AFRICAN CONTINENTAL FREE TRADE AGREEMENT; WHAT IS IN IT FOR NIGERIA

The African Continental Free Trade Area Agreement (AfCFTA) is regarded as an ambitious move at integrating the African continent, improving its domestic economy and a signaling light of Africa’s potential in world trade with an anticipated GDP of 3 trillion in U.S dollars and in this regard, it is one of the many AU moves to meet its AGENDA 2063. For this reason, protocols to the Agreement are invested with ensuring that possible bottle necks are eliminated and trade is promoted. It is hoped that by the end of 2030 the impact of the Agreement will have a consumer and business spending of 6.7 trillion U.S dollars.

The prospect of the trade agreement is exciting. Parties to the Agreement admit to the untapped opportunities that are likely to spring forth. Interestingly, countries like Rwanda, South Africa, Ghana, Cote d’Ivoire and Ethiopia and if I may add, Nigeria are bracing up to be major players. Three trillion US dollars is projected as shared GDP. There’s already the silent question; who will have the biggest portion of this cake?

WHAT IT ENTAILS

Firstly, the core of the AfCFTA is to promote continental trade between African countries. To do this, Parties have agreed to a 90% tariff reduction and elimination of all bottlenecks to trade among Parties. It is assumed that the continent of Africa becomes a single market space where states can trade with such comfort as they would in their respective domestic space. i.e. Nigeria should conveniently be able to trade in Ethiopia without so much restriction. By conveniently, I mean trade between Parties should have reduced tariff charges (i.e. Import duties and Custom duties), easy access to domestic markets (without administrative bottlenecks).

To ensure the facilitation of the objective of AfCFTA, the Agreement is phased into two and documented into protocols;

Phase 1: Protocols on trade in goods and services, Protocol on rules, Protocol on the settlement of disputes.

The Protocol on trade in goods provides for trade obligations on state parties and includes national schedules of tariff concessions. The protocol allows State Parties negotiate and adopt respective tariff concession. The negation must however be in accordance with the objectives of the AfCFTA. The core objectives are to eliminate tariffs and non-tariff barriers by enhancing efficiency of customs procedures, trade facilitation and transit. This protocol also provides anti-dumping provisions which allow state parties to apply safeguard measures to protect its domestic economy. In so doing, the AfCFTA prohibits quantitative restriction on import as safeguarding measure as Article 9 of the Protocol forbids all forms of quantitative restrictions except that permitted in the annexes or as in Article XI of the GATT 1994 and other relevant WTO agreement. 

Phase 2: Protocol on competition policy, protocol on intellectual property, protocol on investment.

While Phase 2 of the AfCFTA has been underway, Phase 1 has been documented, signed and ratified by state parties. With the completion of phase 1, the AfCFTA was proposed to commence on the 1st of January 2021 although, that did not happen as measure to facilitate its commencement have not been concluded.

AFRICA AT A GLANCE

The Africa continental free trade area is projected to be the largest single market, with an estimate of 54 countries and a population of 1.2 billion people. Regardless, of the underpinning factors, the financial projection of the AfCFTA is a statement of declaration for Africa in terms of world trade and maybe global economics.

Prior to the AfCFTA common trade agreement exist in regions within Africa via regional economic communities recognized by the African Union (AU). The AfCFTA is established on the solidarity of the regional economic communities. Easy put, AfCFTA is a confederation of the following regional economic communities; COMESA, ECOWAS, CEN-SAD, IGAD, ECCAS, EAC, UMA and SADC.

The World Bank reports that the AfCFTA will bring 30 million people out of extreme poverty and raise the income of 68 million others.[1] Also, it is expected that by 2035, the full implementation of the AfCFTA will cause a 10 percent decline of those in extreme poverty in Africa and improve employment opportunities across the continent. The current standing of intra-Africa trade is far from encouraging. Statistics peg intra- Africa trade between 13 - 17% as against its trade with Europe which accounts for 50 - 60% of total trades in Africa.[2] It is hoped that the AfCFTA will help remedy this inconvenient fact. The notion of the AfCFTA is to ultimately push for a shift from inter-continental trade in Africa to intra African trade.  

CONTEXT: NIGERIA

QUESTION: WHO WILL BENEFIT?

If the above serve as premises then the AfCFTA may well be the biggest thing since slice bread for Africa. The lingering question is who will benefit from this beautiful prospect. It is simple logic to assert that the Party with much to sell and offer are more poised to gain but beyond that, the dynamics of how attractive one’s domestic market easy may also be pivotal on determining who benefits. Recall that Nigeria, despite being a major player in the AU hesitated before it eventually signed the AfCFTA. It was reported that, Nigeria would have to meet with all relevant stakeholders before making the decision. Amongst these stakeholders, the Manufacturing Association of Nigeria (MAN) strongly opposed the idea of Nigeria committing itself to the trade agreement. Their reasons were simply that there were concerns about Nigeria being a dumping site, tariff lines and product lines that have been agreed for liberalisation.[3] Basically these concerns are threatening to our domestic economy.

Nigeria is termed a net importing country. That is its total import is higher than its total export. With a population of about 200 million people, Nigeria is home to almost 20% of Africa’s total population. This gives it’s a huge market strength for Parties willing to market their product in Nigeria. This also means that Nigeria earns much from tariffs paid by importers. In 2019, The Nigerian custom services recorded over 400 billion in revenue from import duties collection in the first half of 2019.[4]

The possible implication of AfCFTA is that there is likely to be a shrink in that number seeing as trade with other African countries is likely to increase while trade with its non-African countries is likely to reduce.

The current standing of Nigeria’s import and export ratio in Africa as reported by the Nigerian Office for Trade Negotiations (NOTN) is 3:20.[5] The indices reveal that Nigeria is not a likely destination for intra African trade and with its inviting population this statistics may be troubling. If Nigeria is to take full advantage it must improve its domestic prospect on net importing within Africa. Trade negotiations will bolster where the Parties involved find it advantageous to all Parties involved.

The Nigerian Investment Promotion Council (NIPC) recently released opinions of investors doing business in Nigeria. The following responses were reported as common plights of investors;

• ·        Security situation getting worse
• ·        Bribery and corruption
• ·        Harassment by government agencies
• ·        Frequent policy change by the government
• ·        Painful, long and unpredictable government approval process
• ·        Difficult operating conditions: power, road, public utilities
• ·        Difficulty in accessing long term capital loan.[6]

If Nigeria is to benefit from the AfCFTA, it must take these reports seriously. If Nigeria is to be the market destination for most African countries then its domestic prospect must become as wishful as the Promised Land.

Also, World Bank report suggests that the manufacturing sector is to experience the highest participation under the AfCFTA. Thus, countries with improved manufacturing sector and high production capacity are more poised with this comparative advantage. It is imperative that Nigeria improves its manufacturing sector to leverage on this. Nigeria’s economies of scale in intra African trade should reflect a balance between its importing and exporting activities. They must sell as much as they must buy. Trade participation is key to harnessing the potentials of AfCFTA.  

The greater concern for me is whether Nigeria is ready to have its nose to the grindstone. Nigeria’s situation is a textbook case of too many chief and not enough Indians. It can only be hoped that this is not one of many instances of such.

CONCLUSION

?The trade concession of 90% reduction in tariff would affect Nigeria’s finances no doubt. This does not however take the potential benefit for Nigeria under the AfCFTA away. With some intentional effort towards harnessing these potentials Nigeria could be on the map of biggest gainers. The AfCFTA has wide margin. Nigeria needs to determine where its comparative advantage is greater, where it can improve, where it can leverage on and act on them. AfCFTA is here to stay. Once it commences, the prospect of it will become even clearer. If Nigeria does not find its place amongst the major gainers then its position as the giant of Africa may become threatened. If there’s anything to learn from China in terms of global economics, it is that trade and commerce is the fastest way to earning world’s respect.

It is difficult to answer the question of who will benefit but can Nigeria benefit from the AfCFTA? Yes, it can but aren’t we our own demons?

[1] https://www.worldbank.org/en/topic/trade/publication/the-african-continental-free-trade-area

[2]https://au.int/en/ti/biat/about#:~:text=Intra%2DAfrican%20trade%20stands%20at,North%20America%20and%20ASEAN%20respectively.

[3] https://guardian.ng/business-services/man-kicks-against-nigerias-ratification-of-african-free-trade-agreement/

[4] https://www.proshareng.com/news/Taxes%20&%20Tariffs/Tariff-Hikes-and-Rising-Customs-Revenue/46164#:~:text=According%20to%20reports%20in%20the,compared%20to%20H1%202018%20(N354.&text=2tn%20(Import%2C%20Export%20and%20Excise,the%20Federal%20government%20in%202018.

[5] Trade Data Quarterly Brochure, TQ/2020Q3, December 2020.

[6] https://twitter.com/chidi_esq/status/1351894056046096386