Jonathan Eze writes on the negative impact the Continental Free Trade Area Agreement could have on private businesses and the Nigerian economy
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, adopted a decision to establish a Continental Free Trade Area (CFTA) by an indicative date of 2017.
The summit also endorsed 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. The CFTA will bring together fifty-four African countries with a combined population of more than one billion people and a combined gross domestic product of more than US $3.4 trillion.
The main objectives of the CFTA 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 Customs Union. It will also expand intra-African trade through better harmonisation and coordination of trade liberalisation and facilitation and instruments across Africa in general.
The CFTA is also expected to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access and better reallocation of resources. The establishment of the CFTA and the implementation of the Action Plan on Boosting Intra-African Trade (BIAT) provide a comprehensive framework to pursue a developmental regionalism strategy. The former is conceived as a time bound project, whereas BIAT is continuous with concrete targets to double intra-African trade flows from January 2012 and January 2022.
However, the federal government has been advised to tread cautiously about signing the agreement because of the likely negative impact on private businesses and the countryâ€™s economy.
Recently, the Nigerian Labour Congress (NLC) called on President Muhammadu Buhari not to be cajoled into signing the proposed bill.
According to the President of the NLC, Mr. Ayuba Wabba, the probable outcome of the policy, if given life, may have a crippling effect on local businesses with attendant effects on jobs.
â€œWe have no doubt this policy initiative will spell the death knell on the Nigerian economy.â€ the NLC President submitted.
It expressed concern that the agreement, which is aimed at liberating the African economy by creating a free trade Area for all 55-member states of the African Union (AU) may end up doing more harm than good because of the sensitivity of the policy and its possible negative impact on the countryâ€™s economy and private owned industries especially.
An international trade expert and a former Director General of Nigeria Association of Chambers of Commerce Industries Mines and Agriculture (NACCIMMA), John Isemede, said that Nigeria will not really gain from the Free Trade Area if the agreement is signed.
Isemede noted that many of Nigeriaâ€™s trade agreements had even worked to its disadvantage due to poor export capacity in non-oil and low industrial capacity.
He said: â€œThere is a need to review trade agreements and policies at this time because most of the developed countries we see today grew by closing down their borders for a while.
â€œTake a look at AGOA for instance, for 10 years, only very few exporters have been able to export under the platform due to poor information and lack of proper documentation.
â€œWe have rice mills and farms that are barely functioning, except for the new intervention of the UNIDO and Bank of Industry to empower farmers and this apparently is not enough.â€
He advised the federal government to look at the critical details involved in the agreement adding that there must be a balance between import and export for a country like Nigeria to benefit from any trade agreements.
In the same vein, an investment expert and CEO of Allied Trust Systems Limited, Emeka Nwasike, said opening the borders of Nigeria will only expose local manufacturing industries in Nigeria, which are struggling to survive to undue competition. He added that at a time when other countries are developing policies of protectionism for the growth and survival of its local industry, Nigeria cannot afford to jeopardise the growth of its local industries by allowing a free trade policy.
On his part, a trainer in small business development, Mr. Henry Agbebire, said with the high rate of importation from other regions into Africa, the region may soon become a strait for imports against local manufacturing which is a major driver of growth in any economy.
â€œAlthough the focus of the CFTA agreement is to increase Africaâ€™s industrial and trade capacity however, nearly 85% of the goods traded in Africa come from outside the continent as against the 15% produced locally which has led to an annual food import bill of over $35 billion.
â€œThere is therefore a very high possibility that the region would become a conduit for imports against local manufacturing if the free trade zone is allowed operation in Africa and especially in a country like Nigeria. No wonder developed countries and neo-liberal institutions such as WTO, DFID, EU USAID, World Bank etc are very enthusiastic to finance the CFTA process because they know that it would open up the African markets to their exports and at the detriment of the growth of local industries.
â€œAccording to history, all developed countries today reached their competitive position through a high import protection on agriculture and other infant industries and as a result benefited from huge subsidies and exploitation of their Southern colonial countries, particularly in Africa for centuries. They created the condition to do it through import protection and it is only afterwards that they opened their markets to other countries. I wonder why Africa would want to do otherwiseâ€ he stressed.
He explained further: â€œCFTA has the tendency to reduce real income in Nigeria because, with the policy, the federal government will be forced to renounce to a non-negotiable source of income. Also, as African countries open up, competition will be increasing on the continental market. This will lead to trade flows such as African imports being reoriented because, partners located either on the continent or outside of the continent are being replaced by imports from African partners benefiting from better market access, thanks to tariff cuts, and potentially leading to terms of trade reduction.
Thirdly as world prices of food products slightly increase with the liberalisation reforms, net-food importing countries such as Nigeria will be hurt and their real income reduced.
Essentially, the general perception is that free trade can cause turbulence in sectors of a domestic economy, such as long-established manufacturing segments already vulnerable to global competition. According to Edward Alden, a senior fellow at CFR, wages have not kept pace with productivity of labor, and income inequality has increased–trends hastened to some extent by free trade.
Also, it has been argued that countries that have adopted free zone regimes have not succeeded in attracting foreign Direct Investment (FDI) than countries that do not have such regimesâ€
However, the African Union has committed itself to negotiating a (CFTA) with substantial trade liberalisation commitments coupled with strong adjustment and compensatory mechanisms to attend to potential losses. Thus CFTA negotiations are premised on the importance of enhanced trade integration and the economic benefits it would produce, on the one hand, with an equally important commitment to equity, justice and fairness particularly where liberalisation commitments undermine these values