The impact of the COVID-19 virus has been near-universal, and the African Continental Free Trade Agreement (AfCFTA) has not been spared. Its kick-off had to be postponed to 01 January 2021 but, more importantly, signatory governments have been preoccupied with mitigating the economic and social damage of COVID. The recent surge in violence in South Africa had an immediate political trigger yet the unemployment, inequality and hopelessness that have fuelled the flames (literally) have all deteriorated over the past 15 months. In Nigeria’s case, those same social pressures led the FGN to retreat on the removal of fuel subsidies.
It is difficult to find fault with the project or to deny that Africa has underperformed. The continent with a combined population of 1.2 billion people and combined GDP of USD2.5trn could have done much better. As we have heard countless times over the past 40 years, the colonial powers developed Africa for the export of its primary commodities to home markets for processing. Inasmuch as Africa has taken on the challenge, the achievement has been the work of subregional bodies such as the Southern African Customs Union (SACU).
Few governments anywhere have much vision so it is vital that they are pushed into action on tariffs, rules of origin, infrastructure, customs reform, market analysis and much more
We could cite any number of obstacles to the realization of the vision. A starting point would be the limited awareness of subregional markets. The Economic Community of West African States has celebrated its fortieth anniversary. The community has enjoyed some notable successes in the diplomatic and military arena yet Nigerian business has very limited knowledge of the francophone markets in West and Central Africa.These are all small markets relative to Nigeria but they are accessible, underdeveloped and ready-made for Nigerian manufacturing exports and the building of regional value chains.A greater weakness is the conclusion from surveys that a majority of small businesses in Nigeria is not aware of the AfCFTA itself.
As a first step, signatories are to remove tariffs on 90 per cent of the goods they produce. Only a few, we understand, have designated the goods that will be exempt. For many countries, notably those that are small economies and are not commodity producers of scale, tariffs are the largest source of government revenue. They will require some help to be weaned off this dependence.
Ours is not a negative view. Data from the AfCFTA secretariat show that intra-African trade in 2019 represented just 14.4 per cent of all African trade, compared with 52 per cent for Asia and 73 per cent for Europe. The direction of trade can change more quickly than assumed for a variety of reasons, an example being the UK’s trade with the EU since Brexit.
Most of the intra-African trade was in manufactures. The foundations are therefore in place. The more successful regional bodies such as SACU, the East African Community and the West African part of the Franc Zone can build on those foundations. Their successes should encourage other signatories and regional groupings to follow their example.
We should expect a slow start. In its 2021 outlook, the Lagos Chamber of Commerce and Industry highlighted some additional obstacles to the smooth working of the agreement. These include fx scarcity and policies, creaking transport systems, high costs of production, bottlenecks at customs and weak household demand. The many domestic hurdles have led some commentators to speculate that some businesses will be tempted to relocate their production to neighbouring countries and export to Nigeria.
Few governments anywhere have much vision so it is vital that they are pushed into action on tariffs, rules of origin, infrastructure, customs reform, market analysis and much more. The most effective ‘pushers’ would include the AU, African financial organizations, the multilateral agencies and bilateral partners.
Afreximbank is worth a special mention for spreading the word. The CBN held a town-hall meeting on 05 July with a focus on the challenges and opportunities for the Nigerian financial industry in the AfCFTA. The first speaker opened with the observation that Nigerian exports to Africa declined in Q1 ’21.
We have deliberately not drawn on the scenario-building and 30-year forecasts for growth, FDI and trade volumes from the secretariat, the World Bank and African governments including the FGN. Rather, we have identified a way forward that is realistic. Economic integration is a long-term project. A few lessons can be drawn from the EU, which began its life as the European Coal and Steel Community, signed by six states in the Treaty of Paris in 1951. Six decades later, we can see that the process has been slow and operates at two speeds, one for the Eurozone and one for the other members. In the context of the AfCFTA, however, we should note that the European single market is in place and is enforced. Tariff harmonization has been achieved.#
Kronsten is head, Macroeconomic and fixed income research, FBNQuest Capital
