In 2012, the African Union (AU) resolved to establish the African Continental Free Trade Agreement (AfCFTA). African Heads of State and Governments set a 2017 deadline for the treaty’s implementation. But, there is no consensus yet on the agreement as some member-nations have requested for more time to widen consultations on the treaty’s likely impact on their economies. OKWY IROEGBU-CHIKEZIE and CHARLES OKONJI write on AfCFTA’s implications for local manufacturers, the economy and Africa.
The African Continental Free Trade Agreement (AfCFTA) plans to take advantage of Africa’s 1.2 billion population and its more than $2 trillion combined Gross Domestic Product (GDP) to create a single continental market for goods and services.
But, those opposed to the treaty see it as an indirect colonisation from Europe, arguing that the move will give unfettered access to goods manufactured outside the continent into the market, thereby creating a dumping ground.
The AfCFTA treaty covers goods, services, investment rules and procedures on dispute settlement, including a range of provisions to facilitate trade, reduce transaction costs, provide exceptions, flexibilities and safeguards for vulnerable groups and countries.
Forty-five out of the 55 African countries have so far signed the treaty. Surprisingly, South Africa, that led the countries who suspected the treaty as not-too-good, made a U-turn two weeks ago to sign the agreement. It joined Rwanda, Niger, Angola, Central African Republic, Chad, Comoros, Congo, Djibouti, The Gambia, Gabon, Ghana, Kenya, Mauritania, Mozambique, Cote D’Ivoire, Seychelles, Algeria and Equatorial Guinea.
Others include: Morocco, Swaziland, Benin, Burkina Faso, Cameroon, Cape Verde, Democratic Republic of Congo, Guinea, Liberia, Libya, Madagascar, Malawi, Mali, Mauritius, South Sudan, Uganda, Egypt, Ethiopia, Sao Tome and Principle, Togo and Tunisia, among others.
The eight others yet to endorse AfCFTA are: Nigeria, Zambia, Tanzania, Burundi, Eritrea, Botswana, Lesotho and Namibia.
The United Nations Economic Commission for Africa (UNECA) has estimated that the agreement’s implementation could shore up intra-African trade by 52 per cent by 2022.
The agreement is expected to liberalise services and aims to tackle the so-called “non-tariff barriers” which hamper trade among African countries, such as long delays at the borders.
Free movement of people and the use of a single currency could become part of the treaty.
The Federal Government said it was delaying its signature to widen and deepen domestic consultations. It promised not to sign any agreement that will not fairly and equitably represent its interest and that of other countries in the continent.
Arguments for and against treaty
Some argue the treaty will impact on government revenue and social welfare. The elimination of all tariffs among African countries, they believe, will erode the trading states’ treasury by up to $4.1 billion annually and deepen poverty, with millions of Africans exposed to starvation and death.
Others, particularly among the poorer economies, are afraid the benefits in the free trade area may not be equitably distributed.
To the International Monetary Fund (IMF), Nigeria is the largest economy in Africa with a GDP of $405 billion and a population of about 180 million. It is also Africa’s largest market, followed by Egypt ($332 billion) and South Africa ($295 billion). But, criticisms trail the seeming positive body language of the Federal Government towards joining other countries in signing it.
Nigeria’s Chief Trade Negotiator /Director-General Nigerian Office for Trade Negotiations (NOTN), Stage 1 of the AfCFTA, Ambassador Chiedu Osakwe, said the treaty would create a single market, progressively reducing restrictions to trade in goods and services, based on the agreed modalities of a 90 per cent level of ambition, a 10 per cent exclusion and sensitive list, as well as identified priority sectors for trade in services.
Osakwe pointed out that the AfCFTA implementation has been estimated to boost intra-African trade from 16 per cent to 52 per cent by 2022, adding that Stage 2 of the AfCFTA negotiations would cover investment, competition and intellectual property.
Osakwe said: “The AfCFTA potential is considerable with an estimated population increase in Africa to 4 billion and a GDP increase of $25 trillion, by 2050. Any cost/benefit analysis of AfCFTA accession should estimate the cost of non-accession.”
At the forefront of those opposed to the treaty is the Nigeria Labour Congress (NLC). The congress has described signing the treaty as “extremely dangerous” as it would open the country’s seaports, airports and other businesses to unbridled foreign interference and domination.
NLC President Ayuba Wabba said that AfCFTA) will lead to massive job loss, closure of businesses and incapacitate local technological advancement.
He berated the Minister of Industry, Trade & Investment, Okechukwu Enelamah, for spearheading the agreement, which was roundly rejected when it was christened Economic Partnership Agreement (EPA).
In Wabba’s argument, the AfCFTA seeks to open Africa’s seaports, airports and other businesses to unbridled foreign interference. According to him, the Nigerian local business community and organised labour have not been consulted even when the government directed the promoters of the agreement to do so.
He said: “The drivers of this policy initiative, without consulting the relevant stakeholders for possible impact assessment, perfected plans to pressurise President Muhammadu Buhari to sign it.
“We at the NLC are shocked by the sheer impunity or blatant lack of consultation in the process that has led to this. We are more worried by the probable outcome of this policy initiative if it is given life because of its crippling effect on the local businesses and attendant effects on jobs.”
Wabba added that the NLC found it confounding that at a time nations, including the United States (U.S.) are resorting to protectionism in defence of their local businesses and protection of jobs, Nigeria and Africa have the audacity to want to fling open its doors, windows and rooftops.
He added: “We have no doubt this policy initiative will spell the death knell of the Nigerian economy. Accordingly, we urge Mr. President not to sign this agreement either in Kigali or anywhere. We believe our national interest is at stake and nothing should be done to compromise this.”
Manufacturers also kick
The Manufacturers’ Association of Nigeria (MAN) also rejected the move to sign the treaty until proper consultations and inputs of all interest groups have been received on issues concerning market access and enforcement of rules of origin were addressed.
MAN President Frank Udemba Jacob urged the government to continue to withhold its sign-on to the agreement until a credible outcome from an ongoing study initiated by the government on the matter was received.
He said that Nigeria could become the key driver of improved volume of intra-African trade if the rules of origin, countervailing measures, dispute settlement, amongst other, were addressed.
Dr. Jacob, however, reiterated that the only way to guarantee this positive proposition was to ensure that the negotiating team was guided by a credible and strategic study.
He said: “In the light of recent developments, we considered it necessary to intimate you (Federal Government) that an insignificant number of non-real sector operators in the private sector are tactfully recommending that Mr. President signs the agreement.
“MAN is not at home with the technicalities of a trade agreement of this magnitude. The pronouncement of this group of actors is not representative of the views of the Organised Private Sector (OPS) of Nigeria”.
He further stressed the need ensure that “the agreement is in sync and not constraining the nation’s extant economic policies, including the Nigeria Industrial Revolution Plan (NIRP) and the Economic Recovery and Growth Plan (ERGP).
The MAN chief reiterated that concerns on the implications of signing the agreement, which had been raised since March, had not been addressed.
His words: “We are concerned about the impact of AfCFTA on the nation’s tax structure, the government revenue, the welfare of over 180 million Nigerians and its impact on the industrialisation and economic development aspirations of Nigeria. For the avoidance of doubt, we again request that Mr. President should not sign the AfCFTA agreement until the outcome of a credible study so indicates.
“He should but graciously allow the nation’s team to resume participation in the negotiation processes only to ensure that the country is abreast of developments.
“This will not jeopardise or constrain the reservation of our assent, should we eventually decide that the agreement is definitely not in our favour.
“Rather, it will only mean that, whilst keeping our eyes on the goings-on, we can continue with our much-needed and sovereign path to determine whether we should sign-on or not.”
He lauded the clear demonstration of the commitment of Buhari and his government to the growth of the manufacturing sector; its preservation and the improvement of the wellbeing of the citizenry and the economy.
At a policy round table discussion on: “Business environment & excise duty: Maximising economic opportunities through effective anti-illicit trade enforcement” organised in Lagos by the Initiative For Public Policy Analysis (IPPA), experts cautioned that to curtail the activities and the ills of illicit trade ravaging the country’s economy, the government should not rush into signing the controversial AfCFTA.
They advised that government must not succumb to pressures to sign the agreement until some identified grey areas have been taken care of.
United Nations Industrial Development Organisation (UNIDO) Consultant John Isemede recommended the review of the composition of the 20-member committee where the Organised Private Sector (OPS) will take centre stage to explore the salient but critical issues like the nation’s comparative advantage to avoid making the country a dumping ground for goods and services as one of such issues that must be addressed.
Dr. Isemede, a former director-general of Nigeria Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) said: “The country is already overloaded with imports. I am not saying that the federal government should not sign at all, but to put the necessary infrastructure on ground, something to sell, something to offer before rushing into the agreement.
“For instance, the tea you sip comes from Kenya; the Titus fish you eat every day comes from Morocco; there is Shoprite here owned by South Africans; the fruits, vegetables, wines and other things sold there are imported from South Africa with the South African Airline. What is Nigeria bringing to the table and what are we going to sell?” Isemede queried.
According to the UNIDO consultant, the government should review the membership of the committee where the OPS will take charge in contrast with the current arrangement, get the transport sector up and doing, especially the rail system must be on track. This is in addition with more local industries looking towards export and the government possibly considering the re-introduction of commodity board to optimise the nation’s comparative advantage.
Isemede said: “You know that Nigerian market is the target because of the size. To me, signing AfCFTA without putting the necessary things in place and without more involvement of the OPS is like a landlord handing over his Certificate of Occupancy (CofO) to the tenant.”
The chairman of New Partnership for Africa’s Development (NEPAD) Business Group and former Lagos Chamber of Commerce and Industry (LCCI) President Mrs. Nike Akande, said Nigeria was not yet ripe for the AfCFTA.
She warned that Nigeria will become a dumping ground for all kinds of goods until its goods and services become competitive.
A Senior Research Fellow at IPPA and University of Aberdeen, United Kingdom (UK), Dr. Olajide Damilola, described Nigeria’s absence in the world ranking on IT as captured by the Global Illicit Trade Index (GITEI), the global body rating countries on illegal trade as worrisome.
The absence, according to him, is due to dearth of data. The situation is more precarious because the trade could be causing serious harm to the economy unnoticed and a big scare to prospective investors.
He said: “As an emerging economy laden with socio-economic obstacles, the challenges of doing business in Nigeria are several and these issues affect the growth of the economy as well as making it difficult to attract investors and successful investment.
“The challenges range from multiple infrastructural inadequacy, policy inconsistencies, corruption, insecurity, bureaucratic bottlenecks, infringements on rule of law and sometimes a lack of political will to implement business friendly policies.
“In such an adverse environment, companies operating legally as net economic contributors deserve government encouragement and protection of their goods and services from losing commercial viability to illicit perpetrators.”
According to him, the country must urgently work on the critical factors encouraging IT in order not to compound the problems of the economy.
“Some of the critical factors considered to be contributing to illicit trade are weak and unimplemented government policies, supply and demand of illicit products, transparency and trade environment and customs enforcement,” he said.
To address the problem, the research fellow advised that certain questions must be answered to properly direct policy at the fight.
He listed them as: “The government action or inaction that create incentives for illicit trade to thrive in the country; how do we benefit from illicit trade compare to the costs?; what categories of GITEI should Nigeria aim to improve upon; and whether the Netherlands approach (where when illicit drug market was on the increase, the government legalised it leading to a drop in hard drug market and crime rate) is practicable in Nigeria and Africa.
“The answers to these questions are very crucial to the fight as according to him, illicit trade is a global phenomenon whose solution should be global in nature, aimed at international cooperation and harmonisation of laws and regulations beyond borders, citing the global fight against money laundering as atypical example.
“A holistic approach is required which also involves strategies beyond the jurisdiction of a country,” he stressed, adding that there can be no single policy framework to address the problem but a case-to-case approach targeting products.
“Though illicit trade could be revenue source for some input suppliers, consumers having access to lower prices and greater brand variety, and sometimes translates into lower unemployment and less demand on public funds, its dangers outweighs such imagined benefits.”
According to him, the dangers include serious health risks to consumers, reduction of tax revenues and increase in instability, reduction of market share and capacity of local businesses.
“Others are possible brand image damage of illicit manufacturers and as underground economy, it does not reflect in the country’s GDP,” he added.
The Nigerian Association of Small & Medium Enterprises (NASME) President, Degun Agboade, said since the Small& Medium Enterprises (SMEs) constitute 80 per cent of the workforce as the engine growth of the economy, the government must explain and assure them that it will not hurt the local economy.
He urged the government to check smuggling, noting that if only approved goods and services are allowed into the country, it may attract gains from the advanced economies.
But, former President Olusegun Obasanjo expressed disappointment that Nigeria was not among the 44 signatories to the treaty in view of its pivotal role in promoting the vision.
By creating a single continental market for goods and services, the member states of the African Union (AU) hope to boost trade between African countries.
Intra-African trade is relatively limited; United Nations Conference on Trade and Development (UNCTAD), the main UN body dealing with trade, said it made up only 10.2 per cent of the continent’s total trade in 2010.
The Coordinator of the African Trade Policy Centre at UNECA, David Luke, hopes the free trade area will correct this “historical anomaly”.
He said: “Colonialism created a situation where neighbours stopped trading with each other. The main trading route was between African countries and European countries and between African countries and the U.S.”.
According to Luke, removing barriers to trade is expected to not just grow trade within Africa, but also grow relevant trade in the continent.
He revealed that between 2010 and 2015, oil represented more than half of Africa’s exports to non-African countries, while manufactured goods made up only 18 per cent of exports to the rest of the world, a UNECA report said.
“When you have this kind of economy, your young people cannot find jobs. And when they cannot find jobs, you see them trying to get to Europe and drowning in the Mediterranean,” Luke added.
He said that the free trade area will also make Africa more competitive outwardly noting that any of the African countries that can move further up the supply chain would be better placed in a global context as well.
What are the challenges?
After the cancellation of his trip to the signing of the AfCFTA, President Muhammadu Buhari said the decision was “to allow time for broader consultation.” But the NLC warned the President against signing the agreement which it called , a “renewed, extremely dangerous and radioactive neo-liberal policy initiative”.
Observers have, however, stated that Nigeria’s sudden stalling signals that not everybody is satisfied individual countries will be better off under the deal.
A research paper by UNCTAD concedes that elimination of all tariffs between African countries would take an annual $4.1 billion out of the trading states’ coffers, but would create an overall annual welfare gain of $16.1billion on the long run.
But there are fears that the benefits of the free trade area could be unevenly distributed.
A programme officer at Third World Network Africa, Sylvester Bagooroo, believed the treaty laid much emphasis tariff cut without sufficient consideration for the production capabilities of member countries.
He said the continent’s advanced countries will take advantage of the treaty to push their products, goods and services to less-developed nations.
“If you don’t build on productive capacities, when you liberalise, you are only going to be trading imported goods across Africa, and that will be a big blow to domestic manufacturing across the continent,” Bagooroo said.
Cautioning that attention should be paid to the big economies against the small economies, he said: “We need to pay attention to the dominant sectors against the weaker sectors.”
A research fellow at the Brookings Institution’s Africa Growth Initiative, Eyerusalem Siba, described the idea as a welcome development, but doubted the readiness of Africa for such.
He advised on the need to develop a more skilled workforce adaptable to the demands of globalisation and at the same time create social policies for those who will lose jobs due to increased competition.
“It’s a good idea to integrate eventually, but are we ready for it? Not every expert I have spoken with agrees with it,” she said.
Way forward
Experts described the AfCFTA as an important step to integrate African economies, boost intra-African trade and attain sustainable development in the continent in line with the African Union Agenda 2063 and global goals on sustainable development.
They, however, argued that liberalisation of trade in goods and services may entail adjustment costs for the AU member states that have been outweighed by significantly higher long-term gains.
Two long-term scenarios have been predicted. One scenario eliminates all tariffs on intra-African trade. The other allows the permanent exemption of sensitive products from tariff liberalisation.
It is hoped that African countries can benefit from expanded markets for African goods and services, free movement of factors of production and more efficient allocation of resources to promote economic diversification, technological progress and human capital development.