EconomyFront Page

AfCFTA’s Deals And Nigeria’s Economic Growth. Manasseh Paul- Worika

‘Let me state unequivocally that trade is important for us as a nation and to all nations. Economic progress is what makes the world go round. Our position is very simple; we support free trade as long as it is fair and conducted on an equitable basis. Africa therefore needs not only a trade policy, but also a continental manufacturing agenda. Our vision for intra-African trade is for the free movement of Made in Africa goods. That is, goods and services made locally with dominant African content in terms of raw materials and value addition’.

Those where the words of President Muhammadu Buhari after signing the African Continental Free Trade Area (AfCFTA) Agreement at the Mid-year coordination meeting of the African Union and 12th Extraordinary summit on AfCFTA held in Niamey, Niger Republic recently.

The AfCFTA came into force in May 2018 after clearing a key procedural hurdle before ratification by the parliaments of 24 countries. It aims to bring all 54 members of the African Union (AU) together in a single market of 1.2 billion people by removing trade barriers such as tariffs across Africa.

The deal is expected to boost regional trade and allow companies to expand and enter new markets. Manufacturing industry currently accounts for only about 10% of the African Union’s combined GDP of $3.4 trillion and the trade deal could make the sector more competitive and productive.

All says that the African Continental Free Trade Area (AfCFTA) will create the world’s largest free trade area. It also estimates that implementing AfCFTA will lead to around a 60% boost in intra-African trade by 2022.

It is important to get it clear and in simple terms that free trade agreements are designed to cut trade tariffs between member countries. Tariffs are a form of tax, like a border tax placed on goods coming into a country for a range of reasons, sometimes to try and protect a home-made product. The “purest” Free Trade Agreement (FTA) removes all border taxes or trade barriers on goods. They get rid of quotas too. So there is no limit to the amount of trade to be done.

FTA’s also helping make a country’s exports cheaper and give easier entry to other markets. They come in all sorts of forms and with different rules but in short, they make trade between countries as liberal as possible and allow for more rules-based competition.

Nigeria had initially refused to commit, saying it needed to consult with domestic stakeholders before making a decision. Various concerns were raised which included the exposure of the already struggling local manufacturing sector to undue competition. According to the Manufacturers Association of Nigeria (MAN), the agreement will lead to job losses and increase unemployment amongst others.

The Federal Executive Council (FEC) last year approved the signing of the deal, which it said would boost the country’s export, spur growth and boost job creation as well as eliminate barriers against Nigeria’s products and provide a dispute settlement mechanism for stopping the hostile and discriminatory treatment directed against Nigerian natural and corporate business persons and other Africa countries. The President’s decision to initially put off signing the framework agreement for establishing the AfCFTA following protests by Major Labour Unions, last year, was on the heels of the warning that the deal would harm the economy.

A year and four months after his refusal to sign the agreement, upon due considerations with relevant stakeholders the president declared through the senior special Assistant to the President on Media and Publicity, Mallam Garba Shehu, that he would be signing the phase one of the AfCFTA agreement at the Mid-Year Coordination Meeting of the Africa Union and 12th Extraordinary Summit of the African Union in Niamey, Niger Republic.

Shehu, in a statement, said Buhari approved the recommendations of the Presidential committee on the Impact and readiness Assessment of the AfCFTA, agreement.

The statement read, “By this, he will be signing the phase one of the agreement in the course of his attendance at the Mid-year coordination Meeting of the African union and 12th Extraordinary Summit on AfCFTA in Niamey, Niger Republic. A country that signs the first level will then go into country level discussions leading to treaties after safeguards are agreed to”:

X-raying the unique essence of the framework agreement for establishing the AfCFTA, it is noteworthy that the AfCFTA is a brainchild of the African Union to deepen regional integration. It had been in the works since January 2012 – with Nigeria as one of its major promoters. However, local labor unions and big corporations have always been against it.

The agreement entered into force on 30th May 2019, within 14 months after its signature on 21 March 2018 in Kigali. It was negotiated in just over two years. Whilst the motivation towards closer economic integration is poised to change Africa forever, some experts see the entry into force of the AfCFTA as a truly momentous event.

The irony is stark, that amidst current global trade wars, Africa is now the torch bearer of multilateralism and open economic. However, African economic integration is developmental integration, designed to promote structural transformation, rather than being a traditional free trade area (FTA) obsessed primarily with market liberalization.

AfCFTA seeks to cover goods and services and has complementary programmes for infrastructure, industrialization, agriculture modernization, small scale trade, as well as innovation, intellectual property, competition and investment.

There has never been a better time to invest and trade in Africa. With a combined GDP of US $ 6.7 trillion in purchasing power parity, business and consumer spending at US S 4 trillion, over 400 companies with revenues of over US$ 1 billion, 60 per cent of the world’s arable land and vast strategic minerals, Africa seems ready to truly take off.

For African political, private sector and-intellectual leadership, the call of duty and question on the lips of all is that, does the framework guarantee or ensure that this trajectory is irreversible, and that decent jobs and incomes are equitably generated from increasing trade and investment.

Dissecting the benefits of the framework and what Nigeria must do to lead the pack in Africa, Dr. Jonah Akekere of the Department of Economics at the Niger Delta University, Bayelsa State said Nigeria has a large market and hence stands to benefit from the AfCFTA. Furthermore, Akekere believed Nigerian businessmen and entrepreneurs would have access to the African market, where they can buy and sell.

“As the largest concentration of black people in the world, Nigeria must lead by example in championing the cause for trade among African countries as well as pave the way for the continent to industrialize through trade. AfCFTA provides an opportunity for Nigeria’s private sector to explore and exploit the African market,” he said.

However, Akekere, noted that the downside is that Nigeria may be either a dumping ground for products from emerging economies or may be a point of re-exporting goods from China. He tasked public officials to ensure strict compliance with the rules and regulations governing trade in Nigeria, suggesting that policies must be put in place to ward against “dumping”.

In the words of Akekere, “Given the huge amount of smuggling into the Nigerian market, it is unlikely that import barriers would save uncompetitive Nigerian companies from the potential competition from other parts of Nigeria.”

In his analysis, Dr. Freeman Oigoli, of the Department of Political Science (Political Economy major), at the Niger Delta University noted that while the main benefit of AfCFTA to Nigeria is opening up most of the African market to companies based in Nigeria, the flip side is that companies from other parts of Africa will have nearly unrestricted access to the Nigerian market.

Oigoli cautioned; “With most trade barriers reduced, Nigerian companies would need to be very cost effective and competitive with their Africa 1 counterparts if they are to gain, rather than lose market share.”

“This is where the Nigerian government would need to quickly remove internal barriers that make operating in this country expensive. Issues like steady and cost effective power supply, efficient ports, good roads and rail transport, lower corporate and local taxes etc. Unless these barriers are eliminated, many Nigerian companies might struggle to hold on to their local, protected market and loose share to new entrants from Africa,” he added.

Beyond the signing, would Nigeria and its leaders truthfully harness this crop and build a sustainable inter-generational institutional memory for Nigeria that will keep the impetus into the future.

Concerning implementation, “the government must ensure that there are qualified officials with the provision of continuous training. Furthermore, this provides the need for recruiting competent hands to drive the implementation of the free trade arrangements,” Oigoli posited.

According to experts, before trade can actually happen under AfCFTA, the following should be in place; trade documents, tariff schedules, rules of origin and a system for addressing non-tariff barriers.

Countries need to be able’ to issue and process especially the new AfCFTA customs declarations and certificates of origin. And the private sector including the logistics industry needs to be familiar with and have confidence in these documents.

This is in addition to the universal trade documents, and product-specific regulatory documents, especially for agricultural and chemical products. Tariff schedules should be in place. Without them, one would not know the payable customs duties under AFTA on the 5,000 or so tradable products.

It is envisaged that bilateral negotiation of tariff offers would be too complex and take an overly long time. Every member state/customs territory would therefore be compelled to just produce a tariff schedule without further delay, covering 90 per cent of the products on which the tariff phase down is to commence immediately.

Nigeria, as the continent’s most populous nation and largest economy, has an important role to play as the “engine room” of the intra-Africa trade. For Nigeria, agreeing to sign this agreement will be of great benefit to all Africans.  With the elimination of trade barriers under this treaty, Nigeria will have the opportunity to harness most of its own resources that might be needed in some other African countries.

In 2017, export to other African countries accounted for 12 percent of Nigeria’s total export and only 4 percent of its impact came from other African countries, according to Nigerian government data. Nigeria mainly exports petroleum to other African countries. South Africa has been Nigeria’s largest trade partner in Africa, both in import and export. 

The country mainly imports polymers, fertilizers, prepared binders, and frozen fish from other African countries that are not members of the Economic Community Of West African States, of which Nigeria is the powerhouse. These products are subject to import duties.

With the removal of trade barriers through this treaty, Nigeria stands to gain a lot from new markets for its product. But to gain more from the AfCFTA, government must focus on investing in the industrial sector to ensure that goods and services manufactured in Nigeria meet up international standard.

Furthermore, focus has to placed on empowering local industries to ensure that local industries are not placed on undue competition with manufacturers from other African countries. This will enable the production and exportation of standard products. At large, the fear of Nigeria being a “dumping” zone for other African produced goods and services can be checked.

It is vital that Nigeria commit to continue improving institutional capacities to efficiently tax and redistribute the gains from the CFTA. This includes integrating and harmonizing regulatory measures, eliminating non-tariff barriers to trade and investment, and facilitating the entry into the formal economy.              

Leave a Response