Nigeria and Africa Continental Free Trade Area (AfCFTA): A big deal?

The AfCFTA Agreement states clearly the objective of AfCFTA: to create a single market for goods, services, facilitated by movement of persons in order to deepen the economic integration of Africa. This piece discusses the origins of AfCFTA, its inherent benefits and challenges, Nigeria’s stance and in conclusion, further work needed to secure economic self determination for our people.
One of the key principles of the AfCFTA is that the existing Regional Economic Communities (RECs) will serve as building blocks for AfCFTA. Tariffs will be eliminated on 90% of goods traded between and amongst African countries. This should translate to lower prices, higher volumes and higher GDP for the continent. The balance 10% of goods represents sensitive products that are expected to be liberalised over a longer time period or be permanently on the exclusion list.
At the 10th Extraordinary Session of the Assembly of the AU on the launch of the AfCFTA held in March 2018, there were three (3) legal instruments requiring signature of members so as to birth the AfCFTA – the AfCFTA Consolidated Text, the Kigali Declaration and Free Movement Protocol. Nigeria was absent and did not execute any of these instruments. We should have been there and signed at least one of the instruments especially because signature does not equal ratification. A cursory view of the Heads-of-State (or their representatives) present indicates that every regional African power was there and signed at least one of the instruments: South Africa signed the Kigali Declaration, Egypt, Cote d’Ivoire and Mauritius signed the Consolidated Text. Kenya signed all three and has ratified alongside Ghana. It is likely that our action would be relationally damaging (and make subsequent demands and negotiations difficult), despite our size as the largest market on the continent.
Nigeria, like other member states, will only finally ratify the Agreement in accordance with our constitutional procedures. It is important to note that, as with all such agreements, member states post ratification can withdraw after five (5) years if they so choose – effectively a 5-year trial period.
There are compelling reasons for Nigeria to sign up. The AfCFTA once it becomes effective after at least twenty two (22) member states would have ratified the Agreement, will cover a market of 1.2 billion people and a GDP of US$2.5 trillion assuming all 55 member countries signed up – whereby it would be the world’s largest free trade area by number of participating countries, since the formation of the World Trade Organisation (WTO).
Agriculture and manufacturing, two areas of relative strength in Nigeria, should benefit the most from AfCFTA, hence shifting the country and the continent away from capital intensive, job-limited, extractive sectors towards more labour intensive and price-stable industrialisation. MSMEs will have the opportunity to scale their businesses regionally and then eventually globally especially through supply chain of different industrial value chains. For instance within South Africa Development Community (SADC), Botswana feeds the SA car industry leather while Lesotho provides fabric for seats of cars.
Private businesses, traders and consumers must lead the initiative across the continent. The challenge of infrastructure required to create the gateways like air, sea, roads and rail networks must be overcome through private sector co-leadership with government. For instance, it is not impossible for an aggregation of the wealthiest 55 individuals on the continent to commit to funding and building road and rail networks from say Cape Town to Casablanca and from Nairobi to Dakar in exchange for bragging rights and other monetary concessions from relevant governments through the instrumentality of the AU.
The Nigeria Labour Congress is reported to perceive AfCFTA as a “renewed, extremely dangerous and radioactive neo-liberal policy initiative.” This hard line position forms part of why Nigeria pulled away from signing the Agreement. NLC’s position may be misguided as it may not have the benefit of receiving orientation on AfCFTA’s costs and benefits for Nigeria. In terms of cost to member states, UNCTAD projects that US$4.1 billion may be lost tax income. However, UNCTAD also makes clear that in the long run there will be gains amounting to US$16.1 billion.
The Nigeria Office for Trade Negotiations (NOTN), the government agency for trade matters in Nigeria, is clear about the benefits of AfCFTA when it says that “This (AfCFTA) will boost job creation through increased intra African trade and expand market access for Nigeria’s exporters of goods and services, covering a market of over a billion Africans with a combined GDP of US$2.5 trillion.” It is thus difficult to accept the possibility of Nigeria not giving assent to the AfCFTA Agreement post the on-going national sensitisation.
The fear of loss of tax income by governments is real. However, tariff elimination is going to be gradual over a period of between five (5) and fifteen (15) years. Notwithstanding, it is irrefutable that the more advanced African economies are in a position of strength to tap into the impending benefits of AfCFTA. To assuage the genuine fears of smaller economies, subject to them fulfilling certain verifiable economic parameters, it would be useful for the AfCFTA Secretariat to lead the charge for establishment of a Continental Stabilisation Fund to be seeded by the top 10 economies of the continent with a view to leveraging the fund to support the growth and development of smaller economies and hence avoid protectionism by these latter countries.
African financial institutions must also lead global collaborative efforts to secure and cover the estimated annual trade finance gap of about US$120 billion per annum. Domestication of payment, settlement and electronic financial communications is already advancing and led by Afreximbank with a view to establishing a pan African Payment and Settlement Platform.
AfCFTA is a fulfilment of the dream of pan Africanist, Ghana’s Kwame Nkrumah. Yet, Africa must not be in denial of the need to strengthen its monitoring and enforcement of rule of origin provisions and severe punishment of offenders that may seek to source goods from other parts of the world, bring them into Africa and re-package them for duty-free intra Africa export. All in all – way to go Africa – at a time when Europe and the US are pulling the drawbridge, we are reaching out and aiming high together as sister partners working for a brighter future. Chapeau!

 

Mayowa Amoo

Mayowa Amoo is an investment banker based in Lagos