Around 2015, Nigeria firms were optimistic that the Common External Tariff (CET) would remove barriers to free trade and enable them double their exports in the West African region.
It was an agreement among 15 Economic Community of West African States (ECOWAS) member-countries targeted at pushing intra-regional trade beyond 12-15 percent.
The assumption was that West African nations would adopt common tariff lines to remove barriers to entry.
Four years down the line, the CET has become a failure as each of the signatory countries adopted different tariff lines and various levels of protectionist policies, thereby breaching the original agreement reached among West African countries.
“There were many countries that resorted to self-help,” Segun Ajayi-Kadir, director-general, Manufacturers Association of Nigeria (MAN), said in an interview with BusinessDay.
“We did not negotiate the process properly, so we were left with incapacity to impose the kind of tariff needed to support our industrial aspiration,” he said.
The CET created a number of complications, with finished medicines from ECOWAS countries entering into the West African market at zero duty while raw and packaging materials came in at 5 percent to 20 percent tariff.
This is one clear example of a failed past free trade agreement which must point lessons for Nigeria and the rest of Africa as the African Continental Free Trade Agreement (AfCFTA) knocks.
The AfCFTA seeks to liberalise trade among African countries. It is targeted at a ‘borderless’ Africa, with an eye on a single market for goods and services on the continent.
Experts believe it is easily the largest trade agreement since the World Trade Organisation (WTO) in 1994 and a flagship project of Africa’s Agenda 2063, targeted at creating a single market for 1.2 billion people and exposing each country to a $3.4 trillion market opportunity on the continent.
But the lessons from failed past trade agreements remain relevant for African countries as AfCFTA nears.
In 1967, Kenya, Uganda and Tanzania agreed to form a new East African Community (EAC) and signed a number of protocols on free movement of goods and persons.
According to Aloysius Uche Ordu, former vice president of African Development Bank, the agreement led to free movement of people within the community.
“Intra-area trade grew significantly. Common services – universities, airlines, railways, and other infrastructures – arose,” he said.
However, this agreement collapsed 10 years later due to political and ideological differences. While Kenya chased capitalist policies, Tanzania went socialist. Even after a re-launch in 2000, the protocols are almost broken down today due to border clashes which are expected to fuel trade war. For instance, Uganda-Rwanda border is closed, frustrating movement of goods between both countries while raising logistics costs.
In 2010, Uganda, Kenya and Tanzania signed an agreement known as Common Market Protocol to guarantee free movement of labour, goods and capital across the countries. But customs of individual countries, rather than the protocols, dictate what comes in. On November 19, 2018, Ugandan agriculture exporters staged a demonstration at the southern border post of Mutukula owing to Tanzanian customs officials denying them opportunity to sell beans and maize in Tanzania for many months.
“Several trade agreements have failed in Africa because of absence of will to implement protocols,” Ike Ibeabuchi, CEO of MD Services Limited, a servicing and manufacturing concern, said.
“Some are also a result of poor infrastructure and different levels of economic growth. Africa, especially Nigeria and South Africa, should look at the causes of these failures and guard against them,” he added.
Perhaps, it is important for champions of AfCFTA to recall why Tanzania withdrew from Common Market for Eastern and Southern Africa (COMESA) in 2000 six years after joining. The East African country complained of loss of revenues due to lowering of tariffs and rising poverty rate.
“Reducing tariffs to 100 percent was a threat for Tanzania because, according to trade policy review of 2000, Tanzania was heavily relying on revenues from trade tariffs and VAT,” Suleiman Hji Suleiman of the Shandong University, China, wrote in a paper.
More so, the Southern African Customs Union (SACU) is failing due to outdated border checks which frustrate traders across the union.
Archie Matheson, head of policy and analytics at Botho Emerging Markets Group, an Africa-focused investment consultancy group, said already-existing trade areas such as the EAC and COMESA still contend with several practical challenges around non-tariff barriers which must be addressed first as the AfCFTA will likely face similar issues.
He, however, acknowledged that the AfCFTA will have a positive impact on the intra-African trade of goods and services.
“It is vital that expectations of governments and businesses are managed, and that signatories have the patience to deliver a project over what will be a long time period,” he added.
Babatunde Ruwase, president, Lagos Chamber of Commerce and Industry (LCCI), however, said in Lagos that the upsides of AfCFTA outweigh downsides.
“We maintain that the AfCFTA would improve trade among African countries and provide opportunity for Nigeria to export to other African countries,” he said.
ODINAKA ANUDU
