For the past 18 months, Nigerian Stakeholders were able to reach a common ground on the need to get on the African Continental Free Trade Area (AfCFTA) train, believed to spur growth, boost job creation as well as eliminate barriers against Nigerian products and allow for free movement of “made in Africa’’ goods. President Muhammadu Buhari has taken the bold step by deciding to sign the framework agreement for establishing AfCFTA today. Adedayo Adejobi writes on the unique essence of the alliance, benefits and implications for Nigeria’s economy as well as the eternal challenge of duly implementing the initiative by the federal government
It is no news that Nigeria’s President Muhammadu Buhari, at the 30th Ordinary Session of the Assembly of the Heads of State and Government of the African Union in Addis Ababa, Ethiopia January last year, announced Nigeria’s decision to put off AfCFTA free trade deal signing in order to allow more time for input from Nigerian stakeholders.
The Federal Executive Council (FEC) last year approved the signing of the deal, which it said would boost the country’s export, “spur growth and boost job creation as well as eliminate barriers against Nigeria’s products and provide a Dispute Settlement Mechanism for stopping the hostile and discriminatory treatment directed against Nigerian natural and corporate business persons in other African countries.” The president’s decision to officially put off signing the framework agreement for establishing the ACFTA following protests by major labour unions, last year, was on the heels of the warning that the deal would harm the local economy.
Last year, the former Minister of Trade and Investment, Dr. Okechukwu Enelamah, acknowledged the continuous opposition to the deal, but added that efforts were afoot to get the buy-in of all the stakeholders before the signing.
Exactly a year and four months after his refusal to sign the agreement, upon due considerations with relevant stakeholders, the president declared last Wednesday through the Senior Special Assistant to the President on Media and Publicity, Mallam Garba Shehu, that he would be signing the phase one of the AfCFTA agreement today at the Mid-Year Coordination Meeting of the African Union and 12th Extraordinary Summit of the African Union in Niamey, Niger Republic.
Shehu, in a statement, said Buhari approved the recommendations of the Presidential Committee on the Impact and Readiness Assessment of the AfCFTA, agreement.
The statement read: “By this, he will be signing the Phase one of the agreement in the course of his attendance at the Mid-Year Coordination Meeting of the African Union and 12th Extraordinary Summit on AfCFTA in Niamey, Niger Republic in a few days’ time.
“A country that signs the first level will then go into country level discussions leading to treaties after safeguards are agreed to.”
In accepting the reports as submitted the President made it clear that Nigerian government will be seeking to include terms that engender the development of policies that promote African production, among other benefits.
In the president’s words, “Africa therefore needs not only a trade policy, but also a continental manufacturing agenda. Our vision for intra-African trade is for the free movement of “Made in Africa goods”. That is, goods and services made locally with dominant African content in terms of raw materials and value addition.
“If we allow unbridled imports to continue, it will dominate our trade. The implication of this, is that coastal importing nations will prosper while landlocked nations will continue to suffer and depend on aid.”
X-raying the unique essence of the framework agreement for establishing the AfCFTA, it is noteworthy that the ACFTA is a brainchild of the African Union to deepen regional integration. It had been in the works since January 2012 – with Nigeria as one of its major promoters. However, local labour unions and big corporations have always been against it.
The agreement entered into force on 30th May 2019, within 14 months after its signature on 21 March 2018 in Kigali. It was negotiated in just over two years.
Whilst the motivation towards closer economic integration is poised to change Africa forever, some experts see the entry into force of the ACFTA as a truly momentous event.
The irony is stark, that amidst current global trade wars, Africa is now the torch bearer of multilateralism and open economies.
However, African economic integration is developmental integration, designed to promote structural transformation, rather than being a traditional free trade area (FTA) obsessed primarily with market liberalisation.
ACFTA seeks to cover goods and services and has complementary programmes for infrastructure, industrialisation, agriculture modernisation, small scale trade, as well as innovation, intellectual property, competition and investment.
There has never been a better time to invest and trade in Africa. With a combined GDP of US $ 6.7 trillion in purchasing power parity, business and consumer spending at US $ 4 trillion, over 400 companies with revenues of over US$ 1 billion, 60 per cent of the world’s arable land and vast strategic minerals, Africa seems ready to truly take off.
For African political, private sector and intellectual leadership, the call of duty and question on the lips of all is that , does the framework guarantee or ensure that this trajectory is irreversible, and that decent jobs and incomes are equitably generated from increasing trade and investment.
Economic pan-Africanism has come of age. We now have a crop of economic pan-Africanists, who have negotiated this agreement, in a record period of just two years, and then ensured it entered force in just over one year.
Dissecting the benefits of the framework and what Nigeria must do to lead the pack in Africa, Professor of Economics and Public Policy, Pittsburgh and Department of Economics, University of Uyo, Professor Akpan Hogan Ekpo, Nigeria has a large market and hence stands to benefit from the AfCFTA.
Furthermore, Ekpo believed Nigerian businessmen and entrepreneurs would have access to the African market, where they can buy and sell. “As the largest concentration of black people in the world, Nigeria must lead by example in championing the cause for trade among African countries as well as pave the way for the continent to industrialise through trade. AfCFTA provides an opportunity for Nigeria’s private sector to explore and exploit the African market,” he said.
Speaking along the same line of thought, Chairman, Stransact Partner, Eben Joels, said, “Nigeria is Africa’s largest market and the sheer size of her population means that Nigeria must as a necessity be not just a member of the ACFTA, but also one of the major drivers of the initiative.”
However, Ekpo, who is the immediate past director general, West Africa Institute for Economic Management (WAIFEM), noted “The downside is that Nigeria may be either a dumping ground for products from emerging economies or may be a point of re-exporting goods from China.”
He therefore tasked public officials to “ensure strict compliance with the rules and regulations governing trade in Nigeria, suggesting, “policies must be put in place to ward against dumping.”
In his own analysis, Director, Union Capital, Mr. Egie Akpata, while the main benefit of ACFTA to Nigeria is opening up most of the African market to companies based in Nigeria, the flip side is that companies from other parts of Africa will have nearly unrestricted access to the Nigerian market.
Akpata cautioned: “With most trade barriers reduced, Nigerian companies would need to be very cost effective and competitive with their African counterparts if they are to gain, rather than lose market share.”
“This is where the Nigerian government would need to quickly remove internal barriers that make operating in this country expensive. Issues like steady and cost effective power supply, efficient ports, good roads and rail transport, lower corporate and local taxes etc. Unless these barriers are eliminated, many Nigerian companies might struggle to hold on to their local, protected market and loose share to new entrants from Africa,” he added.
Beyond the signing, would African nations and its corrupt leaders truthfully harness this crop and build a sustainable inter-generational institutional memory for Africa that will keep the impetus into the future. Would political gladiators across Africa enhance capabilities to continuously make what seems impossible very easily possible?
Having seen a host of African leaders fail its citizenry, Is this truly the time for the young to know what pan-Africanism means: “I am not free until everyone is free. We must have the Africans We Want, in order to build the Africa We Want; that is, a free, prosperous and peaceful Africa.”
Does the present euphoria have the realism to galvanize the required immediate actions after the launch of AfCFTA, if it is to work?
Concerning implementation, “the government must ensure that there are qualified officials with the proviso of continuous training. Furthermore, this provides the need for recruiting competent hands to drive the implementation of the free trade arrangements,’’ Ekpo posited.
In the words of Akpata: “Given the huge amount of smuggling into the Nigerian market, it is unlikely that import barriers would save uncompetitive Nigerian companies from the potential competition from other parts of Nigeria.”
According to experts, before trade can actually happen under AfCFTA, the following should be in place: trade documents, tariff schedules, rules of origin and a system for addressing non-tariff barriers.
Countries need to be able to issue and process especially the new AfCFTA customs declarations and certificates of origin. And the private sector including the logistics industry needs to be familiar with and have confidence in these documents.
This is in addition to the universal trade documents, and product-specific regulatory documents, especially for agricultural and chemical products. Tariff schedules should be in place. Without them, one would not know the payable customs duties under AFTA on the 5,000 or so tradable products.
It is envisaged that bilateral negotiation of tariff offers would be too complex and take an overly long time. Every member state/ customs territory would therefore be compelled to just produce a tariff schedule without further delay, covering 90 per cent of the products on which the tariff phase down is to commence immediately.
In addition, the principle of acquis would be used, meaning that the member states in existing FTAs in the regional blocs do not have to re-negotiate anything anew among themselves. This should be harvested into AfCFTA, on the basis of the agreed principle of preserving and building on the acquis.
With the conclusion of the Southern African Customs Union (SACU) and the East African Community (EAC) bilateral tariff liberalisation negotiations within the COMESA-EAC-SADC Tripartite Arrangement, what has been agreed there can also be harvested into AfCFTA, so that there are no new negotiations between EAC and SACU for the AfCFTA tariffs.
These two approaches – of producing tariff schedules indicating a phase down to zero per cent customs duty over the relevant transition periods, and of harvesting the acquis – can produce tariff schedules in time for the launch of AfCFTA today in Niamey.
In rules of origin, a critical number has been agreed, which is sufficient for launching AfCFTA. More progress can be made right away, however, if the rule of thumb could be agreed, setting the value of non-originating material at 60 per cent. This will promote local content, back and forward linkages and value chains in African economies.
Other complementary requirements include a regional payment system that could build on current mobile payment solutions as well as the COMESA and SADC payment systems solution.
These are already in use and owned by stakeholders; and a Continental trade portal called the African Trade Observatory, which could build on highly successful national portals around the continent.
In addition, trade facilitation programmes should be appropriately prioritized. Time-related costs, arising from delays, are significant, estimated at over 90 per cent of transport costs. Customs related delays result in a loss of about 23,000 jobs annually in Africa. Trade Mark East Africa (TMEA), has accordingly invested over US $500 million in trade facilitation projects in Eastern Africa.
If the route of long bilateral tariff negotiations is taken, AFTA can in the meantime be projected as a Free Trade Area for Trade Facilitation and not for elimination of customs duties. While this would be quite a novelty, it would make perfect sense, in reducing the cost of doing business in Africa, which is highest in the world.
Twenty four countries have ratified AfCFTA within a record period of 14 months. While impressive, this is still less than half of the 55 member states of Africa. The high momentum on ratification should be sustained, even scaled up, driven by pro-active political leadership provided by the Heads of State and Government with the support of the African Union Commission’s Ambassador Albert Muchanga, the Commissioner for Trade and Industry.
There is quite some concern about revenue losses from tariff liberalisation, estimated at US $ 4 billion or up to 3 per cent of GDP. The Afrexim Bank has therefore mobilised US $ 1.5 billion, and the World Bank also the same amount, to support countries through loans. The Afrexim facility will be on a cost recovery basis, and not profit based. Nigeria could tap into these opportunities.
The Afrexim Bank has established also the MANSA programme, to assist in credit rating and de-risking, with a data set of 600,000 companies already. The name derives from the legendary Mansa Musa of the old Malian empire.
In conclusion, then, the AfCFTA is here. It will change the political and economic geography of Africa forever.
Does it truly carry the promise of a much rejuvenated Africa on a high economic growth path, for social economic transformation? Leadership in the public, private and academic sectors is required to duly implement it to the benefit of all in the continent.