With a 1.3billion market, an ambitious African Continental Free Trade Area (AfCFTA) agreement was launched one year ago to create the world’s largest single market for goods and services among the 54 African countries and deepen the economic integration of the continent. But with existing red tape, poor infrastructure, tariffs and challenges around free movement across the region, how far has the new trade zone come one year after? In this interview, FRANCIS ANATOGU, senior special adviser to the President on Public Sector Matters and Secretary, National Action Committee on AfCFTA tells ONYINYE NWACHUKWU, BusinessDay’s Abuja Bureau Chief of progress and how Nigeria has keyed into the project.
How ready is Nigeria for AfCFTA?
We are very import-dependent, however, the worst-case scenario is that those products currently coming from China, Europe, America and the rest of the world will be supplied by other African countries and that cannot be a bad thing. That’s the very worst-case scenario which will not materialize because we’ve got what we call “product-specific rules of origin” which means that every product that will benefit from AfCFTA will have a minimum African content.
It says that each product must have a percentage that must come from African countries. For any African country to benefit, that company must look for African countries and businesses that are producing those raw materials, components, semi-finished products to add so that they can qualify.
As a concrete example, we have a lot of processing capacity in sugar, yet we import raw sugar from Brazil and the rest. If for example, the Rules of Origin is 40%, it means that for our processed sugar to go into Africa, we need to go to Mauritius and other African Countries to import 40%, instead of importing 100% of raw sugar cane from Brazil. Similarly, other countries will come and import our products such as palm oil and other things.
Another example is that today, South Africa is already exporting cars to Europe and other places. We have the capacity to assemble cars, but we only use 5% of that capacity. A car has thousands of components, so while we even work on what we are doing, we can produce glasses and send them to South Africa to use, rubber for tyres and leather for car seats.
Our ambition is to take 10% of Africa’s imports which is equivalent to about $60 billion and this means doubling our exports by 2035.
We can aggregate these things and start exchanging even while we are getting ready to start shipping fully made cars which we are already doing by the way.
Therefore, our message is that every company, state in Nigeria should be able to see itself in Africa, have an Africa strategy and sell to Africa. In terms of readiness, you start from where you are. If we wait till 20 years to be fully ready and start, will that market still be there by then? The answer is no. However, the structures we have already will enable AfCFTA, like the rail, the power sector reforms which, yes, is still struggling but moving, and several other projects.
The rice initiative predates AfCFTA but AfCFTA can benefit from it. We have achieved a minimum level of self-sufficiency, so the next stage is export. Africa imports $6 billion worth of rice, now that we are getting it right, people need to decide the variety of rice that countries that import the most require, to farm specifically for that country.
In our oil and gas industry, thanks to our local content Act 2010, we have built capacity in E and P, and built capacity in services, fabrication and all of that. There are new and upcoming African countries that need this capacity which we can build and then export. We have our reservoir engineers, petro physicists and so on already in African countries helping to develop their fields. These things are happening, what AfCFTA does is to bring focus on them, but people and businesses are moving.
What is Nigeria taking to AfCFTA?
Our Nollywood is already in Africa and the world. Our banks are already in Africa and expanding, with the reduction in non-tariff barriers they will further expand. For trade in goods, we saw several products from the ones we are already exporting. An example is an oil and gas where we produce more crude oil than Africa can take. We are not exporting petroleum products, but Africa imports tens of billions of petroleum products.
Hopefully, when the Dangote refinery comes in, there’s a lot of it that can go into Africa. Gas, petrochemicals, plastics is another area that Africa imports in billions of dollars and we are already producing them in Nigeria. If you come to agricultural produce, aquaculture, fishery, vegetable oils, for instance, are big.
We’ve done the analysis and there are several products that Nigeria can export to Africa in ‘trade in goods.’ If you come to ‘trade-in services’, it’s the same thing, look at our airline industry, most of the airlines are government-owned, it’s in Nigeria that you’ve got private-sector-owned airlines, so the opportunity there is enormous.
There are ongoing projects by NEXIM Bank and the rest to boost our ownership of vessels and maritime business. Insurance is an area that Africa imports a lot and it’s a clear opportunity that we need to tap into. I’m not saying that any of these is easy to achieve.
I don’t see any low hanging fruit, but opportunities are there, from health insurance to all sorts of goods in transit insurance and so on, there’s just so much. Healthcare is an area where, even as underdeveloped as the system is in Nigeria, we have Africans coming to Nigeria to take advantage of some of our health care facilities.
Can you give some examples of this?
Let’s not go too far, go to Lagos, Reddington, there are a couple of new hospitals that are coming up. We are losing our nurses, doctors not even to Africa but the rest of the world. That is a major opportunity to train them in thousands and earn Forex in remittances because the world needs them. Imagine there’s a deliberate attempt to train our people, help them go into the world, provide services and contribute to our remittances, and there are companies that depend on that.
In every sector that you look in, there is something we can do. Even as we speak, there are a number of our products that go into Africa, but informally, like our food products. We know the challenges with barriers, border management and so on, but these are the things that the AfCFTA agreement is designed to solve.
A couple of years ago, our airlines were not getting landing rights, those are the non-tariff barriers that we are talking about. AfCFTA is a set of rules that we all agree to abide by, but the challenge is in the implementation because some of these things will need to be domesticated, meaning updating our policies, regulations and laws. The opportunities are there but the work is also immense, but we cannot wait until we’re fully ready.
With the constraints in the manufacturing sector, how is the ‘trade-in goods’ aspect possible?
Don’t get fixated on goods, the most important thing is, are we growing our economy, are we creating jobs, and where? Let’s take the digital space, for instance, we had the intra-African trade fair in Durban recently. The province has a lot of outsourcing centres, which employ people in tens of thousands, like what we have in Nigeria. These outsourcing companies provide services across the globe, so in terms of jobs, we have them in goods and also in services.
In the digital space alone, outsourcing is one element, the infrastructure area, data centres, software are other areas. We know about our Andela, which is just one of several companies that train our people and deploy them to code, provide services across the globe. Some of them are here providing these services remotely, some of them have moved out, but we are not satisfying the demand even today.
Now on goods, let’s start from the agric sector; we are endowed in some areas, in cereals, rice, sorghum and even sesame which we are one of the top 6 producers and already exporting.
There are companies here in Nigeria to aggregate what we have and export to other countries. With AfCFTA providing access to markets, you’re able to grow the size of what you produce. Aggregation is one of the programmes we have identified and just kicking off. As part of the implementation programmes for AfCFTA, we are trying to take SMEs, develop them and add them to the supply chain of more established companies.
The breweries have done this successfully with sorghum, which they off-take from small farmers to produce beer. It is the same concept for every product that is of interest. The small farmer is not interested in your ‘Rule of Origin’, all he wants is to produce and sell, the companies that can take it in bulk, process and make sure it meets the right quality, volume and whatever export conditions that the global buyers need are there. Therefore, working with them to grow the pool of SMEs that supply them is a practical way of implementing the AfCFTA agreement.
The second is e-commerce. Today, people are already selling their products on Facebook, WhatsApp etc. We are taking a deliberate step to train them, working with companies like Jumia, Konga and others to onboard these people so that if they sew their clothes and put them there, they’ll make sales from a digital front.
It appears what has happened on AfCFTA so far is majorly political, when will actual implementation take off?
There is a message I need to get across; the negotiation and the operationalization will take years, if you finish one you enter another. To answer your question, we have gotten the approval of Heads of state to start trade. Several African countries, I think 28 or 38 have developed their schedules, meaning that each country has presented those products we plan to liberalise. For us, we presented as ECOWAS because we are a customs union. That has been verified by the AfCFTA secretariat in Ghana to ensure that they meet certain guidelines, but due to COVID-19, the negotiations on “Rules of Origin” stalled. Today, we have achieved it to about 87%, the Rules of Origin and the Schedule go hand in hand. These things are being tidied and we are waiting for them to be made public. Once that is done and customs of various countries add it to their tariff book, then anybody can trade, but that has not happened.
So when you ask if trade has begun under AfCFTA, the answer is no, because you need to know what goods have been liberalised and what the rules of origin are. By the way, there is a process of confirming Rules of Origin which is similar to getting a NAFDAC number, there’s a compliance check and you get your AfCFTA number as well. All these things need to happen and that’s why I’m saying that there are steps to take.
Now, if you agree that a product has met all the requirements and you take it to Lesotho for instance, it would meet the customs people there, so there has to be some kind of platform to enable customs of countries to share information seamlessly and even interact remotely to verify products that have met the Rules of Origin.
All those things are being put in place, however, for every new thing, there will be hiccups, but you solve them as you go. When people say, after one year, what has been the benefit of AfCFTA, remember that the EU is in the 72nd year of their regional integration, some in Asia 30 years. The EU has not finished, they are still constantly going and we are just beginning as a continent. Yes, there will be some incremental gains on a year-by-year basis but to expect that by next year you’ll see the trade-in Africa double, that will not happen.
Honestly, I expect trade to take off sooner than later. My understanding is that the schedules have been verified so it’s to transmit and countries will get on to do their work. So, I expect that between now and the next three months, trade should start. On the Rules of Origin, I’m not directly involved in negotiations, but the outstanding areas are big and of interest to many nations. I think they are working on it and are meeting constantly to agree on it.
How about the fears around dumping?
There are two elements to that, dumping will happen when the agencies in charge of border management are not living up to their work which is quite unlikely in our case in Nigeria. Besides that, there is something called “Trade Remedies Authority” which has an early warning system. When there are incidents or perceived incidents of dumping, that agency which we are trying to put in place will conduct an investigation and recommend tariffs, countervailing measures against those people. So there are tools to manage all these things.
When you hear countries like America and China taking themselves to the WTO, it’s the same thing. If you don’t respect it, you take action and if they think your action is not justified they take action as well.
Under AfCFTA, you have a dispute settlement mechanism as well, all these things are being set up, they’ll take time to settle and start working, and you’ll start seeing the benefits. I understand if people are sceptical, it’s with every new thing, but I keep saying that even as we are talking, people are exporting.
Are there specific targets under AfCFTA?
As part of the implementation plan, what we have done which is still in draft and needs to be approved to become effective is an ambition to take 10% of Africa’s imports which is equivalent to about $60 billion and doubling our exports by 2035. And we are taking this message to the states to say, each should develop the capacity to export $1.2 billion per annum.
How all that will happen is something that will be worked out, but at an ambition level, this is what we have. In this new year, we’ll be working at the national and sub-national levels to concretize some of these things and have a breakdown of things we want to achieve and how we intend to do that.
Are states being carried along?
Yes. An example is the Kaduna state development plan where they have put together the things that can be exported. We also see this in many other states. We have been to seven states before the last workshop we held. Lagos is a country on its own and it’s bigger than many countries in Africa, Ogun has very clear plans and they are working on the plans.
Delta even has an export development centre, they have their programmes and it’s working, they are clear on the products and services they are pushing, they are working with their SMEs and companies. Edo is working not only in products but also in services and technology, they are building a partnership, a couple of months ago they opened a centre that they built in partnership with the Bank of Industry.
Bauchi is also clear on what they want, they are clear on rice, kaolin in mining, they are also clear on tourism, we have also been to Nasarawa. So we’ve covered five out of the six geopolitical zones and each state we went to had structures in place. Everything is a work in progress, but you’ll see clearly that they are focused on growing their economy, providing employment, and improving their IGR. The message we are giving the states is that there is a market of 1.3 billion people and $3.4 trillion and they should think Africa. And that’s why every sector requires some form of support, and we are working on how it will be administered.
How are you ensuring competitiveness?
All these things we are putting in place, including the incentives, would drive competitiveness, and there are a couple of areas that we need to focus on. The first is automating administrative processes; getting permits, paying taxes, and even accessing information.
The automation is ongoing but there’s a lot that needs to happen. And by the way, that creates a lot of jobs and hopefully, this automation will happen with Nigerian companies. The other element is infrastructure; building roads, rail and so on. Again, increasingly, government is leveraging the private sector. We now have a road tax incentive scheme that encourages companies to build roads. We have an infrastructure bank that was set up to tackle infrastructure. Hopefully, there will be more creative private-sector-led programmes to boost infrastructure because clearly, the government cannot do it alone.
Beyond that, we also need to change how we approach things. Part of what will help us move forward is ‘cluster development’, which is part of the ecosystem development. We already have processing zones, but in every local government you’ll have some kind of processing zones where you aggregate, it doesn’t have to be that large. You aggregate the produce there, process, grade and package them for export or transport. If you’re doing this, you’re increasing scale and it also means you can then have enough capacity to attract investments.
Free trade zones are also on the table and under discussion by the negotiating team in terms of how we manage and handle products that come out of export processing zones. They’re working on it, I have no visibility on the exact status but I know that it’s important to many countries and a solution will be found.
