to be setting the agenda. Nigeria could provide leadership to other countries on the continent in this regard. Understanding China better, clarifying its interests and leveraging it to benefit Africans is crucial for Africa as geopolitical tensions rise.

The continent must proactively explore opportunities presented by China’s Belt and Road Initiative to meet the AfCFTA’s infrastructure needs. The implications of bilateral trade treaties like the China-Mauritius free trade agreement will need to be examined closely.

Nigeria has faced foreign policy challenges both in and outside Africa. Its needs under the AfCFTA should drive more strategic engagement with China. 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. DM

Teniola Tayo, Consultant, Institute for Security Studies (ISS) and Muhammed Badamasi, Associate, Aloinett Advisors.

First published by ISS Today.