President Muhammadu Buhari’s recent refusal to sign the African Continental Free Trade Area (AfCFTA) generated a lot of controversies. While the private sector and the labour unions backed the president, liberal-minded economists and analysts felt that it was an opportunity missed. Should Nigeria still go ahead and sign this free trade deal, or should it ignore it? What are even the key elements of this free trade deal? Who benefits and who loses from it? This report examines these burning questions and more, and provides answers to them.
Forty-four African leaders emerged from Kigali on March 21 animated. It was a momentous day in Africa’s history. They were in Kigali to ink three documents that would make or mar the continent: African Continental Free Trade Area (AfCFTA), the Kigali Declaration and the Free Movement Protocol.
Not all of them signed the AfCFTA, but all wanted Africa to trade more with each other.
South Africa’s new president Cyril Ramaphosa penned the Kigali Declaration but wanted more time to ratify the two others. He, however, pledged commitment to signing the trade deal after consulting with relevant local stakeholders.
“South Africa is committed to the establishment of the African Continental Free Trade Area (AfCFTA),” Ramaphosa said in his address.
“Tell my daughter and my son that their father was there on the day our continent signed the African Free Trade Area in Kigali,” he continued.
“Tell them that Paul Kagame, Amadou Issoufou, Emmerson Mnangagwa and Moussa Faki Mahamat were there too.
“Tell them their father was proud on the day African borders were removed; tell them they live in a proud, vibrant and prosperous continent, because you, their uncles and aunts were vanguard pan-Africanists who brought down the walls left by colonialists, maintained by imperialists.
“Tell them, if their grandparents fought for their political independence, you achieved their economic freedom.
“Tell them to be proud and free, tell them to live where they wish, from Lagos to Addis, Durban to Cassablanca, unhindered.
“Tell them that Kigali isn’t their home, but only their place of origin; Africa is! Tell them their father would have wished them to speak Igbo and Wolof and Kiswahili and Amharic and Zulu. Tell them he would have wished them to know how to cook Jolof, pap /fufu/ugali, and Thieboudienne,” Ramaphosa said in obvious excitement.
Like Ramaphosa, Tanzania’s Prime Minister Kassim Majaliwa ratified the Declaration but not the two others.
Morocco’s Prime Minister Saadeddine Othmani signed the free trade deal but not the other two. Kenya’s Uhuru Kenyatta signed the three. Ghana’s President Nana Akufo Addo said ‘yes’ to the three. Most of the heads of small African countries, including Niger, Rwanda, Chad, Senegal, Sudan, and Equitorial Guinea, among others, signed the three.
“This is a great day for our continent,” Donald Kaberuka, former president of the African Development Bank, said.
“And for any country to have reservation or fears is a disappointment. The way this agreement has been negotiated and written contains segments to ensure that whoever has issues, those can be addressed,” Kaberuka said.
He could, understandably, be referring to Nigeria, which opted out of the three agreements at the eleventh hour.
Like Kaberuka, Olusegun Obasanjo did not spare Nigeria and its handlers.
“I am surprised that any African leader at this point in time will be talking about either not understanding or not very important to be here to support what we are signing. I see that as criminal.”
Nigeria’s last-minute absence
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, African heads of state agreed to kick-start the free trade treaty in 2017.
On the home front, preliminary work was done by the Ministry of Industry, Trade and Investment during the administration of former President Goodluck Jonathan.
Olusegun Aganda, then industry, trade and investment minister, mobilised the private sector, preparing them for the treaty.
BusinessDay published stories relating to this free trade deal in 2014 when the Ministry of Industry, Trade and Investment embarked on sensitisation programmes for the private sector, including exporters and manufacturers. Several sensitisation and training sessions were held in Lagos and Abuja.
Full-blow negotiations were launched by the African Union Heads of States and Government in June, 2015, while the agreement was drafted in late 2017. In early March 2018, the negotiating forum—including Chiedu Osakwe, DG of the Nigerian Office for Trade Negotiations—met for the tenth time to finalise outstanding matters and conclude legal scrubbing in preparation for the signature of the agreement on March 21, 2018.
Nigeria had no problem with the deal as Osakwe, Okechukwu Enalamah, industry, trade and investment minister, and Geoffrey Onyeama, foreign affairs minister, were all convinced that AfCFTA was a good deal for Nigeria, and they advised President Muhammadu Buhari to ratify it.
Buhari then agreed to sign at least two out of the three treaties, notably the AfCFTA and the Kigali Declaration.
The federal cabinet had, one week before, approved the deal, saying that it would boost the Nigeria’s export, spur growth, boost job creation, eliminate barriers against locally made products and provide a dispute settlement mechanism for stopping the hostile and discriminatory treatment directed against the country’s natural and corporate business persons in other African countries.
Few days to D-day, however, Buhari backtracked on the opposition of the Organised Private Sector (OPS) who said they were not consulted. The private sector said some of the clauses in the AfCFTA could annihilate the Nigerian economy if left un-discussed.
Key elements of AfCFTA
Okechukwu Enelamah, Minister of Industry, Trade and Investment
The AfCFTA is easily the largest trade agreement since the World Trade Organisation (WTO) in 1994. It is a flagship project of Africa’s Agenda 2063, targeted at creating a single market for Africa’s 1.2 billion people and exposing each country to a $3.4 trillion opportunity.
It is meant to create a single market for goods and services on the continent, including a customs union with free movement of capital and persons as the focus.
The AfCFTA is expected to raise Africa’s nominal GDP to $6.7 trillion by 2030 if all the countries sign up.
The treaty will liberalise 90 percent of products manufactured in Africa, meaning that a country can only protect 10 percent of its local industries.
Countries are expected to develop and submit schedules of concessions for trade in goods. This implies that they will submit the particular 90 per cent of products that are to be liberalised and the excluded products that are to be exempted from liberalisation. These are goods considered ‘sensitive’ by each country.
Negotiators are currently developing product-specific rules of origin. The rules of origin determine where a product was made. Products or goods from outside the continent will attract the requisite tariffs according to country-specific laws and customs specifications.
The General Agreement on Tariffs and Trade (GATT) Article XXIV says that tariffs will be eliminated based only on goods originating in the customs territories making up the free trade areas. Rules of origin are essential for easy identification of goods and are like passports for products to enter a free trade area and circulate without duties or tariffs. GATT is a guide to international trade and represents an agreement between many countries on trade in goods and services.
African countries have an average tariff of 6.1 percent, which means that businesses face higher tariffs when they export within Africa than when they export outside it. The AfCFTA will progressively eliminate tariffs on intra-African trade, making it easier for African businesses to trade within the continent and cater to and benefit from the growing African market.
There will be mutual recognition of standards, licensing and certification of service suppliers. This will help businesses and individuals to satisfy the regulatory requirements of operating in each other’s markets.
Nigeria, like other African countries, will lose part of its revenue coming through customs duties. A research done by the United Nations Conference on Trade and Development (UNCTAD) shows that African countries will lose $4.1 billion from elimination of all tariffs. However, the free trade deal will create an overall annual welfare gain of $16.1bn in the long run.
It must be pointed out that the AfCFTA document signed at Kigali is not yet in force in any country because what was signed was the first legal instrument required for this process.
Geoffrey Onyeama, Minister for Foreign Affairs.
Another round of negotiations will soon begin and they will deal with Protocols on Trade in Goods, Trade in Services, Intellectual Property Rights, Investment and Competition.
A total of 22 ratifications are required to establish a free trade in Africa and only two documents have been signed so far—the AfCFTA and the Free Movement Protocol, and not all countries have signed up.
At the conclusion of AfCFTA negotiations within 18 months, agreement will be signed and shall enter into force after ratification by 22 member states.
According to Gerhard Erasmus, Trade Law Centre associate, Regional Economic Communities will not disappear. This means that Economic Community of West African States, Community of Sahel Saharan States, East African Community, and Arab Maghreb Union, among others, will still remain.
The AfCFTA will have its own institutions. They are the Assembly of Heads of State and Government, the Council of African Ministers responsible for Trade, the Committee of Senior Trade Officials and the Secretariat.
It must also be pointed out that the treaty is not only about trade in goods but also trade in services. What this means, in a nutshell, is that there will also be liberalisation of services in the long run, in a way that a Nigerian lawyer can offer legal services to someone in Libya without facing restrictions imposed by local laws.
One of the elements of the AfCFTA is the intellectual property and rights, which is a non-tangible property resulting from creativity.
The Intellectual Property Rights is one of the 22 documents that will be negotiated and agreed by African countries. This is expected to generate some controversies as African countries are seen as not respecting patents and copyrights.
More so, the AfCFTA has made provision for the establishment of an African Business Council, which will serve as a continental platform for aggregating and articulating the views of the private sector in the continental policy formulation processes.
However, this council will play an advisory role and will comprise major regional trade associations, including manufacturing and small and medium scale enterprises (SMEs) groups and women entrepreneurship organisations.
A provision has also been made for an African Trade Forum, which will discuss and cross-fertilise ideas on the progress and challenges encountered in the continental market integration.
According to the African Union Foundation, flexibility shall be accorded to member states with special trade needs, specificities and circumstances.
The AfCFTA equally accords special and differential treatment to flexibilities in transitional periods for liberalisation, and exemptions.
Similarly, the trade deal will establish and administer a dispute settlement mechanism, which will handle technical matters and ensure protection of sovereignty and good neighbourliness of member states.
There is a special recognition of women in the whole process. A mechanism is being put in place to address women’s specific challenges in order to facilitate equality and their active participation in domestic, regional and international trade.
In general, the agreement has ambitious long-term goals of deepening integration among AU member states.
According to UNCTAD, the main objectives of the CFTA are the facilitation, harmonisation and better coordination of trade regimes as well as the elimination of challenges associated with multiple and overlapping trade agreements across the continent.
Arguments for AfCFTA
Proponents of the African free trade treaty say that it will lower trade costs and allow Nigerian and African consumers to have access a large variety of products at lower prices.
They say trade liberalisation will help Nigerian manufacturers to access imported raw materials and intermediate goods at lower costs, which will lower production costs and enable them to compete better.
They point out that it will allow local firms to access a large continental market and gain from economies of scale, adding that it will increase intra-African trade, which is scratching 15 percent.
Opeyemi Agbaje, chief executive officer of RTC Advisory Services Limited, explains that the AfCFTA is a big economic imperative, which will expand intra-African trade beyond traditional trade partners of Europe, Asia and America.
“It is a
positive development for us and this is a time for the real work of ensuring deepening of intra-African trade. There is a significance
need to increase trade.”
Agbaje notes that it will increase dynamic, informal and flexible intra-Africa trade, empowering the majority of African business and traders still largely informal.
“Nigeria and other African countries will see to greater increase in integration of financial sectors activities, wherein banks in Libya, Cameroon, Morroco will see more expansion and integration in various countries.
“Also, there will be increase in transportation infrastructure, and inter-connecting African countries by rail and road infrastructure to
deepen intra-African Trade and other forms of trade facilitation.
“Moreso, visa on the point of entry will be facilitated and continental protocols and immigration issues would be enhanced on
the heels of this development. It is a harvest of benefits,” Agbaje says.
Rafiq Raji, chief economist at Macroafricaintel, explains that a market of more than 1.2 billion people with a combined GDP of over $2.2 trillion is a far stronger bulwark against limiting external trade forces than the tiny ones that inevitably get overwhelmed in negotiations with humongous countries such as America, Britain and China.
“When compared with intra-regional trade in other continents – 67 percent in Europe, 58 percent in Asia and 48 percent in North America – intra-African trade is quite low,” Raji says.
Quoting the Cairo-based African Export-Import Bank (Afreximbank), Raji says intra-African trade grew by eight percent in the first nine months of 2017; with Guinea, Ethiopia, Burkina Faso, Equatorial Guinea, and Sierra Leone in the lead. He states that this was better than the marginal 0.6 percent growth to $156.94 billion recorded in 2016,.
Mathew Ibeabuchi, chief executive officer of MD Services Limited, a manufacturing and services firm, says the free trade deal will eliminate challenges associated with multiple and overlapping trade agreement across the continent while opening up more opportunities for Nigerian SMEs to expand operations.
“It will enable us to be more effective and allocate resources efficiently. In other words, a free trade treaty will simply wake us from deep slumber,” Ibeabuchi said.
“We have been too complacent, protectionist and lax whenever issues about free trade are raised.
“I do not know why we are afraid to compete on the continent, when we are the most populous and has the biggest economy.
“For goodness sake, we are in the first 11 in manufacturing in the continent. Apart from South Africa, and maybe Egypt, Kenya and Ethiopia, we are next.
“We must understand that we are competing within Africa. So, all we need to do is to negotiate grey areas and move on.
“It will also have a positive impact on services. Services constitute 50 to 52 percent of Nigeria’s gross domestic product, so we will benefit much more. Like you have in the European Union (EU), big countries like Germany and France benefitted from integration, immensely. This is exactly the way it is. It is even the small countries that should be afraid,” he explains.
He adds that it will stimulate cooperation in technology and innovation as well as in infrastructure.
Tilewa Adebajo, an economist, believes the trade deal will open a door of progress for Nigeria.
“We are the largest economy in Africa and when something like this is happening, we have to take the leadership role,” Adebajo told Channels TV.
“The total value of trade within Africa is about 1.7 trillion. If we get into this agreement, we are going to create a trading zone worth about $3.5 trillion with a population of about 1.2 billion which is highly competitive than that of the European Union.”
Akinwumi Adesina, president of the African Development Bank and Nigeria’s former agriculture minister, believes that it will stimulate intra-African trade by up to $35 billion per year, creating a 52 percent increase in trade by 2022, and a vital $10 billion decrease in imports from outside Africa.
“This is Africa’s time and Africa can no longer be ignored. Africa’s food and agriculture market will hit $1 trillion by 2030. Household consumption will hit $2.5 trillion, with business-to-business expenditure at $3.5 trillion by 2025. There’s no doubt, Africa is where to invest,” Adesina says.
The African Union says it will reduce vulnerability of countries to external trade shocks by reducing the trade balance deficits of African Countries. Nigeria suffered shocks from oil price crash from the second half of 2014, reaching its peak in 2016. This led to severe foreign exchange scarcity and inability of manufacturing companies to have access to inputs and spare parts needed at factories.
Arguments against AfCFTA
Frank Udemba Jacobs
Call them protectionists or conservatives, opponents of the AfCFTA believe that Nigeria is not yet ripe for it, arguing that signing it is tantamount to signing away the country’s future.
Leading this group is the Manufacturers Association of Nigeria (MAN), which says that inability of the free trade proponent to provide answers to raging questions makes the deal bad at the moment.
“What would be the impact of AfCFTA on the nation’s tax structure, government revenue and the welfare of over 180million Nigerians? What will be the impact of AfCFTA on the political-economic, industrialisation and development framework of Nigeria?” MAN asks.
“What would be the fiscal and monetary implications of AfCFTA on Nigeria? What are the justifications for agreeing to the proposed movement of 90 percent of tariff lines to zero duty?
“What would become of non-tariff charges, incentives, waivers and exemptions currently operational in Nigeria? What will be the fiscal implications of AfCFTA on the income of Governments and Regional Economic Communities? How will non-tariff charges viz-a-viz non-African countries be treated under the AfCFTA regime?
“What is the agreed time frame for the gradual but progressive movement of 90 percent of tariff line to zero percent duty? Which product lines have been agreed for liberalisation, to be on exclusion and sensitive lists?”
Frank Udemba Jacobs, president of MAN, says absence of plausible answers to these vital questions left the association with no option than to call on the Federal Government to be cautious of making binding commitments on AfCFTA.
Jacobs says Nigerian manufacturers are afraid of the treaty because of the tough environment in which they operate, caused by high cost of energy, poor infrastructure and multiple taxes. He says the sector cannot currently compete effectively in a free trade situation effectively in its present state.
He recommends that government set in motion a process that will enable all stakeholders on the international trade value chain in Nigeria to quickly review the text of the draft AfCFTA agreement and come up with comments on areas that are not in the best interest of the Nigerian economy and sectors.
He urges the government to consider tariff lines rates along the line of efficiency, sectoral and sub-sectoral preferences that would be most beneficial to Nigerian businesses under the AfCFTA dispensation.
One of the major fears of MAN is the moves being made by Morocco, a North African country, which has already signed the Economic Partnership Agreement (EPA) with Europe. The EPA is a free trade deal proposed by the European Union to West Africa, which allows Europe to liberalise export from West Africa and vice versa after a given period.
MAN has vehemently opposed the EPA, saying that it is a trade treaty between two unequal groups. MAN believes Europe is targeting to flood Nigeria with its products, and subsequently destroy the local manufacturing sector.
Already, Morocco is applying to join the Economic Community of West African States (ECOWAS) despite being located in North Africa. This, to MAN, is suspicious and a ploy to force EPA on Nigeria.
The major fear of manufacturers, therefore, is that Europe will smuggle products to Morocco via AfCFTA and the products will be branded ‘Moroccan’. Such unfair and dirty trade practices are rife on the continent, opponents of free trade say.
Muda Yusuf, director-general of the Lagos Chamber of Commerce and Industry (LCCI), says the AfCFTA is a good dream, especially in the light of the numerous benefits of a larger market. Yusuf, however, points out that a liberal trade regime within the continent poses a major risk to the Nigeria manufacturing sector.
“The Nigerian Industrial sector is highly vulnerable because of its weak competitiveness. Manufacturing in Nigeria is burdened by profound infrastructure challenges and high cost of fund, which put tremendous pressure on their production and operating cost.
He says Nigeria’s industrialisation strategy rooted in import substitution does not position the manufacturing sector for competition in the regional, continental or global market place.
“The sector does not have an outward-looking or export-oriented disposition. Therefore, exposing the Nigerian industrial sector to international competition may be the undoing of the sector. This poses a major dilemma for our trade policy. While economic integration is desirable because of the attraction of larger market, we need to worry about the implications for our weak industrial sector.”
Yusuf says the way forward is to strengthen the competitiveness of the Nigerian industrial sector, stating that only then can the country get value from being part of a continental free trade agreement.
“Besides, some African countries already have trade treaties with countries outside the continent. This means that products from outside of the continent may penetrate the entire continent under a CFTA regime. These are some of the issues that may have informed the current equivocation on the signing of the Africa CFTA by Nigeria.
“The summary is that trade can only be beneficial if we are in a good competitive position to be part of it. We need to review our industrialisation strategy from the disproportionate dependence or protectionism to a policy choice of focusing on building the capacity of the manufacturing sector for competitiveness. This is what can create an enduring industrial sector in Nigeria. This is also in tandem with the Nigeria Industrial Revolution Plan (NIRP), which underlines the significance of resource-based industrialisation strategy. This is a model that stresses local value addition, robust linkages and competitiveness.”
Labour unions are also in pooposition of the free trade deal. Ayuba Wabba, president of Nigeria Labour Congress (NLC), says at a time countries, including the United States (U.S), are resorting to protectionism in defence of their local businesses and job protection, the country is trying to fling its doors, windows and roof tops open.
“This will spell the death knell of the Nigerian economy. The AfCFTA, rather than unite Africa, will only divide it the more. Rather than enrich Africa, it will only pauperise it the more.
“Nigeria is not only an importer nation, but also an economy with weak infrastructural base, which increases the cost of the products produced in Nigeria,” Didi Adodo, general secretary, United Labour Congress (ULC), a faction of the NLC, says.
“If signed, the AfCFTA will only encourage industrialised countries to use other African nations to push their products to the Nigerian market, thereby killing locally produced goods. We reject it in its entirety.”
In his article in several newspapers, Henry Boyo, an economist, says even if all the safeguards proposed by MAN and other groups are put in place, it will still be unsafe for Nigeria to sign.
“Nigeria’s economy will continue to be uncompetitive and falter until lower single digit inflation rates and cost of funds prevail. Invariably, lower cost, import substitutes will continue to flood our markets and keep operations well below full capacity, in local factories,” Boyo says.
Ayuba Wabba, NLC president
Opponents of the free trade deal say the free movement of persons, which is among the Protocols to be ratified, could worsen Nigeria’s security risks. Nigeria is already pummelled by Boko Haram, herdsmen and all forms of crimes, and allowing free movement of persons could open doors to African—based terrorist groups and also worsen smuggling.
South Africa vs Nigeria
It is important to note that South Africa is yet to sign the free trade deal, though it is committed to it. Like Nigeria, South Africa is aware that many Africans are seeking ways of illegally entering the country at every slight opportunity. Similarly, goods and services are falling head over heels to enter Africa’s second biggest economy.
Ramaphosa is careful not to sign the treaty without inputs from all major stakeholders in his country.
To sign or not to sign?
To determine whether Nigeria needs to sign or not, let us look at the European Union (EU) as a model.
A once disaggregated Europe came together in Maastricht, Netherlands, on November 1, 1993, to form a formidable free trade union made up of 28 countries with a GDP of $18.4 trillion, making it the second largest economy in the world after the United States.
A study published in July of 2014 by the Bertelsmann Stiftung, a German foundation, showed that German real GDP jacked up at an average of €37 billion per year since 1993, translating into a yearly income rise of €450 per person. Danish citizens’ yearly income rose by €500 over that same period.
One study showed that over ten years (1993-2003), the single market swelled the EU’s GDP by €877 billion (£588 billion). This represented €5,700 [£3,819] of extra income per household.
Free trade and removal of non-tariff barriers have cut costs and prices for European consumers, which is why they are looking for new markets everywhere. Many firms have achieved economies of scale. More than 52 percent of UK exports are linked to the EU. Trade within the EU has increased 30 per cent since 1993, and
inward investment from outside the EU rose from €23 billion (£15.4 billion] in 1992 to €159 billion [ £106.5 billion) in 2005.
Despite Brexit moves by the UK, studies show that up to 10 percent of all employment opportunities in that country are directly linked to the EU.
Checks show that EU member states own the estimated second largest net wealth in the world after the United States. They own 25 percent ($72 trillion) of world’s wealth as of 2016 against United States’ 33 percent.
]Twenty-seven out of 28 EU countries have a very high Human Development Index, which is rated by performances in education, health and income, according to the United Nations Development Programme.
The euro is today the second largest reserve currency as well as the second most traded currency in the world after the United States dollar.
On the flipside, the recent poor economic situation in Greece and other EU countries hit big countries like Germany hard and almost dragged them into debts. There are issues like loss of sovereignty of member countries as well as sharp practices.
However, economic benefits of integration far outweigh its downsides as seen in the EU’s case. It is true that European countries had had strong manufacturing and trade sectors before the EU was formed, which placed members at an advantage to trade with each other. This is different from Africa, where member countries’ manufacturing sectors and economy are relatively much weaker. However, the question is, how many African countries really have stronger manufacturing and trading sectors than Nigeria? The number is less than 10, which means Nigeria can still fare better than many African economies. Nigeria, like France, Spain and Denmark, stands a better chance than Malawi, Central African Republic, Cameroon and at least 42 other countries on the continent in trade competitiveness.
Also, MAN and other private sector organisations have raised questions regarding the operations of the AfCFTA. However, these questions are already factored into the 20 remaining discussions that will commence in earnest. Nigeria’s president acted on the premise that these questions were not catered for at all, but some of the assumptions and fears had earlier been considered by the AU.
The truth is that whether Nigeria signs the AfCFTA or not, these African products will definitely find their way into the country either by hook or by crook, being the largest market on the continent. Smuggling is already a gargantuan challenge for Nigeria and refusal to sign AfCFTA will only more than quadruple it.
We believe that Nigeria should sign the AfCFTA but must renegotiate the percentage of local products that will be protected. We believe that 10 percent is insignificant, considering the sensitivity of some industries such as pharmaceuticals to national security. We also believe that rules of origin must be clearly negotiated and spelt out to checkmate sharp practices that may emanate from outside the free trade area.
Nevertheless, the argument should not be limited to trade and manufacturing, but must be extended to the services sector. Many banks, insurance firms, shipping companies, lawyers, doctors, educational institutions, writers and teachers will find new opportunities with AfCFTA in place, which will have a positive impact on employment and standard of living.
It is a shame that the private sector was not carried along throughout the negotiation period. This should not be encouraged as even the AU considers the private sector an integral part of its trade policies.
BusinessDay believes that signing AfCFTA is a no-brainer as it will bring bigger gains for Nigeria if properly negotiated.
Nigeria cannot continue on its protectionism for long as the wind of globalisation is blowing from all corners.
What is needed now is a set of incentives from government targeted at cutting production costs and enabling Nigerian manufacturers to compete better.
Tags: Free trade