The much-anticipated African Continental Free Trade Area (AfCFTA) seeks to integrate, diversify and industrialise African economies of about 1.3 billion people with a combined GDP of $3.4 trillion. But, these possibilities are being undermined by the COVID-19 pandemic, as border closure, travel bans and other containment measures enforced by Nigeria and other African countries to curb its spread impact on economic integration and intra-African trade. To manage the uncertainties around the Agreement, experts are pushing for proper strategies and policies, including building a robust digital economy as wedge. Assistant Editor CHIKODI OKEREOCHA reports
IT is arguably, the most ambitious and strategic push to build an integrated, diversified and industrialised continent capable of holding its own in the global economy. With its promise of creating a continental trade bloc of 1.3 billion people across Africa, with a combined Gross Domestic Product (GDP) of about $3.4 trillion, the African Continental Free Trade Area (AfCFTA) is easily the world’s largest trade agreement since the creation of the World Trade Organisation (WTO) in 1994.
The AfCFTA was adopted by the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union (AU) in Addis Ababa, Ethiopia, in January 2012. The trade liberalisation deal is expected to create a Continental Free Trade Area (CFTA) for goods and services in Africa, liberalise and facilitate the free movement of people, investments and businesses across the continent, while also signaling a step towards building strong regional value chains.
The Agreement was seen as an important milestone in promoting Africa’s regional integration and helping to boost intra-African trade, which is currently at 16 to 17 per cent, by more than 52 per cent, worth about $35 billion per year. And it hopes to achieve these by committing African countries to phasing out tariffs on 90 per cent of goods, with 10 per cent of “sensitive items” to be phased out incrementally.
However, these immense possibilities promised by the continental project, which has Nigeria tipped as its biggest potential beneficiary, given her nearly 200 million population and huge market for trade, are now at risk because of the crippling effects of the COVID-19 pandemic.
Containment measures such as border closure, travel bans, and in some cases, total or partial lockdowns, enforced by most African countries, including Nigeria, to curb the spread of the deadly virus have directly impacted on economic integration and intra-African trade, which are at the core of the free trade deal.
Already, the restrictive measures, which came at a time the AfCFTA was in its critical phase of implementation, have forced the scheme’s implementation originally scheduled to begin on July 1, 2020 to be moved to January 1, 2021. And the delayed implementation has thrown up a number of uncertainties around the Agreement, requiring policymakers to come up with proper strategies and policies to mitigate the risks.
For instance, the demand for essential commodities such as pharmaceutical and agricultural products is said to have weakened export in the face of measures adopted by governments to manage the spread of the virus. By implication, the demand for essential commodities is on the increase, resulting in scarcity, which ultimately, pushes up prices and unhealthy competition amongst producers and exporters.
With this, experts at professional services company PricewaterhouseCoopers (PwC Nigeria) expressed fears that “Rather than strengthen economic integration, economic development in Africa had been undermined.”
It is easy to see why this is so. Trade liberalisation is expected to improve economic activities with the CFTA in terms of trade and investment. But as things stand, all negotiations on tariff concessions are currently on hold due to the pandemic as countries are more focused on saving lives and preserving livelihoods.
This is said to have created uncertainties particularly for Low Developing Countries (LDCs), as tariffs form a huge percentage of their revenue. Such uncertainties, according to those knowledgeable about the deal, cannot be negotiated at a pace required to foster trade liberalisation.
This is because the pandemic has paused all forms of contact and collaborations in negotiating key aspects of Phase I of the AfCFTA (i.e. Rule of Origin {RoO} and Schedules of Tariff Concession), which are necessary for trading under the agreement to begin.
The RoO is used to determine the country of origin of a product for the purpose of international trade. It is a critical issue that requires prompt negotiations in order to determine which products can be exempted from tariffs.
Recall that the establishment of the AfCFTA is being progressed in two phases. Phase I has been completed except for two issues: RoO and Schedules of Tariff Concession. Negotiations on Phase II, which are still on-going, include protocols on competition policy, investment and intellectual properties. Such protocols are also expected to be delayed.
Fears over food insecurity
Nigeria and other African countries with low per capita income depend on agriculture for their export earnings. The dependence on extra-regional trade imports for food makes African countries vulnerable to disruptions in international logistics and distribution.
This, PwC pointed out, could result in food shortages and an increase in food prices. The COVID-19 pandemic, it also said, has created a crucial demand risk, especially within Africa’s poor population because there is no efficient manufacturing and agricultural sector to improve self-sustenance within the continent. This has increased the risk of food insecurity and exposed the continent to heavy reliance on external aids.
Also worrisome is the fact that the demand for Nigeria and other African countries’ raw materials and commodities in Asia, Europe and North America has declined. The continent’s access to industrial components and manufactured goods from these regions has also been hampered.
It was hardly unexpected. The pandemic has driven the global economy into recession, which in turn resulted in significant drop in demand for African commodities; like agricultural products (such as barley, palm oil, sugar, cocoa bean, cotton, and maize), industrial metal (such as copper, iron ore, nickel, lead, aluminum, and zinc), precious metal (such as gold), and energy (such as natural gas, coal and oil) etc.
This will also affect demand for trade and services within the aviation, financial and telecommunications sectors.
However, the effect on African economies including Nigeria is expected to worsen as supply chains remain disrupted and the value of exports from the region reduces due to drop in demand from international trade partners such as Asia and America who are worst hit by the virus.
“In addition, poor testing facilities, inadequate Personal Protective Equipment (PPEs) for frontline health workers and congested communal settings could worsen the effect,” PwC said, in its latest report titled “COVID-19 and the African Continental Free Trade Area Agreement: Key Considerations.”
The report, which was obtained by The Nation, further noted that apart from causing further uncertainty in a continent already grappling with widespread geopolitical and economic instability, the pandemic could widen the competitive gap between African economies and further undermine the competitiveness of smaller economies that are largely mono-cultural and unable to attract Foreign Direct Investment (FDI).
A disrupted regional value chain
The CFTA seeks to improve industrial development that can benefit continental sustainability especially in the agricultural sector.
But this, according to development experts, can be possible when participating states upscale their industrial and manufacturing sectors which in turn increase the GDP from processing imported raw materials within the CFTA to semi-finished or finished goods for export either within the CFTA or outside.
Sadly, however, the COVID-19 outbreak has weakened the possibilities for a regional value chain as industrial development during the pandemic seems to be a secondary alternative for most low-income African economies based on revenue.
Turning crisis into opportunity
While the pandemic is bad news for Nigeria and other partnering countries wishing to leverage the AfCFTA to become globally competitive, the consensus of experts is that the rampaging bug could be turned into a “blessing in disguise” if proper strategies and policies are put in place by the various countries.
PwC said, for instance, that through the AfCFTA, Africa has an opportunity to reconfigure its supply chain, reduce its dependence on external partners and speed up the establishment of regional value chains that will boost intra-African trade.
“By doing this, African economies can improve their GDP by domestic value added on processed import within the CFTA that can be exported within or outside the continent,” the report said, adding that if given a chance, the regional value chain will grow African economies in Southern and Northern Africa where manufacturing activities are highest in the continent.
It however, said economies in Central, Eastern and Western Africa can plug into this value chain by upscaling their manufacturing sector while becoming competitive within the CFTA to benefit in growth potentials.
For Nigeria, the opportunity of up-scaling the manufacturing sector is more obvious and compelling. The President of African Export-Import Bank (Afreximbank), Professor Benedict Oramah, believes, for instance, that one of the benefits of the deal waiting for Nigeria to grab is the possibility of taking over from China as the world’s manufacturing hub.
Prof. Oramah, who spoke at a recent public lecture in Lagos, cited Nigeria’s rising middle class, as well as her rapid urbanisation, which, according to him, will expand demand for manufactured goods.
He said it is projected that Nigeria’s urban population will reach 264 million by 2030, which is equal to 15 per cent of the projected population in that year. “These will spur demand for critical infrastructure, housing, processed food, fast moving consumer goods (FMCGs) and a host of other light manufactures,” Oramah said.
Continuing, the Afreximbank boss emphasised: “It is the manufacturing industry that will supply these items. Related to the foregoing is the gradual exit of China from labour intensive light manufacturing. Today, Nigeria and Africa respectively import $1 billion and $43 billion of light manufactures from china.
“As China shifts to more capital-intensive manufacturing due to rising labour costs, those goods have to be supplied by somebody. Nigeria and indeed, the entire African continent will have themselves to blame if this projected supply gap is filled from outside the continent.”
Speaking on the topic, “From Commodities to a Global Manufacturing Hub: The Road Ahead for Nigeria,” Oramah added that since manufactures account for about 60 per cent of total intra-African trade, intra-regional trade in manufactures can rise to more than $150 billion by 2022.
While noting that “The opportunity for African manufacturers is, therefore, phenomenal,” the Bank Chief specifically said the preferences that AfCFTA offers can make Nigerian manufactured goods more competitive in many African markets and can also make it possible for integration into regional and global supply chains.
That is not all. PwC also said maximising the potentials of the AfCFTA will be an effective shock absorber if the global economy remains depressed by the pandemic and its uncertainty, adding that it will also make Africa an attractive proposition when the global economy turns around.
In fact, where manufacturers and other stakeholders on the continent see challenges and uncertainties around the AfCFTA, PwC sees a silver line on the horizon. Listen to its team of experts led by Partner Taiwo Oyedele: “The crisis has shown the importance and opportunities for African economies in the digital economy.
“The AfCFTA initiative should not be slowed down, instead it is essential to conclude negotiations on services schedules to allow vital industries to grow, develop domestic solutions and drive regional value chains.
“A consolidated market system will be crucial to ensure that African countries have relative collective power in terms of numbers and bargaining power in the post COVID-19 global economy.”
Digital economy holds the ace
The firm recommends building a digital economy to foster production of higher quality goods and services at reduced costs. This, according to it, will open new channels for value addition and broader structural change.
PwC stated that the way to go is to develop and/or upgrade the digital infrastructure, digital financial services, digital entrepreneurship and digital skills that are thematic pillars of the Digital Economy for Africa (DE4A) to encourage trading digitally across individuals, Small and Medium Enterprises (SMEs) and governments.
The firm was emphatic that countries that can get this development requirement could compete effectively within the CFTA, noting that clearly, Information Technology (IT) support was not considered as an essential service during the lockdown.
“Each government needs to review its Information Technology plan in line with economic digitalisation before trading in the CFTA begins in 2021 as it is now clear that globalisation has gone online,” the report said.
It noted that one important question Nigeria must ask in these uncertain times is how its digital economic strategy – National Digital Economy Policy and Strategy (2020-2030) proposed by the Ministry of Communication and Digital Economy and The Smart Nigeria Digital Economy Project proposed by the Nigerian Government can sustain economic interactions and development in the face of a pandemic.
Such question, according to the firm, was imperative because the CFTA will be competitive. This, The Nation learnt, is so because countries like Egypt with three active digital strategies (National E-Commerce Strategy, Strategy for Social Responsibility in ICT, and Digital Arabic Content Strategy) would have an edge over countries in the market with weak or no digital framework to support trade in goods and services within the market.
Will Nigeria rise to the challenge in the digital space? While answer to this remains in the realm of conjecture, stakeholders are optimistic that going by recent assurances by the Minister of Communications and digital economy, Dr. Isa Pantanmi and the CEO, Nigerian Communications Commission (NCC), Prof. Umar Garba Danbata, Nigeria may emerge strong on the digital economy space before the scheme’s January 1, 2021 new kick-off date.
Pantanmi and Danbata had last week assured that the Federal Government was on course to achieving its digital economy aspiration. That was at the virtual inauguration of Kaduna Emergency Communication Centre (ECC) built by the NCC and five information technology projects by other agencies under the ministry.
Besides, the Federal Government has taken bold steps to demonstrate its commitment to the success of the Agreement by putting different measures in place. For instance, President Muhammadu Buhari, on July 28, 2019, approved the establishment of a National Action Committee (NAC) for implementation of AfCFTA Agreement.
The NAC is comprised of representatives of Ministries, Departments and Agencies (MDAs) with competent and relevant jurisdictions as well as selected stakeholder groups from the private sector and the civil society to coordinate the implementation of all the AfCFTA readiness interventions. The Minister of Industry, Trade and Investment, Otunba Niyi Adebayo, is the Chairman of the Committee.
Other steps taken to position Nigeria to benefit fully from the deal include the implementation of economic policies to attract investors, promote ease of doing business in Nigeria and accelerated activities promoting economic growth and development; launch of a new visa policy where citizens of other African countries will now be issued visa upon arrival in Nigeria as against having to apply for Nigerian visa in their respective countries.
The Federal Government also moved a notch high by implementing different economic stimulus and palliative measures to cushion the effects of the pandemic, including the deferment of tax due date for filing tax returns by companies, waiver of import duty on pharmaceutical and medical supplies etc.
While the new crisis may be another challenging time for Nigeria and other partnering countries, some of the steps so far taken to mitigate the risks are pointers to the collective resolve of African people to see themselves differently and the world to consider the African continent as a partner in finding solutions to complex problems such as COVID-19.
By extension, they are also indications that after the pandemic has ended, the continent will have the chance to become more autonomous and self-reliant, having laid the foundations of economic reforms that give priority to African markets, innovation and local manufacturing.
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