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AFCFTA IMPLEMENTATION AND EXPORT DIVERSIFICATION: POTENTIAL GAINS FOR MANUFACTURING IN OGUN STATE.
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
One of the most impactful multilateral trade agreements ever made on the African continent is referred to as the African Continental Free Trade Area (AfCFTA), which came into effect in May 2019 and commenced its franchisement operations in January 2021. The agreement has far-reaching consequences on the industrialisation paths of member states, especially those aiming to remove commodity-based growth approaches, by creating one unified market of more than 1.3 billion individuals and a gross domestic product (GDP) of over USD 3.4 trillion (Afreiximbank, 2024; African Union Commission, 2021). To Nigeria, which contributes the biggest portion of the economic output in West Africa, the AfCFTA is both a transformative opportunity, as well as a significant challenge of competitive dimension, one that disproportionately impacts sub-national industrial clusters with their productive capacity, and export orientation, hitherto underutilised in comparison to their potential.
The overreliance on crude petroleum export as an economic activity in Nigeria has long been a source of structural imbalance, compromising the country to the vagaries of global commodity cycles and hampering its potential to develop in a sustainable and inclusive manner. In some recent quarters, petroleum products made up around 79.4 per cent of the total export receipts of the country and this highlights the extreme susceptibility of the Nigerian economy to external oil price shocks (NBS, 2024). The manufacturing sector even though of strategic significance, never had a significant contribution to GDP growth in comparison to the population in Nigeria and the endowment of the country in resources. Diversification of exports interpreted as the strategic extension of the makeup and destination of the exports of a country to include processed and value added manufactures has consequently become a nexus of the economic development discourse in Nigeria (Adebayo & Salami, 2023; Okoro et al., 2023).
Ogun state has a unique and strategically important location within this national context. Placed in the geopolitical south-western region and with borders with the premier commercial centre in Nigeria Lagos State and the busiest seaports in the country Ogun State has become the most significant manufacturing sub-national unit in the country. The state has a wide presence of fast-moving consumer goods, cement, pharmaceutical, food processing, and auto assembly businesses with more than 6,000 manufacturing companies distributed in different industrial clusters such as Agbara Industrial Estate, the Ota Industrial Zone and the emerging Industrial Platform Remo Free Zone (IPR Industrial Platform Remo Free Zone, 2024). Lagos-Ogun industrial belt concentrates more than 50 per cent of the overall industrial production in Nigeria making the area the leading driving force of the manufacturing sector of the nation (GZ Industrial Supplies, 2024).
Current trends portend a spurring up of the process of integration of the manufacturing sector of Ogun State into continental and global value chain. The 2024 mid-year report of OGUNINVEST had registered more than 140 new factory registrations between January and June 2024, increasing by 32 per cent compared to the same period in 2023 (Premium Times, 2024). The USD 400 million privatization of Ogun State Government with ARISE Integrated Industrial Platforms to develop the 5000-hectare Industrial Platform Remo Free Zone in Sagamu has been specifically on the platform as the means of exploiting the AfCFTA agreement and export-led growth (MSME Africa, 2025). The approaching commercial importance of the agreement to Nigerian manufacturers is shown by the first shipments under AfCFTA Guided Trade Initiative in 2024 that comprised high-technology manufactures like cables, smart cards to Egypt, Algeria, Uganda, Cameroon and Kenya.
Despite these promising trends, the big questions are how far Ogun State manufacturing companies have redefined their production and export strategies in connection with the deals brought about by the implementation of AfCFTA. Structural barriers such as inadequate infrastructure, non-favourable or unfavourable rules of origin, non-tariff barriers, and limited access to trade finance, and nascence of regional value chain participation keep contaminating the capacity of sub-national manufacturers in converting market access provisions contained in AfCFTA into palpable export advantages (Agbola and Eze, 2021; Africa to Investors, This paper hence examines the connection between the implementation of the AfCFTA and export diversification focusing on the possible benefits to the manufacturing sector in Ogun State, Nigeria.
1.2 Statement of the Problem.
Although quite a substantial literature is dedicated to highlighting the macroeconomic capabilities of AfCFTA to African economies in aggregate terms, the sub-national and sectoral aspects of AfCFTA realisation have been relatively less represented in the body of empirical literature. This gap is most acute, specifically regarding manufacturing-intensive states like Ogun, the industrial structure of which, along with endowments in terms of geography, places them in a natural position to obtain the benefits of liberalisation of continental trade, but whose companies often face structural challenges that reduce the transition between market access and expansion of exports (Aigheyisi & Iyoha, 2022; Okoro et al., 2
What complicates the issue is the composition of the export basket of Nigeria which remains primarily dominated by the primary petroleum products despite the framework of the AfCFTA that introduces incentives to diversify the export activity towards manufactured and processed goods. The comparison of trade statistics during the fourth quarter of 2024 reveals that the proportion of Nigerian exports to Africa was dominated by petroleum oils, which constituted 79.77 per cent of all exports, with non-oil manufactures (electrical goods, fertilisers, cigarettes, etc.) taking only a small part of overall exports (NBS, 2024; African Newspage, 20 The underlying compositional stagnancy begs fundamental questions on whether manufacturing companies in Nigeria, and those in Ogun State, in particular, are successfully taking advantage of the tariff abolishment and market integration opportunities outlined in the AfCFTA, or whether systematic obstacles are cancelling the diversifying effects of the agreement.
Moreover, although a number of studies have determined aggregate implications of AfCFTA on economic development in Nigeria (Aigheyisi and Iyoha, 2022; Okoro et al., 2023; Akamobi et al., 2024), none of them have actively questioned the dynamics of sub-national implementation and firm-level export behaviour in the context of the manufacturing cluster in Ogun State. This empirical gap provides an opportunity to develop a concerned analytical investigation into that state-level processes and guiding the implementation of the AfCFTA can lead to diversification of exports or hinder it in Nigeria main manufacturing center.
1.3 Objectives of the Study
The broad objective of this study is to examine the relationship between AfCFTA implementation and export diversification in the manufacturing sector of Ogun State, Nigeria. The specific objectives are:
- To assess the current level of export diversification among manufacturing firms in Ogun State in the context of AfCFTA implementation;
- To evaluate the extent to which AfCFTA trade liberalisation provisions have influenced the export strategies and market orientation of manufacturers in Ogun State;
iii. To identify the key structural constraints limiting the realisation of potential export diversification gains for manufacturing firms in Ogun State under the AfCFTA regime;
- To determine the effect of trade logistics and infrastructure development on the export performance of manufacturing firms in Ogun State under the AfCFTA framework; and
- To provide policy recommendations for maximising AfCFTA-driven export diversification gains for the manufacturing sector in Ogun State.
1.4 Research Questions
The following research questions guide the inquiry:
- What is the current level of export diversification among manufacturing firms in Ogun State, and how has it changed since the commencement of AfCFTA trading operations?
- To what extent have AfCFTA trade liberalisation provisions influenced the export strategies and African market orientation of manufacturers in Ogun State?
iii. What structural constraints limit the realisation of potential AfCFTA-driven export diversification gains for manufacturing firms in Ogun State?
- What is the relationship between trade logistics and infrastructure development and the export performance of manufacturing firms in Ogun State under the AfCFTA?
1.5 Research Hypotheses
The following hypotheses, stated in null form, are tested in this study:
H01: AfCFTA implementation has no significant effect on the export diversification of manufacturing firms in Ogun State.
H02: Trade logistics and infrastructure development have no significant positive effect on the export performance of manufacturing firms in Ogun State under the AfCFTA.
H03: Structural constraints (including tariff barriers, rules of origin requirements, and limited trade finance) do not significantly moderate the relationship between AfCFTA implementation and export diversification in Ogun State.
1.6 Significance of the Study
This study makes several important contributions to knowledge. First, it addresses a significant gap in the sub-national AfCFTA implementation literature by generating empirical evidence on the relationship between continental trade liberalisation and export diversification at the state level in Nigeria a dimension that has been largely overlooked in favour of aggregate macroeconomic analyses. Second, the study’s focus on Ogun State, as Nigeria’s most industrially significant sub-national unit, ensures that the findings carry substantial policy weight for both state and federal governments seeking to leverage the AfCFTA framework for economic diversification. Third, the study contributes to the broader literature on trade-led industrialisation in developing economies by illuminating the firm-level and institutional mechanisms through which free trade area membership translates or fails to translate into export diversification at the sub-national level. Fourth, the study provides actionable policy recommendations for the Ogun State Government, the Nigerian Export Promotion Council (NEPC), the Ministry of Industry, Trade and Investment, and other stakeholders responsible for AfCFTA implementation in Nigeria.
1.7 Scope of the Study
This study focuses on the manufacturing sector of Ogun State, Nigeria, with specific reference to firms operating within the major industrial clusters of Agbara, Ota, Sagamu, and Mowe-Ibafo. The study covers the period from 2019, the year of AfCFTA’s entry into force to 2024, thereby capturing both the pre-implementation phase and the initial years of trading operations under the agreement. The study is geographically delimited to Ogun State but situates its findings within the broader context of Nigerian and African continental trade policy. While the study acknowledges the potential spillover effects on adjacent states and the broader Lagos-Ogun industrial corridor, its primary analytical focus is on the manufacturing firms and policy environment of Ogun State.
1.8 Limitations of the Study
Several limitations are acknowledged. First, the recency of AfCFTA’s operational phase constrains the availability of longitudinal trade data at the firm and state levels, necessitating the use of a mixed-methods approach that combines primary survey data with secondary statistics. Second, the informal economy and unregistered manufacturing enterprises which constitute a significant proportion of Ogun State’s industrial landscape are not fully captured in official trade statistics, potentially understating the true extent of export activity. Third, data disaggregation challenges at the sub-national level in Nigeria mean that some analyses may rely on state-level approximations derived from national datasets. These limitations are addressed through triangulation of data sources and the use of robust estimation techniques.
1.9 Operational Definition of Terms
AfCFTA Implementation: The progressive activation of the AfCFTA’s trade liberalisation provisions at the national and sub-national levels, including tariff elimination schedules, rules of origin application, customs facilitation measures, and the operationalisation of free trade protocols between member states.
Export Diversification: The broadening of a country’s or region’s export basket in terms of product composition, geographic market distribution, and the value-added content of exports, particularly through the expansion of manufactured and processed goods relative to primary commodity exports.
Manufacturing Sector: Establishments primarily engaged in the mechanical, physical, or chemical transformation of materials or substances into new products, encompassing consumer goods, intermediate goods, and capital goods production.
Sub-national Level: The state or provincial tier of government, as distinct from the federal or municipal tiers, within Nigeria’s three-tier federal governance structure.
Value-Added Exports: Goods that have undergone transformation, processing, or assembly beyond their raw commodity state, thereby incorporating additional labour, technology, and capital inputs that increase their market value relative to primary products.
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