The African Continental Free Trade Agreement aims to create a single market facilitated by the movement of persons to deepen the economic integration of Africa. For a section of the founding fathers of the defunct Organisation of African Unity, this was 55 years too late. The more radical bloc that led to the formation of the OAU in 1963–the Casablanca Group, dominated by Kwame Nkrumah’s Ghana would have loved to see this arrangement happen as soon as 1963, but the conservative Prime Minister of Nigeria, Abubakar Balewa who led the Monrovia bloc stalled the proposed federation of African states. What this led to was an arrested development that made trade between countries in Africa difficult because of high tariffs and lack of roads connecting countries to each other.
Several things could go wrong. First, although one purpose of a free trade area is to prevent arbitrary decision making by an erratic country, it does not entirely eliminate policy instability. African states are not used to such institutional frameworks that eat away at sovereignty. For a government like Nigeria’s current administration, the risk is ever present. Nigeria closed its land borders to trade in August 2019, just two weeks after affirming its interest in signing the treaty. This was done without consultation with its neighbours and led to problems for neighbouring states. It took the reality of soaring food prices, increased crime, and lots of revenue losses for the government to do the needful on 31 December 2020.
Another key risk is revenue. Revenue crunch is a real problem even made worse by the coronavirus pandemic. As the free trade agreement seeks to eliminate tariffs, which are an important revenue generation source, it would put pressure on African governments to look for alternative sources of revenue. This would somehow also translate to diminished public funds available for trade adjustment assistance. The United Nations Conference on Trade and Development (UNCTAD) has estimated that this reduction will be more than $4 billion annually continent-wide. With Africa’s two major economies relapsing into another round of a pandemic induced recession and a return to pre-pandemic levels of economic growth not expected till at least 2025 for advanced economies, it is anybody’s guess how many states would resist the temptation of re-imposing tariffs.
The associated risks should not take away from the benefits.
The World Bank estimates that extreme poverty would decline across the continent—with the biggest improvements in countries with currently high poverty rates. West Africa would see the biggest decline in the number of people living in extreme poverty—a decline of 12 million (more than a third of the total for all of Africa). It also estimates that trade facilitation measures that cut red tape and simplify Customs procedures would drive $292 billion of the $450 billion in potential income gains.
Geopolitically, asides being a great step to integrating the continent’s economy, it should also be viewed within the lenses of a genuine attempt by Africans to engage the world as a bloc. While this has been achieved politically through voting decisions at the United Nations, bilateral deals with non-Africans have largely coloured African trade with the rest of the world. Even though Africa contributes a mere 5% to the global economy, a continental framework buoyed by interconnected superhighways would do well to accelerate growth. There is a blueprint on which to work on, the SADC and the EAC.
For Nigeria, this is a great opportunity. Having the continent’s largest economy has to go beyond tags with which to glorify ourselves. When the rebasing of the economy, which displaced South Africa as Africa’s largest economy, was done in 2014, there was hardly much that reflected in the basic living standards. Seven years later, things have gone worse, with Nigeria accounting for the world’s largest population of poor people. Productivity is lacking. Our total exports recorded $2.9 billion in September 2020, compared with $4.3 billion the previous month. Agricultural goods export dropped in value by 22.6% in Q3,2020 compared to Q2, 2020 but increased 43.7% year-on-year.
The value of Raw material goods exports recorded a decline of 24.6% in Q3,2020 compared to Q2, 2020 and a decline of 61.9% compared to the same quarter in 2019. There’s little argument that this has largely to do with the ill-fated border closure, a policy that came back to bite Nigeria hard in the butt. On the other hand, crude oil exports grew in value by 56% in Q3,2020 compared to Q2, 2020 but decreased in value by 35.3% year-on-year, a testament to the fixation on oil to begin with, and the effects of the coronavirus pandemic on the other hand.
We have a manufacturing sector that struggles to compete with its peers. The Manufacturers Association of Nigeria was one key obstacle to President Buhari signing the AfCFTA because it felt Nigeria would become a dumping ground for “poorly produced foreign goods.” Actually, MAN should see this as a challenge to up the ante. Nigeria has tried protectionism many times and failed. What would drive growth is trade. You can’t keep producing substandard goods and expect the value of your exports to increase. There’s a large market in Africa that Nigeria with its vast potentials can tap into. This would not happen with the perennial unwillingness to engage.