Nigeria finally signed the African Continental Free Trade Agreement (AfCFTA), but what are the broader implications for the country’s economy; BENJAMIN UMUYEME asks in this report.
When Nigeria and South Africa declined assent to the African Continental Free Trade Agreement (AfCFTA) after 44-member countries of the African Union endorsed the agreement at 18th Extraordinary Session of the Assembly of AU Heads of State and Governments in Kigali, Rwanda, many were taken aback knowing the country had championed the need for the continent to have a trade pact.
It meant Nigeria, regarded as a power house in Africa, is not on the same page with the rest of the continent in an agreement that is meant to establish a common protocol to allow free movement of goods and services among member nations of the AU.
They were joined by seven other countries, including Burundi, Guinea Bissau, and Eritrea who also did not sign the agreement. South Africa later signed the agreement, raising concerns among analysts who were favourably disposed to Nigeria being a part of the agreement.
Why Nigeria delayed assent
The main contention for Nigeria’s declining the signing of the AfCFTA Treaty is stakeholders’ fear of numerous bilateral trade agreements of some African Union (AU) countries with the rest of the world and Nigeria’s underdeveloped industrial and infrastructural profile, which some stakeholders argued that this Agreement will potentially make Nigeria a dumping ground due to our uncompetitive manufacturing sector, large market size and population.
With a porous border system, for instance, there were fears that the agreement would open the country’s seaports, airports and other businesses to unbridled foreign interference and domination.
According to a former Minister of Industries, Trade and Investment, Okechukwu Enalemah, there is need for the government to consult widely with stakeholders before signing a critical document that has wide implications for the economy and the well-being of over 200 million Nigerians.
According to Enelamah, as Africa’s largest economy and most populous country, Nigeria cannot afford to rush into such agreements without full and proper consultation with all stakeholders.
The government called for adequate consultations and inputs from interest groups, particularly the NLC, which called the treaty a “renewed, extremely dangerous and radioactive neo-liberal policy initiative.” But the Manufacturers Association of Nigeria (MAN urged the government to act with caution, noting that some aspects of the agreement has the potential to hurt Nigeria’s interest.
After wide consultations, President Muhammadu Buhari received the report on the impact of the agreement on Nigeria’s economy and subsequently he assented to the agreement bringing to an end months of waiting by several sectors of the economy.
Bridging the continent’s trade gap?
It is expected that when the continent’s biggest trade agreement finally comes into play, it would create a single continental market for goods and services, with free movement of people and investments.
Businesses around the continent currently face higher tariff when they export within Africa than when they export outside it. The average is put at 6.1 per cent. Of course, AfCFTA is expected to progressively eliminate tariffs on intra-African trade, making it easier for African businesses to trade within the continent and tap from the huge potential of a larger African market.
While signing the agreement President Buhari spoke of “fair trade” in relation to free trade. “Nigeria wishes to emphasise that free trade must also be fair trade,” he said.
Over the decades, development has always been a big challenge across the African continent. AfCFTA, a flagship project of Agenda 2063 of the AU, is expected to help accelerate Africa’s own development vision. It was approved by the AU Summit as an urgent initiative whose immediate implementation would provide quick wins, impact on socio-economic development and enhance confidence and the commitment of Africans as the owners and drivers of Agenda 2063. The effect, as projected, will contribute to the achievement of the United Nations 2030 Agenda, especially the Sustainable Development Goals (SDGs).
The Agreement covers Protocol on Trade in Goods and Services, Rules and Procedure on Settlement of Disputes, Investment, Competition Policy, and Intellectual Property Rights.
In addition, it seeks to expand intra-Africa trade which currently stands at low 16 per cent, in contrast to other regions and continents.
In the European Union, intra-regional trade is between 65 per cent and 70 per cent; while in APEC (Asia-Pacific) it is 70 per cent, but the same cannot be said of the African Union where intra regional trade is less that 30 per cent.
Even the big economies of Nigeria and South Africa combined cannot boost of a strong intra African trade.
Agreement divides opinions
With a GDP of $405 billion, Nigeria is considered the largest economy in Africa. It is followed by Egypt ($332 billion) and South Africa ($295 billion). With a population of about 200 million, the nation is also Africa’s largest market.
A school of thought argues that the treaty would impact on government revenue and social welfare. According to them, elimination of all tariffs among African countries would erode the trading states’ treasury by up to $4.1billion annually and deepen poverty, with millions of Africans potentially exposed to starvation and death. But are these conjectures true in real sense?
For public policy analyst and development expert, Jide Ojo, signing the pact “is the right way to go.”
According to Ojo, “If properly implemented and guided, Nigeria stands to gain a lot from that because as we do know, Nigeria is a huge market.”
A don, Dr Ovat Oyama, says the signing of the African Continental Free Trade Agreement (ACFTA) by Nigeria will boost Africa’s contribution to global trade.
He said Africa’s contribution to global trade was below 10 per cent. Oyama said the agreement would enable member countries to harmonise their tariffs and have a common front on development. The lecturer noted that since free trade agreements are designed to cut trade tariffs, member countries would have access to a market of over a billion people.
“A billion people are a huge market that will lure any investor to invest his money and make good returns within few years. The continent enormous population and its resources are huge assets for any foreign investor not to look the other way, considering its prospect,” he said.
The Nigerian Office for Trade Negotiations (NOTN) says by signing the African Continental Free Trade Area (AfCFTA) agreement, the federal government has reaffirmed Nigeria’s leadership on African trade integration.
NOTN director-general, Ambassador Chiedu Osakwe, said the president’s signature was a bold step forward for Nigeria African trade integration and Nigeria’s leadership in the AU.
“The president has demonstrated a remarkable leadership commitment to due process of the rule of law for trade integration, openness to trade and investment in a period in the global economy characterised by protectionism,” he said.
Even the Nigerian electricity generation companies are excited as they say the agreement will boost power generation and supply in the continent.
According to the Executive Secretary of the umbrella body of the GenCos, Joy Ogaji, they were confident the AfCFTA agreement will boost intra-Africa trade among African countries from the current 16 per cent to about 60 per cent.
“Under the agreement, there will be no quota system; trade will be conducted according to trading capacity; exports of goods and services will be cheaper, leading to more competitive pricing,” she said.
An expert’s view
However, an economist, Tope Fasuba, said the arrangement would have been Nigeria’s ‘baby’, had the government and other stakeholders been proactive.
According to the former presidential candidate, with her huge potential and vast resources, Nigeria ought to have been the country driving the process, rather than being the nation trying to hold every other nation back on the continent.
“We have lost the battle, at least psychologically, but could still win the war,” he wrote. “Ghana positioned herself and today hosts the secretariat. If nothing, that is a lot of tourism money that will be drawn to Ghana, especially from Nigeria where many people in government service are getting ready, smacking their lips for the deluge of trips for meetings and conferences – which is what we know how to do best.”
One of the major challenges of the treaty is inclusiveness. Out of the 54 countries in Africa, South Africa and Nigeria stand out. Inclusion of Nigeria and South Africa, respectively the largest (17% of Africa’s GDP) and third largest (13% of Africa’s GDP) economy in Africa, is crucial for the success of the agreement.
However, transforming trade is complicated since it has a large and heavily protected home market. The World Bank in a report, “Trading Across Borders” noted that Nigeria exports little to Africa (just 9% of its merchandise exports were directed to Africa over 1995-2008 according to ECA (2012)) and its merchandise exports are composed of 76% of fuels and mining products, commodities whose revenue stream depends on trends in world markets and bears little relation to trade reforms at home or in the rest of Africa.
But Nigeria is not Saudi Arabia, whose vast oil resources allow it time to embark on a course of diversification. Nigeria’s rapidly growing population of 186 million cannot hope to develop in the long run based only on its fuel and mining exports. While Saudi Arabia’s trade per capita was $73.79 in 2016, Nigeria’s trade per capita was just $351, about one thirds of that of Morocco and nearly 40% lower than that of Cote D’Ivoire.
Allowing protection to continue on 10% of products can, in practice, negate a large part of the benefits of the agreement by strategically selecting products that will retain protection.
Again, the imperative of improved infrastructure might just be the real challenge. Several studies have shown that infrastructure constraints in Africa are important in explaining low levels of trade. Paved roads especially are sparse compared to the size of the continent. In African low-income countries, there are 318 meters of paved road per 1000 population, compared to 1000 meters per 1000 population on average in the developing world and 15000 meters per 1000 population in an advanced economy such as France.
According to NLC president Ayuba Wabba, the Congress is opposed to the treaty because of its implication to the economy in the long run.
“We are more worried by the probable outcome of this policy initiative if it is given life because of its crippling effect on the local businesses and attendant effects on jobs.
“We have no doubt this policy initiative will spell the death knell of the Nigerian economy. Accordingly, we urge Mr President not to sign this agreement either in Kigali or anywhere. We believe our national interest is at stake and nothing should be done to compromise this,” he said.
Again, Mr Ojo said despite signing the agreement, there are fears for Nigeria’s readiness to implement the treaty, adding that the agreement is like the West African free trade agreement which Nigeria has failed to maximise.
“How well-positioned are Nigeria’s businesses to take advantage of the agreement? Where is the infrastructure? How have we positioned the products that we seek to export? If we must take advantage of AfCFTA, we must incentive the private sector for value addition. We cannot continue to export raw materials and get peanuts in return.”
To check dumping, Nigeria needs to have some safeguards, he said, adding that the nation must develop infrastructure, protect her borders, set up monitoring teams and develop the capacity of local manufacturers. If the government and relevant stakeholders fail to put these measures in place, he warned, the nation may not gain from the agreement.
“We may just be signing on to something that may be like paper tiger; something good on paper alone. Unless we develop capacity for value addition, we may not profit maximally from AfCFTA.”
“Nigeria’s infrastructure deficit and insecurity are major challenges that could hamper production in the country. The availability of skills for the job is also a major concern. Nigeria has not provided sufficient ecosystems to attract, incubate and accelerate businesses,” Dr. Ikpenmosa Uhumuavbi, an International Finance expert and lecturer at Bolton University Law School, said.
“High transaction cost within Nigeria may lead to cheaper imports from the bloc or other markets. This may put local manufacturers out of business and increase Nigeria’s import dependency.
“Although Nigeria remains the largest economy in Africa, the economies of scale and other advantages that comes with tariff-free intra and inter Africa trade may affect competitiveness of Nigerian businesses on the continent.”