What Nigeria must do to reap the benefits of African free trade

Intra-continental trade and tariff liberalization will not be sufficient in providing genuine market access.

The renowned Canadian-born American economist, Prof. Jacob Viner, stated that free trade agreements have been shown to have trade-creation effects among member countries and trade-diversion effects in non-member countries. The African Continental Free Trade Area (AfCFTA), which will go into operations on July 1, will create a single market of about 1.3 billion people and a combined GDP of $3.4 trillion. The free trade agreement will accrue significant benefits to governments, big corporations, and small and medium scale enterprises (SMEs). It has the potential to create new billionaires on the continent.

However, AfCFTA faces great but surmountable challenges, including currency inconvertibility, restrictions to free movement of people within the continent, inadequate logistics, language barriers, existing regional dynamics, and rules of origin. Intra-Africa trade currently accounts for between 16%-18% of African trade. The success of AfCFTA depends on the extent it is able to increase trade within the region.

Already, some of the problematic dynamics are at play. The emergence of South Africa’s chief trade negotiator, Wamkele Mene, as the Secretary-General of the Secretariat of the AfCFTA indicates competition for advantage by the regional powers on the continent. On its part, Kenya recently entered into bilateral trade talks with the United States in a bid to seal a trade deal before the 2025 expiry of the African Growth and Opportunity Act (AGOA). Such steps are not to be taken without informing the other members of AfCFTA.

In response, African Union’s Commissioner for Trade and Industry said the AfCFTA agreement has provisions stating that any preferences given to a third party must also be given to other parties to the agreement.

In another case, in December 2019, the Ivoirien President, Alassane Ouattara, announced the transition of Francophone countries from the CFA francs to the Eco, which had hitherto been planned as a West African regional currency. The announcement left regional powers like Nigeria and Ghana in limbo.

Nigeria has signed the AfCFTA agreement, but the National Assembly has yet to ratify it. What’s more, the Minister of Industry, Trade and Investment, Niyi Adebayo, recently announced that the National Action Committee on AfCFTA will not recommend ratification unless the body is certain the trade agreement will not hurt local industries. But on a positive note, the Nigerian government’s new visa-on-arrival policy for African passport holders is a welcome development for free movement of goods and people.

Africa needs Nigeria to be fully on board to actualise the benefits of the continental trade agreement. This suggests a sort of game theory whereby the Nash equilibrium is co-operation for a higher combined payoff, compared to lack of co-operation from any of the big continental players.

Surmounting the challenge of rules of origin would require extensive industry lobbying. Not less daunting are standardsetting procedures for goods and services, and monetary policy issues. External tariffs, which are divergent across the continent, will also determine whether the trade agreement can eventually advance to a customs union.

Intra-continental trade and tariff liberalization will not be sufficient in providing genuine market access. Nontariff measures such as quotas, subsidies and export restrictions with public policy aims, e.g. health protection, may become technical barriers to trade.

Recommendations for Nigeria

To immediately take advantage of this agreement, Nigerian policymakers are advised to:

• Open the borders immediately to reassure the business community and build trust with neighbouring countries. As an example of the self-inflicting damage of the border closure, in its 2019 financial year, Dangote Cement’s export volumes declined 41 per cent; its margins also declined by 59 per cent.

• Improve speed of port operations in all ports in Nigeria.

• Strengthen the Nigeria Customs Service’s enforcement teams to ensure all imports are legal and that necessary tariffs are paid to the government.

• Review existing tariffs to consolidate and achieve effective domestic industrial and economic policy.

• Fix all major international highways, especially the Lagos Badagry expressway.

• Complete the upgrade of the Murtala Muhammed International Airport.

Conclusion

The political economy resulting from heterogeneity along economic, cultural, and institutional dimensions will have an impact on the level of integration achievable from the AfCFTA. Full integration requires cooperation between governments and the people, fostering peace and security, building regional infrastructure, and shared systems of rules and policy regimes. Full integration will provide regional public goods but these forms of cooperation call for collective action, which requires trust and delegation of authority to a supranational authority.