AfCFTA: As Africa Awaits Nigeria
Although the African Continental Free Trade Agreement has officially gone into operation, Ugo Aliogo, Oluchi Chibuzor and Hamid Ayodeji, write on Nigeria’s continued delay to sign the agreement
On May 30, the African Continental Free Trade Agreement (AfCFTA) officially went into force. According to a research, the agreement signed by all but three of Africa’s 55 nations, establishes the largest free trade area in the world since the creation of the World Trade Organization (WTO) in 1995. The research explained that if the remaining countries join, AfCFTA would cover more than 1.2 billion people and over $3 trillion in Gross Domestic Product (GDP). While it is hoped that AfCFTA would unlock Africa’s economic potential, its implementation still faces some challenges.
The African Union (AU) commenced the negotiation for AfCFTA in 2015, with the hopes of boosting intra-African trade, which falls behind trade within other regional blocs.
Presently, only 15 percent of African exports go to other African countries, compared to intra-trade levels of 58 percent in Asia and 67 percent in Europe, just as high tariffs and colonial-era infrastructure make it easier for African countries to export to Europe or the United States than to each other.
Presently, more than 75 percent of Africa’s external exports are extractives, such as oil and minerals. Progressively, African nations hoping to secure sustainable economic growth are shifting away from the volatility associated with extractive exports towards industrialized goods. While overall intra-African trade is miniscule, 42 percent of it consists of industrial goods and this number is expected to grow under AfCFTA.
“Nevertheless, AfCFTA will face a number of challenges before it can be considered a success. The agreement has been ratified by 22 African countries, but implementation will be gradual as countries continue to negotiate tariff schedules, rules of origin, and commitments for service sectors,” the report stated.
Still Waiting for Nigeria
It has been noted that the agreement’s most obvious shortcoming is the absence of Nigeria, which along with Benin and Eritrea, has not signed up to AfCFTA. It was learnt that Nigeria pulled out of negotiations due to concerns that AfCFTA membership would harm domestic manufacturers. However, it after more than a year of hesitation, there were signals last week that Nigeria may soon sign the African Continental Free Trade Agreement (AfCFTA). This was after the submission of the report of a committee established to review the concerns about the possibility of our country becoming a dumping ground for all manner of goods from the continent.
“Our reports show that on the balance, Nigeria should consider joining the AfCFTA, and using the opportunity of the ongoing AfCFTA Phase one negotiations to secure the necessary safeguards required to ensure that our domestic policies and programmes are not compromised,” said committee chairman, Dr. Desmond Guobadia said.
Commenting on the deal, the Head of Research, FSDH Merchant Bank, Ayo Akinwunmi, explained that President Muhammadu Buhari in his first term delayed the signing of the AFCTA because he noted that there was need to study the document clearly to ensure that there is benefit for Nigeria.
He remarked that when a country expands its market, what it means is “that instead of selling your goods to its immediate population, the country has the Africa market to sell to.”
Akinwunmi further stated that the trade deal tries to ensure that Africa has the economy bloc to expand her goods and services; “however, it has one disadvantage, when you are in a relationship or partnership.”
According to him, “It is someone or few who have something to offer that will benefit more from there. If you don’t much to offer, you will benefit much, you may become a doping ground. If we produce things in Nigeria and we sign that agreement, it means that there is wider market for what we produce. But let’s be clear about it.
“It is countries that have comparative advantage in the production of certain goods and services that will benefit from it. Nigeria has to develop comparative advantage, maybe they are weighing the process to see how it will benefit Nigeria and what do we have to also sell to earn money from into Nigeria, so that these guys don’t come to take advantage of us?
“The challenge for me is how do we build local competitiveness to ensure that what is produced in China and sent to Nigeria, doesn’t come cheaper than what is produced here because as a rational consumer if what is produced locally is more expensive than what is imported, we will go for what is imported.
“There is no loyalty that says that we must patronise Nigeria made goods. But we must ensure that we spend our money rationally to get the same value or utility. The continental free trade is going to benefit us and expand the country’s market.”
FG’s Position
President Muhammadu Buhari last month said Nigeria would be guided by ‘‘national interest’’ in its decision on the agreement establishing the African Continental Free Trade Area.
Presidential spokesman, Mr. Femi Adesina, in a statement, said Buhari made the promise while receiving the National Council of the Manufacturers’ Association of Nigeria (MAN) led by its president, Mr. Mansur Ahmed.
According to Adesina, Buhari said he was prepared to receive the report of the committee set up to assess the potential costs and impact of signing the agreement establishing the AfCFTA on Nigeria.
According to him, the president recalled that the Presidential Steering Committee on AfCFTA Impact and Readiness Assessment Committee was inaugurated on October 22, 2018, with the mandate to assess the extent to which Nigeria was ready to join the agreement, and what the impact of doing so would be.
The statement said the committee was initially given 12 weeks to conclude its assignment, after holding wide consultations with industry groups and stakeholders, including MAN, adding that Buhari told the leadership of MAN that AfCFTA is on the agenda for the upcoming African Union (AU) Summit in Niamey, Niger Republic, in July.
‘‘I don’t think Nigeria has the capacity to effectively supervise and to ensure that our colleagues in AU don’t allow their countries to be used to dump goods on us to the detriment of our young industries and our capacity to utilise foreign exchange for imported goods,’’ Buhari said.
The statement added that Buhari promised to look into MAN’s presentation, highlighting issues of concern to the manufacturing sector, including the AfCFTA, Export Expansion Grant and other incentives as well as challenges with the 2019 fiscal policy measures, recent increase in NAFDAC charges, the Industrial Development (Income Tax Relief) (Amendment) Act, 2019, among others.
‘‘I assure you that I know the enormity of our problems in terms of population growth rate and teeming young people.
‘‘We need to move very fast, and the government will try and encourage you as very much as possible so that the problem of unemployment and the provision of other services relative to our population and state of development can be tolerated,’’ Buhari was further quoted as saying.
According to the statement, earlier in his remarks, MAN’s president outlined some credible policies that have driven the economy forward in the first term of Buhari, commending the administration for what he described as consistent efforts to sustain the growth trajectory anchored on improving the business environment.
Threat of Competition
However, despite Nigeria’s delay in signing the agreement, a report has pointed out that the Nigerian market faces new competition from businesses in member countries across the continent with inward flow of goods and services.
PwC, one of the leading professional services companies, stated this in a report titled: “Thriving in a New Africa,” obtained by THISDAY.
According to the report, competitors from neighbouring countries could take advantage of existing trade agreements such as ECOWAS Trade Liberalisation Scheme (ETLS) to access the Nigerian market simultaneously, through an ECOWAS country like Ghana, which has existing trade agreements with Nigeria under the ETLS, that allows it to obey the Rules of Origin (ROO) requirements.
It stressed that while Nigeria remains the largest economy in Africa, there are several countries with businesses that have the scale to compete with Nigerian businesses in terms of productive capacity, exports and logistics.
It pointed out that the new trade environment would drive more competitive trading market in Africa for Nigerian businesses.
“While Nigeria is the largest economy in Africa, there are several countries with businesses that have the scale to compete with Nigerian businesses in terms of productive capacity, exports and logistics.
“In addition, there are smaller countries with the comparative advantage to penetrate the Nigerian market.
“Consequently, Nigerian businesses must adapt to the new form of competition on the back of the new trade environment created with the AfCFTA. Additionally, Nigerian businesses must learn to position themselves to take advantage of the new markets that have been opened up.
“It is important to note that this article does not aim to offer an opinion on whether Nigeria should sign the AfCFTA agreement. The objective of this article is to provide Nigerian businesses with ideas on thriving in the new trade environment created by the AfCFTA,” it added.
In its assessment of intra-African trade, it stated that trade in the region was dominated by commodities and natural resources as the key exports, noting that trade in the continent forms less than three per cent of global trade.
“With intra-continental trade at 15 per cent, Africa compares unfavourably to Europe (67%), North America (48%), Asia (58%), and Latin 2 America (20%) , which have drawn on vibrant intra-continental trade to sustain growth, economic development and integration into the global economy.
“In 2017, intra-African trade was estimated at US$135 billion, growing by nine per cent year-on-year from US$124 billion in 2016.
“This growth was primarily driven by South Africa, Namibia, Zambia and Nigeria, which jointly accounted for over 37 per cent of intra African trade in 2017. In 2017, Namibia and Zambia became the second and third largest contributors to intra-African trade respectively,” it stressed.
Furthermore, it pointed out that Nigeria remains one of the main drivers of intraAfrican trade, with its total of eight per cent by eight per cent in 2017, from a contraction of 27 per cent in 2016.
“It is important to note that while the listed figures are the official figures, unofficial trade, including diaspora remittances, contribute to intra-African trade, while there has been a recent increase in intra-African trade, the rates are still significantly lower than other continents.
“In order to boost economic growth and prosperity on the continent, it is imperative that African countries improve trading with each other, and invest in infrastructure to drive trade,” it added.