A study by the United Nations Economic Commission for Africa has found that Nigeria will account for over 21 per cent of an estimated aggregate revenue loss of over $2 billion that will be incurred by the African Economic Partnership Agreement (EPA) regions in the first year of the EPA’s implementation. Yet, the European Union (EU) is cajoling the country to sign the agreement. Experts at conference organised by the London-based Africa Today believe this is a time for Nigeria and other African countries to collectively protect their own destiny. OLUKOREDE YISHAU examines the case for and against the EPA
It looks good. Some say beautiful. But, deeper insights seem to suggest that its beauty depends on who is looking at it and from what prism. It has even been likened to a deal between giants and dwarves, or sharks and sardines—whichever way, the dwarfs and the sardines will be the losers. The giants and sharks will have the last laugh.
This is the story of the Economic Partnership Agreement (EPA). It is the baby of the European Union (EU).
On paper, it is meant to break trade barriers between Nigeria and other African countries and EU countries. For the EU, Nigeria and other African countries should have jumped at it a long time ago. But they have not. And EU is not finding it funny. It is cajoling them to join the train of this legally binding bilateral contract between the EU collectively and each country in Africa.
The EU may be running out of patience. On October 1, last year, it withdrew market access to African countries “in the absence of substantial EPA progress”. Vulnerable African nations are feeling this blow. Bigger blows may be on the way in the form of higher tariffs on exports from Nigeria and others. The implication of this is that their products will become uncompetitive, leading to loss of jobs and foreign exchange. Good examples are Ghana and Cote D’Ivoire which signed an Interim EPA in 2007 on the threat of loss of their access to the EU market. The result of this single action was the existence of four different trade regimes in West Africa.
A candidate for the Commonwealth Secretary-General, Sir Ronald Sanders, believes the EU is unfair to Nigeria and others. He shares the sentiment of Nigeria and others on the EPA. In a keynote address at the EU-ECOWAS Economic Partnership Conference in Abuja late last month, organised by Africa Today in partnership with the Bank of Industry (BoI), Sanders said the EPA was about the future of the African continent, its resources, and its people.
“It is no puzzle to me that Nigeria has expressed reservations about the EPA which it is being cajoled to sign. Nigeria – like the rest of Africa – has an obligation to itself to protect its own destiny. It has the responsibility to determine its path not only for the present, but for the future and for generations yet unborn,” he said.
He said with the vast improvements in Africa’s economic growth and development prospects, there should be no qualms about it emerging as the next leading source of global economic growth. But, its handling of the EPA, said Sanders, would either aid or mar its growth.
Also speaking at the EPA conference, Emeritus Professor of Economics, University of Ibadan and Chairman, Centre for Trade and Development Initiative (CTDi), Prof. Ademola Oyejide, buttressed Sanders’ position.
He said the decision of the Economic Community of West African States (ECOWAS) to endorse the EPA after a decade-long negotiation has generated a raging debate in Nigeria.
“The fact that Nigeria has not signed the agreement appears to indicate that no mutually acceptable closure to the debate has been found,” he said.
The reasons behind the big debate on the EPA are legion. Things are simply in bad shape. And anything that could mean additional revenue loss is a threat to its well-being. Although Nigeria rebased its Gross Domestic Product (GDP) to $510 billion and became the biggest economy in Africa, the oil sector still dominates the economy. The dependence on oil continues to place that feat on shaky grounds because it has no control over oil price.
“This is evident in the impact of low oil prices which dropped to about $56 per barrel in 2015, from a peak of $107.89 per barrel in June 2014. The naira has lost more 30 per cent of its value, our stock exchange remains in troubled waters and the latest casualty is Nigeria’s annual growth rate which is expected to grow at an average of 6.4 percent in 2015 prior to the oil crisis, has now been revised to four per cent by the World Bank, and it could get worse,” said the Permanent Secretary, Ministry of Industry, Trade and Investment, Abdulkadir Musa, at the Africa Today/BoI conference.
It is not just oil that has posed a challenge. Iron ore prices were down 50 per cent and rubber prices down 37 per cent from their 10-year averages.
The landmines
With such economic woes, which made states unable to meet their financial obligations, experts believe, the EPA could worsen things, if not properly handled.
Sanders and Oyejide lay bare the pitfalls of the EPA. To Oyejide, signing the agreement means Nigeria has traded off the existing non-reciprocal and preferential market access concessions for an asymmetrical arrangement.
“In this context, ACP countries would have immediate 100 per cent duty-free access to the EU market for their exports. In return, ACP countries would grant to EU exports increasing duty free access to their markets for up to 80 per cent of their EU imports; with the complete duty free access being achieved over 20 years,” he said.
Sanders observed that with the highest GDP in Africa standing at $521.8 billion while the EU’s is $18.526 trillion, the European countries are better placed to benefit from the EPA.
He said: “To cast that situation in stark terms, the GDP of the EU last year was $18.526 trillion. By comparison, on the African mainland, the smallest country is The Gambia whose GDP in 2013 was $903 million – a miniscule fraction of the GDP of the EU.
“Even if we compare the GDP of Africa’s largest country by population – Nigeria – with the EU, Nigeria’s GDP is $521.8 billion while the EU’s is $18.526 trillion.
“From these figures alone, it is obvious that, in the event of a dispute, the much larger resources of the EU collective would so dwarf the capacity of any African, Caribbean or Pacific country that it would surrender to the EU long before the fight could begin.
“Realistically, therefore, the dispute mechanism has not much value beyond the paper on which it is written. This is typical of much of the EPA.
“Already, what is emerging is the inequality of the relationship between the EU collective and the individual nations of Africa, the Caribbean and the Pacific with which agreement is being sought on the basis of reciprocity.”
He said the EPA on face value creates the impression of fairness. But that the fairness pales into insignificance because the deal is not between equals.
“Between factors of unequal strength and capacity, ‘reciprocity’ is more than unfair; it is unjust. If you put a heavyweight and a featherweight in a boxing ring, have you staged an equal contest? Is the short-sightedness of this demand for reciprocity, not obvious? You would have thought the Europeans would know better; and of course they do,” he said.
He made reference to the attempt of the African, Caribbean and Pacific (ACP) Group for proportionality, especially through the Lomé and Cotonou agreements. These were between the EU and the ACP.
Sanders said: “The fundamental challenge with “reciprocity” is that Africa and Europe are not equals in the economic domain. It is a case of giants and dwarves, or sharks and sardines. This very region – West Africa – is about eighty times smaller than the EU in terms of GDP. By contrast, Europe holds most of the cards: market power , financial power , and negotiating power .
“In short, the EPAs could see African countries being swamped by European goods for despite the talk about ‘reciprocity’, it simply is not possible for African companies to compete within their own countries (let alone Europe) with much larger and well-resourced European companies.
“The relative fairness of the Lomé and Cotonou agreements – the latter will expire in 2020 – is being abandoned by the EU in favour of the unfairness of reciprocity in the EPA.
“It is an abandonment made easier because the three regions of the ACP group that previously negotiated as one, allowed themselves to be divided into six – then sub-divided into individual countries. The unity that was their strength became division and their weakness.”
The EPA, he said, would lead to loss of revenue for Nigeria and other African countries. He cited a UN Economic Commission’s report which shows that Nigeria would account for over 21 per cent of an estimated aggregate revenue loss of over $2 billion to be incurred by the African EPA regions in the first year of implementation.
The implication of such revenue loss, he said, could include raising value added tax and income tax, or indebtedness through further borrowing from the international markets.
Oyejide believes Nigeria should have opted out of the EPA with the clear landmines on the way. He said there was enough evidence even before the start of negotiations, which should have been used by Nigeria to activate the opt-out button.
“Almost without exception, fairly detailed the impact studies carried out in the course of the EPA negotiations confirmed virtually all of the strong negative effects in the particular case of Nigeria which the earlier, less comprehensive pre-negotiation studies had shown. Clearly, therefore, what seems surprising about Nigeria’s position towards the end of the negotiation is not the nature of the evidence provided in support of the country’s position, but the fact that each and every component of this evidence was widely known well before the negotiation began, and should have been used to opt out of the EPA negotiation ab initio,” he said.
Way out
Sanders feels the time had come for Nigeria and other countries in Africa to fast-track the implementation of regional trade agreements that will prevent the diversion of intra-African trade to Europe.
This integration agenda, he added, should be accompanied by concrete measures to promote industrialisation, including regional value chains, and trade-enabling infrastructure to connect people, goods, and markets.
He also advised African countries to ensure that the EU provides sufficient aid for trade and development assistance to implement the EPA, adding that they would require sufficient adjustment support to address any adverse impacts, including fiscal impacts, arising from the implementation of the agreements.
Sanders also advised that to address the EPA puzzle in Africa, African countries should coordinate the finalisation of the EPAs negotiations across the five blocks (and possibly also with Northern African countries under the Euro-Mediterranean partnership).
“There should be no encouragement of beggar-thy-neighbour policies that would cause companies to skip from one country to another so as to enjoy short-term access to the EU market. African solidarity is vital,” he said.
Oyejide sees the way out from a different angle. As far as he is concerned, Nigeria should opt out of the agreement, adding that it has ample evidence to do so.
He said: “If Nigeria decides not sign, there will be plenty of strong evidence in support of that decision. It will, of course, also be clear confirmation that Nigeria failed to do what a responsible country should have done in relation to this issue over the last 15 years! This speaks volumes about the country’s understanding of and capacity to negotiate trade agreements. Steps should then be taken to do whatever is necessary to quickly eliminate the deficit because there are other on-going trade negotiations; and the continental free trade area (CFTA) negotiation has been launched- The EPA mistakes must be avoided in all current and future trade negotiation. The credibility of Nigeria is at stake.
“One of the strong reasons for Nigeria to stay out of the EPA is that the economy should first fully internalise the adjustment costs associated with the CET implementation before taking on another set generated by significant trade liberalisation that would come with the EPA. Two key features have not been taken full account of in the EPA debate. First, Nigeria‘s trade regime is significantly more protectionist than those of other ECOWAs member countries. Second, the UEMOA countries established their CET in 2000 and have therefore had 15 years over which to spread their adjustment costs. Any attempt by Nigeria to overlay the EPA-related adjustment costs on top of the CET-related one over the relatively short period envisaged by the EPA would not be advisable. The bottom line is this. If Nigeria decides, quite wisely, not to sign the EPA, the country should lead ECOWAS in the search for technical fixes that can be used to implement and sustain the key elements of the ECOWAS CET in the context of a situation in which other ECOWAS countries decide to sign the EPA.”
The Fed Govt’s position
Musa is of the view that any economic agreement ECOWAS endorses must make the economies better, stronger, more competitive and not weaker.
He added that Nigeria expects the EPA to facilitate high level of investment, enhance industrialisation and regional development.
“The twin issues of revenue losses and the impact of EPAs on the development of our industrial sector must be addressed,” he said, adding: “These two issues are critical to our region’s development and will be impacted by EPA liberalisation. Nigeria has been witnessing serious challenges in terms of declining customs revenue as well as the structural transformation of our economies. We believe that these issues are critical not only to Nigeria, but also for other ECOWAS countries, given our demographic challenges and the need for us to create millions of jobs for our populations. We must therefore stand together to address these issues in the EPA or any other agreement by the region.”
He continued: “The region needs to protect our nascent industries and address fundamental constraints to competitiveness before it can compete with advanced economies. The EPA should not hinder or frustrate our industrial development and structural transformation requirements and strategies.”
Musa said Nigeria’s call for a reconsideration of the classification of the sectors in the market access offer has merit.
“So far, in Africa, the EU has sealed deals with African regional grouping which include the Southern African Development Community (SADC), the Economic Community of West African States (ECOWAS), and recently the East African Community (EAC) but CEMAC and the Pacific are yet to seal an agreement. Considering the relative weight of the concluded issues, particularly, as it bothers on the regional economic growth and development, Nigeria objected to the EPA in its current form notwithstanding the consensus reached,” he said.
Certainly, the content of the agreement as agreed to by the ECOWAS is yet to place Nigeria appropriately. And as the struggle continues, the people should come first. The way to ensure that is to see to it that fairness, proportionality and of partnership that will endure long into the future rule the game.
