AfCFTA IMPLEMENTATION, INTRA-AFRICAN TRADE BARRIERS AND SME EXPORT READINESS

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

The African Continental Free Trade Area (AfCFTA) is, by virtually any metric, a watershed moment in the economic history of the continent. When it entered into force in May 2019, following ratification by the requisite number of member states of the African Union (AU), and when commercial trading formally began under its framework on 1 January 2021, it created the world's largest free trade area by number of participating countries — encompassing 54 of the 55 AU member states with a combined population exceeding 1.4 billion people and a gross domestic product (GDP) approaching US$3.4 trillion (African Union Commission [AUC], 2021; United Nations Economic Commission for Africa [UNECA], 2022). The ambition behind AfCFTA goes beyond mere tariff elimination; it envisions a continent-wide single market for goods and services, a liberalised investment environment, and eventually, a common currency — all in service of the African Union's Agenda 2063, which frames continental integration as the engine of long-term prosperity.

For decades, intra-African trade has remained strikingly low relative to the continent's internal potential. While intra-regional trade accounts for approximately 73 percent of total exports in Europe and 59 percent in Asia, the corresponding figure for Africa hovered between 14 and 17 percent in the years immediately preceding AfCFTA's launch (World Trade Organisation [WTO], 2021; African Export-Import Bank [Afreximbank], 2023). The causes are well documented in the literature: fragmented markets separated by colonial-era borders, high tariffs and non-tariff barriers, poor physical connectivity, inadequate trade finance, duplicative regulatory regimes across regional economic communities (RECs), and entrenched informational asymmetries that penalise small traders above all others (Abrego et al., 2020; Osabuohien et al., 2022). AfCFTA represents the most concerted effort yet to dismantle these barriers by establishing a single continental tariff schedule, harmonising standards, streamlining customs procedures, and creating a continental dispute-settlement mechanism.

The theoretical case for AfCFTA is compelling. Standard trade theory predicts that the removal of tariff and non-tariff barriers should increase trade volumes, stimulate competition, reduce prices for consumers, and redirect productive resources toward sectors of comparative advantage (Krugman & Obstfeld, 2022). More nuanced analyses rooted in the 'new new trade theory' of Melitz (2003) further suggest that trade liberalisation enables only the most productive firms to export, while simultaneously compelling less productive domestic firms to improve or exit — generating aggregate efficiency gains. Simulations conducted by the World Bank (2020) estimated that full AfCFTA implementation could lift 68 million people out of poverty by 2035 and increase intra-African exports by 81 percent, while projections by Abrego et al. (2020) at the International Monetary Fund (IMF) suggested continent-wide welfare gains of up to US$450 billion by 2035.

Yet there is a significant gap between these projections and the practical realities confronting small and medium-sized enterprises (SMEs) on the ground. SMEs are the economic backbone of Africa, constituting approximately 90 percent of all registered businesses on the continent and contributing between 40 and 60 percent of GDP across most African economies (International Finance Corporation [IFC], 2022; UNECA, 2022). They are also the primary employers of labour, especially for young people and women in urban and peri-urban areas. In Nigeria alone — Africa's largest economy by GDP — the National Bureau of Statistics (2023) estimated that SMEs account for 96 percent of all businesses, employ approximately 84 percent of the workforce, and contribute roughly 48 percent of GDP. Given these characteristics, the degree to which AfCFTA works for SMEs is not an academic abstraction but a question with direct implications for poverty reduction, employment generation, and inclusive growth across the continent.

Evidence emerging from early AfCFTA implementation, however, tells a cautionary tale. Non-tariff barriers — including cumbersome customs procedures, opaque rules of origin requirements, poor port infrastructure, and arbitrary border fees — have proved far more intractable than tariff barriers (Okonjo-Iweala & Coulibaly, 2020; Mold & Mukwaya, 2023). Trade finance gaps, estimated at US$81 billion annually by Afreximbank (2023), disproportionately affect SMEs that lack the collateral and track records demanded by formal financial institutions. Rules of origin, which are critical to preventing trade deflection under a free trade regime, are particularly burdensome for SMEs in value chains where inputs are sourced across multiple countries. Furthermore, the digital divide means that many SMEs are poorly positioned to exploit the potential of e-commerce provisions under AfCFTA's protocols (International Telecommunication Union [ITU], 2023; Gitagia et al., 2022).

Nigeria's experience is instructive. As a country that initially held back its ratification of the AfCFTA agreement, citing concerns about potential deindustrialisation and the smuggling of foreign goods, Nigeria occupies a complex position in the AfCFTA ecosystem (Olaniyan & Babatunde, 2021). When it finally ratified in 2019, the federal government put in place the Presidential Enabling Business Environment Council (PEBEC) and the National Action Committee on AfCFTA (NAC-AfCFTA) to coordinate implementation, but SME operators in manufacturing, agriculture, and services sectors continue to report formidable practical barriers to cross-border trade (Obi & Chukwuma, 2023). This study therefore focuses on Lagos State — as Nigeria's commercial hub and Africa's most populous city — as a microcosm of the AfCFTA implementation challenge.

The question this study poses is not whether AfCFTA is a worthy project — the geopolitical and economic case for continental integration is widely accepted — but whether its implementation architecture and the institutional environment surrounding it have yet been sufficiently developed to enable SMEs to realise tangible export benefits. This is a distinction between aspiration and operationalisation, and it is precisely at that interface that this research is positioned.

1.2 Statement of the Problem

Despite the considerable political commitment and institutional architecture that accompanied the launch of AfCFTA, there remains a significant and troubling disconnect between the agreement's transformative ambitions and the lived experience of SME operators who are supposed to be among its primary beneficiaries. Four years after trading formally commenced under the AfCFTA framework, intra-African trade as a share of total African trade has increased only marginally, rising from approximately 15.2 percent in 2020 to 17.4 percent in 2023 — a figure still far below the levels observed in more integrated regional blocs (WTO, 2023; Afreximbank, 2023). This sluggish progress invites serious scrutiny of the implementation architecture and the structural barriers that the agreement has so far failed to address.

The specific problem this study addresses is the persistent low level of SME export readiness and participation in intra-African trade, notwithstanding the policy environment created by AfCFTA. Several interrelated dimensions of this problem warrant examination. First, there is the question of awareness and institutional access: how well do SME operators actually understand AfCFTA's provisions, and what mechanisms exist to connect them with the opportunities the agreement is supposed to create? Second, there is the problem of non-tariff barriers, which have emerged as the dominant constraint on intra-African trade flows; these include poor transport and logistics infrastructure, divergent product standards, complex and uncertain rules of origin, exchange rate volatility, and rent-seeking behaviour at border crossings (Mold & Mukwaya, 2023; Signe & Johnson, 2021). Third, there is the financing constraint: the African Development Bank (AfDB, 2022) has documented that over 80 percent of African SMEs report difficulty accessing trade finance, and this figure is even higher for women-owned enterprises.

The problem is further compounded by the limitations of the AfCFTA implementation framework itself. Rules of origin negotiations, particularly for sensitive sectors such as automotive, textiles, and agricultural products, remain incomplete or contested as of early 2025 (AUC, 2024). The AfCFTA Secretariat, established in Accra, Ghana, remains underfunded relative to the scale of its mandate. National implementation committees vary widely in their effectiveness, with some countries yet to operationalise the domestic legislative reforms required to give effect to AfCFTA obligations. These implementation gaps mean that even where tariff preferences technically exist on paper, traders — especially SMEs — frequently cannot access them due to documentation requirements, lack of awareness among customs officials, or the absence of functioning verification mechanisms.

In Nigeria specifically, a growing body of practitioner reports suggests that SMEs interested in exporting to other African markets are often deterred by the complexity of documentation, the unpredictability of transit costs, and the opacity of regulatory regimes in destination markets (Obi & Chukwuma, 2023; Folarin & Adesanya, 2022). At the same time, the government's own diagnostic of AfCFTA readiness, conducted by NAC-AfCFTA in 2022, acknowledged that Nigeria's export infrastructure — including testing laboratories, standards bodies, and export facilitation centres — is insufficiently developed to support a surge in SME-led exports. These realities, if unaddressed, risk converting AfCFTA into a vehicle for large corporations and commodity traders while leaving SMEs behind.

It is against this backdrop that this study investigates the practical relationship between AfCFTA implementation, the persistence of intra-African trade barriers, and the export readiness of SMEs in Lagos State, Nigeria. The study seeks to generate empirical evidence that can inform both policy reform and enterprise-level strategy.

1.3 Objectives of the Study

The broad objective of this study is to examine the extent to which AfCFTA implementation has improved export readiness and export performance among small and medium-sized enterprises in Lagos State, Nigeria. The specific objectives are as follows:

1. To assess the level of awareness and understanding of AfCFTA provisions among SME operators in Lagos State.

2. To identify the nature and extent of non-tariff and structural trade barriers that impede SME participation in intra-African trade.

3. To evaluate the state of export readiness among SMEs in terms of financial capacity, product compliance, logistics capability, and market knowledge.

4. To examine the relationship between AfCFTA institutional support mechanisms and SME export performance.

5. To recommend policy interventions that can better align AfCFTA implementation with the practical needs of SMEs.

1.4 Research Questions

The following research questions guided the conduct of this study:

1. What is the level of awareness and understanding of AfCFTA provisions among SME operators in Lagos State?

2. What are the principal non-tariff and structural barriers that impede SME participation in intra-African trade?

3. To what extent are SMEs in Lagos State export-ready in terms of financial capacity, product standards compliance, logistics capability, and market intelligence?

4. Is there a significant relationship between AfCFTA-related institutional support and SME export performance?

1.5 Research Hypotheses

The following null hypotheses were tested in this study:

H01: There is no significant relationship between AfCFTA institutional support mechanisms and SME export readiness in Lagos State, Nigeria.

H02: There is no significant difference in the export readiness levels of SMEs that are aware of AfCFTA provisions and those that are not.

1.6 Significance of the Study

This study is significant on several levels. At the theoretical level, it contributes to the growing body of scholarship that interrogates the micro-level effects of macro-level trade agreements, and specifically to the emerging literature on SME participation in free trade areas in developing country contexts. By grounding the analysis in Melitz's (2003) firm heterogeneity model, the Resource-Based View (RBV), and the New Institutional Economics (NIE) framework, the study offers a multi-theoretic perspective on what determines whether SMEs can capitalise on trade liberalisation.

At the policy level, the study is particularly timely. With AfCFTA's Phase II protocols on investment, intellectual property, and competition policy still under negotiation as of 2025, and with Phase I implementation still encountering significant bottlenecks, policymakers at both national and continental levels need grounded empirical evidence on where the gaps between design and delivery are most acute. This study provides precisely such evidence from the perspective of SME operators in Nigeria's commercial capital.

For business practitioners, the study offers a diagnostic framework that SME operators and their associations can use to assess their own export readiness and identify specific capability gaps. For financial institutions and development finance organisations, the findings regarding trade finance constraints offer a basis for designing more SME-appropriate products. For academic researchers, the study identifies several underexplored dimensions of AfCFTA's micro-economic effects and suggests a research agenda to address them.

1.7 Scope of the Study

This study is focused on small and medium-sized enterprises (SMEs) operating within Lagos State, Nigeria. Lagos was chosen as the research site because it is Nigeria's commercial capital, hosts the country's largest port (Apapa), and is home to the highest concentration of formally registered SMEs in any single state in the country. The study is confined to SMEs operating in the manufacturing, agriculture and agro-processing, and services sectors — the three sectors most prominently targeted under AfCFTA's goods and services protocols.

Geographically, data collection was conducted across six local government areas (LGAs) within Lagos State: Lagos Island, Lagos Mainland, Apapa, Mushin, Alimosho, and Ikeja, which together represent a cross-section of the commercial, industrial, and informal economic landscape of the state. The study is limited to the period from January 2021 (when AfCFTA trading formally commenced) to December 2024, and the survey data were collected between February and April 2025.

1.8 Limitations of the Study

Several constraints circumscribed the conduct of this study and should be borne in mind when interpreting its findings. First, the use of self-reported survey data introduces the possibility of response bias: respondents may have overstated their level of AfCFTA awareness or their export ambitions in order to appear more sophisticated than they are, or conversely may have underreported challenges for fear of appearing uncompetitive. Second, the focus on Lagos State, while appropriate given the research objectives, limits the geographical generalisability of the findings to other Nigerian states or to the continent at large.

Third, the nascent and evolving nature of AfCFTA implementation means that some of the institutional and regulatory landscape described in this study may have changed between data collection and publication. Fourth, the complex and multi-layered nature of AfCFTA — with its simultaneous negotiations across goods, services, investment, intellectual property, and competition policy — makes it difficult to isolate the causal effects of specific AfCFTA provisions from broader macroeconomic and policy shifts. These limitations notwithstanding, the study's findings are grounded in a carefully selected sample, validated instruments, and triangulation of primary survey data with secondary literature.

1.9 Operational Definition of Terms

The following terms are used throughout this study in the specific senses defined below:

AfCFTA (African Continental Free Trade Area): Refers to the continental free trade agreement established under the Agreement Establishing the African Continental Free Trade Area, signed in Kigali, Rwanda, in March 2018, and covering the 54 AU member states that have ratified the agreement as at 2025.

Small and Medium-Sized Enterprises (SMEs): Defined in this study in accordance with the Nigerian Small and Medium Enterprise Development Agency (SMEDAN) classification: micro enterprises with between 1 and 9 employees; small enterprises with 10 to 49 employees; and medium enterprises with 50 to 199 employees. All three categories are collectively referred to as SMEs throughout the study.

Export Readiness: The degree to which a firm possesses the financial resources, productive capacity, managerial expertise, regulatory compliance capability, and market knowledge required to successfully initiate and sustain export activity in foreign markets.

Non-Tariff Barriers (NTBs): Trade policy measures other than ordinary customs tariffs that restrict, distort, or impede the flow of goods and services across borders. These include technical standards, sanitary and phytosanitary requirements, import quotas, licensing requirements, and arbitrary customs procedures.

Intra-African Trade: The exchange of goods and services between African countries, as distinct from trade between Africa and the rest of the world.

Rules of Origin: The criteria used to determine the national source of a product, which are important in free trade agreements because they define the conditions under which products qualify for preferential tariff treatment.

Trade Finance: Financial instruments and products used by importers and exporters to facilitate international trade, including letters of credit, trade credit insurance, export guarantees, and supply chain financing.

Institutional Support: The formal and informal structures, organisations, policies, and regulations that shape the environment within which firms operate, including government agencies, trade associations, regulatory bodies, and financial institutions.