On the African Continental Free Trade Area

40 African countries sign free trade agreement in Rwanda

By LakinbofaGoodluck

On Wednesday 21stMarch, 2018 a landmark event took place in Kigali, Rwanda when 44 out of 54 African Heads of State signed the African Continental Free Trade Area (AfCFTA) agreement, which is a significant step towards an economically integrated Africa. Conspicuously, the presidents of the two economic powerhouses of Sub-Saharan Africa, Nigeria and South Africa, were absent. Botswana, Lesotho, Namibia, Zambia, Burundi, Eritrea, Benin, Sierra Leone and Guinea Bissau were also absent.

The African Continental Free Trade Area, which is an integral part of African Union’s Agenda 2063, was conceived to increase intra-regional trade thatis currently between 10and 15 percent of Africa’s total commerce. The main objectives of the agreement are to create a single continental market for goods and services, with free movement of business persons and investments; and thus pave the way for accelerating the establishment of the Continental Customs Union and the African customs union.It is also aimed at expanding intra African trade through better harmonization and coordination of trade liberalization and facilitation regimes and instruments across Regional Economic Communities (RECs) and across Africa in general.AfCFTA is intended to resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes. The final objective is to enhance competitiveness at the industry and enterprise level by exploiting opportunities for scale production, continental market access and better reallocation of resources.Essentially, the overall objective of the agreement is to create a “One African Market”.

The idea of a free trade area in Africa is not a recent venture. Historically, it dates back to the Lagos Plan of Action, adopted by Heads of State in 1980 which culminated in the Abuja Treaty, establishing the African Economic Community in 1991. Following this, a decision to establish an African Continental Free Trade Area with an indicative date of December 2017 was adopted at the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union, held in Addis Ababa, Ethiopia in January 2012. Additionally, the Summit also authorised the Action Plan on Boosting Intra-Africa Trade (BIAT)which identifies seven clusters: trade policy, trade facilitation, productive capacity, trade related infrastructure, trade finance, trade information, and factor market integration. Whilst the AfCFTA is a time bound project scheduled to take off in December 2017, the BIAT is continuous with concrete targets to double intra-African trade flows from January 2012 and January 2022.

The importance of economic integration and continental trade cannot be overemphasised. The proliferation in the number of such initiatives points to the importance of integration and cooperation. China recently launched the One Belt and One Road (OBOR)to create the world’s largest platform for economic cooperation, policy coordination, trade and financing collaboration, and social/cultural cooperation in the Asian region. As an instance, the European Union, which instituted free trade among members as one of its founding principles, is currently the world’s biggest trader accounting for 16.5% of the world’s imports and exports. With 27 member countries (excluding the UK), the EU is the world’s biggest single market area. The union is the world’s biggest exporter of manufactured goods and services, and it is the biggest import market for over 100 countries.

Laudably, the move by the African Union is potentially set to displace the EU as the single market. With a population of 1.2billion and a combined Gross Domestic Product (GDP) of $2trillion, the African Continental Free Trade Area is the biggest trade agreement since the formation of the World Trade Organisation (WTO). According to estimates from the United Nations Economic Commission for Africa (UNECA), the implementation of the agreement could lead to an increase in intra-African trade by 52 percent in 2022 when compared to what it was in 2010. To facilitate trade, the agreement requires member-countries to removing tariffs on 90 percent of goods, with 10 percent of “sensitive items” to be phased in later. In his address, President Paul Kagame of Rwanda said “What is at stake is the dignity and well-being of Africa’s farmers, workers, and entrepreneurs, particularly women and youths.The promise of free trade and free movement is prosperity for all Africans, because we are prioritising the production of value-added goods and services that are “Made in Africa”. The idea of “Made in Africa” clearly resonates with the “Made in Nigeria” mantra that is being promoted by the Nigerian government. However, if the philosophy behind the AfCFTA is similar to the prevailing direction in Nigeria, the question then is why has Nigeria suddenly refused to sign the agreement? Could it be that “Made in Africa” is actually in dissonance with “Made in Nigeria”?

According to the Ministry of Foreign Affairsthe President Buhari cancelled his planned trip to Rwanda for the AfCFTA “to allow more time for input from Nigerian stakeholders”. Events preceding the cancellation suggest that the president may have bowed to pressure from some quarters that fear the agreement could become counterproductive to Nigeria’s business growth. The Nigerian Labour Congress (NLC) had indicated its opposition to the agreement in a statement signed by the president, AyubaWabba. The statement reads: “We at the Nigeria Labour Congress 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 local businesses and the attendant effect on jobs.“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.”

Whilst the fears of the labour union may be valid, it is worrisome that Nigeria, which coordinated initial negotiationsthat led to the Free Trade Area agreement, has chosen to suspend its ratification to allow for extensive consultation that was not done since 2015 when negotiations forthe agreement commenced. Many factors are responsible for the opposition against the agreement, but the dominantuneasiness is predicated on the import-dependent status of Nigeria. The manufacturing sector in the country is still struggling, and the Small and Medium Enterprises (SMEs) are fighting to overcome the many constraints bedevilling their businesses. In actual fact, the AfCFTA may not be overly beneficial to Nigeria in the immediate, considering our current production capacity and export readiness. To understand this reality, the performance of Nigeria in the Africa Growth Opportunity Act (AGOA) of the United States may help in envisioning the possible effect of AfCFTA on Nigeria. AGOA was enacted on 18 May 2000 under the administration of President George W. Bush to enhance market access to the US for qualifying Sub-Saharan African (SSA) countries.The legislation allows 38 African countries including Nigeria to export 7,000 product lines tariff and quota free to the US market. In essence the trade act allows Nigeria and other Sub-Saharan countries to access a market of 325.7 millionpeople and a GDP of $18.57 trillion, which are the main characteristics – population and size of the economy – of an attractive single market. Despite the enormous opportunities AGOA offers, Nigeria’s total exports to the United States since the enactment of the Act, is put at $6 billion with petroleum products accounting for nearly 70% of Nigeria’s exports. A comparative analysis shows that other African countries have taken better advantage of AGOA to grow their manufacturing sectors. For instance between 2016 and 2017, Ghana saw its exports under AGOA increased to more than $300million while Nigeria could only increase to $9million in the same period. Effectively, it is only logical for manufacturers and owners of small businesses to feel some jitters that if the Nigerian market is opened up for other African countries, local products and businesses might be disproportionately challenged.

Nevertheless, the reality is that the world is moving at an unprecedented speed. Nations no longer embrace protectionism as an economic strategy because there are clearly more benefits in economic integration and free trade. Opting out of the African single market simply means the marginal Nigerian businesses and manufacturers that are willing to do exports across the continent will not have access to the huge market that AfCFTA offers. But the harsh truth is that Nigeria may never be ready to take advantage of transnational economic agreements of this nature until we fix our infrastructural challenges, initiate favourable economic policies and reprioritise spending. Manufacturing has continued to deteriorate in the country primarily owing to the colossal infrastructural degeneration and inconsistent government policies. Until we fix the challenges, we will continue to spearhead laudable continental initiatives but never ready to tap into the inherent benefits. It may be reasonable to opt out of the CFTA in the immediate because of our current manufacturing state. However, for how long are we going to remain in this embarrassing and backward state of unpreparedness? In any case, we have remained an import dependent nation without the AfCFTA; backing out of a single African market will not turn things around in the immediate. We may be losing more in the long term than what it appears we are gaining in the short term. The rest of the world left us behind years ago, now Africa is about to leave us behind.

 

  

Copyright 2017 Ships & Ports Ltd. Permission to use quotations from this article is granted subject to appropriate credit given to www.shipsandports.com.ng as the source.