Nigeria finally signed and ratified the African Continental Free Trade Agreement (AfCFTA), however, it is very important to point out that this is not an end in itself, rather a means to an end. This is because, regional free trade agreement like the AfCFTA presents an opportunity to do more trade with member countries and thereby increasing the productivity, GDP, per capita income and lifting the citizens of the countries that are party to the agreement out of poverty. However, this will only happen if the agreement is well implemented.
The signing of bilateral and regional Free Trade Agreements (FTAs) like the AfCFTA among nations has become a common place in today’s world. The aim of this kind of agreement is to remove the tariff and non-tariff barriers that hinder the free flow of trade among them. Apart from the elimination of tariff and non-tariff barriers, other important features that are generating attention in the FTAs signed in recent times have included rules relating to the protection of rights to intellectual properties, rules on competition, rules on labour rights protection and on environmental protection.
The FTAs have been described as a viable tool that contributes significantly to the growth of export trade volumes of nations involved. Studies have shown that the bilateral trade volumes of some nations involved in an FTA experienced 100% growth within a period of 10years. This has been corroborated by other reports that showed an increase of over 400% in the trade volume of China within a space of 35years. This probably explains the reason why the number of both bilateral and regional FTAs signed among nations of the world has been on the increase since 1990s. According to World Trade Organisation (WTO), 455 regional FTAs were already in force as at January 2018 and this is up from about 200 in the year 2000.
Despite the huge opportunities made available to businesses in nations around the world by continental, regional and bilateral FTA, it is sad to know that the utilisation of these agreements have remained low especially among the developing and underdeveloped countries. Several surveys have been conducted across the world by numerous researchers in different countries and for different bilateral and regional trade agreements, to ascertain the level of utilization of the various FTAs. Invariably, the impacts of these agreements on different countries and trading blocs. According to the report of the survey done by Thomson Reuters and KPMG International, in 2016 only 23% of the respondents were fully utilising all the FTAs that are available to them. In another report of PricewaterhouseCoopers on the same subject in 2018, it showed that in Australia, 78% of the importers used at least one FTA when procuring any item from abroad while 62% of the exporters used at least one FTA to penetrate an export market.
Other researchers, in 2017 reported that China exported 55.87% of the total products available for concession under the FTA between Pakistan and China while Pakistan could only utilise 5%. On the contrary, the utilisation among the member states of the European Union (EU) is reasonably high. The report from the Commission to the European Parliament, showed that the EU utilisation of the FTA between Switzerland and EU in 2018 is about 80%. This report from EU was corroborated in another study carried out by Ecorys on The Netherlands in 2018, which showed that 83% of the respondents made use of FTAs in their import-export transactions while the remaining 17% do not use any form of FTAs in their international trade transactions.
Unlike the case in Europe, Australia and some other parts of the world, the situation in Africa is very different because of the very low intra-African trade which consequently leads to a much lower FTA utilization. For example, in 2015, only 18% of the total export from Africa were traded with other countries within the continent. This trend is also seen in all the regional FTAs within the continent. According to an UNCTAD report of 2018, the share of intraregional trade among countries that made up Southern African Development Community (SADC) was 20.7%. The next to this is Eastern African Community (EAC) which has an intraregional trade share of just 10.6%. This is very close to that of Economic Community of West African States (ECOWAS) which equally recorded very low intraregional trade share of 10.0%.
The question then is, why are some FTAs very successful while the others are not? Why have some FTAs failed to deliver the intended value? Why are many of the nations that are part of an FTA not getting to enjoy the benefits of the agreement? All these questions need to be answered in order to anticipate this challenge and design the strategies to mitigate them. This will be the focus of the next edition of this article. It is my hope that the government will adopt some of the recommendations that will be put forward at the end of these series of articles in order to ensure the AfCFTA creates the necessary jobs that will lift out of penury, the tens of millions of Nigeria that are currently living below the poverty line.
Ayemibo is Lead Consultant at 3T Impex Consulting Ltd. He is the first Certified Specialist in Demand Guarantee in Nigeria and among the first ten in Africa. He can be reached via [email protected] and 08036522946
