When the African Continental Free Trade Area (AfCFTA) came into effect on January 1, 2021, it signposted a pivotal moment for economic growth and regional integration. After four years of implementation, Nigeria, one of the signatories to this agreement, is neither here or there in fully tapping into the benefits of this continental trade blueprint. Despite the promises of increased trade, reduced tariffs, and market access, Nigeria’s experience highlights the complexities of navigating such a large-scale agreement, writes GBENGA SALAU.
Four years have passed since the African Continental Free Trade Area’s (AfCFTA) operationalisation officially began on January 1, 2021. Designed to create a single market for goods and services, as well as usher in a new era of economic integration within the African continent, AfCFTA, critical stakeholders say, holds the potential to transform Africa’s trade landscape, enhance intra-Africa commerce, and position the continent as a major player on the global stage.
This is because the agreement grants access to a market of over 1.3 billion people and a combined Gross Domestic Product (GDP) of $3.4tn. Nigeria is one of the 54 countries in Africa out of 55 on the continent that have ratified the continental trade policy.
Nigeria signed the agreement on March 21, 2018 in Kigali, Rwanda. The country later ratified the agreement on April 5, 2019, after the Nigerian National Assembly passed the AfCFTA Bill.
The journey to AFCFTA started with the Abuja Treaty, which established the African Economic Community (AEC) in 1991, with the clear vision for the present form of AfCFTA birthing at the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union (AU) in 2012, under the leadership of then-AU Chairman, President Thomas Boni Yayi of Benin Republic.
In June 2015, AU leaders endorsed the negotiations as part of a broader vision of achieving economic integration and growth, which led to the establishment of a ‘Negotiating Forum’.
Between 2015 and 2017, technical negotiations took place to agree on the terms and scope of the free trade agreement. And in March 21, 2018, after years of intense negotiations, 44 African countries signed the agreement in Kigali, Rwanda, during the Extraordinary Summit of the African Union.
After the signing, each country had to ratify the agreement according to its national procedures. While some quickly did so; Nigeria, after initial hesitation, ratified the agreement in April 2019 following approval by the National Assembly.
However, on January 1, 2021, AfCFTA was officially launched, with the start of trading under the new agreement. By joining the area, the country’s goal is to enhance its economic development by promoting intra-Africa trade, boosting industrialisation, and improving the country’s competitiveness in the global market.
To overcome currency convertibility constraints, the AfCFTA made currency convertibility across Africa easier through the Pan-African Payments and Settlements System (PAPSS).
PAPSS is a centralised payment and settlement system for intra-African trade in goods and services using local currencies to bypass the need for a third currency, such as the United States of America’s Dollar or the Euro in a continent that currently has approximately 42 currencies.
AfCFTA’s building blocks drawn from 55 African countries are anchored on eight major regional economic blocs namely: the Arab Maghreb Union (UMA); Common Market of Eastern and Southern Africa (COMESA); Community of Sahel-Saharan States (CEN-SAD); East African Community (EAC); Economic Community of Central African States (ECCAS); Economic Community of West African States (ECOWAS); Inter Governmental Authority on Development (IGAD) and Southern African Development Community (SADC).
The World Bank projected that there will be an increase in Africa’s income up to $450 billion by 2035, lift 50 million Africans out of extreme poverty and catapult the African economy to reach the $29 trillion mark by 2050.
Further, it will increase Africa’s exports by $560 billion, mostly in manufacturing, a sector that contributes only 10 per cent to Africa’s GDP, compared to 20 per cent in East Asia and the Pacific, and 15 per cent in Latin America and the Caribbean. Manufacturing output could increase from the $500 billion currently to $1.7 trillion by 2030, potentially creating up to 14 million jobs.
However, four years down the line that the operationalisation commenced, the area has not impacted Africa as a whole and, particularly, Nigeria’s intra-trade policy.
This is considering the fact that United Nations Economic Commission for Africa (UNECA), in 2019, had projected that AfCTA is expected to boost intra-African trade by 52.3 by 2025; a target that is slightly higher than North American Free Trade Agreement at 47 per cent but lower compared to Asia at 61 per cent and Europe at 67 per cent (AU) had also projected that intra-Africa trade would achieve 25 per cent boost by 2025 through AfCFTA, and when it becomes fully operational, AU is expected to see a significant reduction in trade costs across the continent by eliminating tariffs on 90 per cent of goods.
Also, AU also believed that intra-African trade in goods is expected to increase by over $50 billion yearly by 2025. James Shikwati, an expert on economic development in Africa who is also founder and director of the Inter Region Economic Network, a think tank dedicated to developing innovative strategies to improve the quality of life in Africa, in a report commissioned by Friedrich Naumann Foundation, titled, International Politics Sub-Saharan Africa, AfCFTA: A Beacon of Hope or a Failed Project? highlighted a lot of obstacles facing AfCFTA, and by extension, limiting its ability to perform optimally. These obstacles are mostly inherited. They include distrust among nations of Africa following the scramble for Africa by European colonial powers, which weakened indigenous economies and trading systems.
Shikwati said overlapping membership across African Regional Economic Communities has created conflicts and contradictions. He noted that multiple memberships create inconsistencies that undermine quest for integration.
He points to the fact that a country, which belongs to multiple regional economic communities, is burdened by multiple financial obligations, different meetings, policy decision challenges, procedures, and schedules.
Non-tariff barriers such as corruption and bureaucratic red tape are equally cited as slowing the smooth flow of AfCFTA. Most African countries produce similar products, largely raw commodities. Little or no value addition is done to the products produced. Scaling up these products is key.
Poor leadership has seen exports from Tunisia and Cameroon often finding their way to French warehouses before being redirected to each other’s market shelves.
Corruption affects more than 60 per cent of public procurement in Africa and increases the cost of contracts by 20 to 30 per cent. Poor transportation networks and border facilities, which are critical to the implementation of a free trade zone, are a major drawback. There is need to improve the continent’s infrastructure, which requires $130-170 billion yearly.
The continent is currently experiencing a $68-108 billion funding gap, resulting in only 34 per cent of the population having access to electricity and 40 per cent living more than 5km from the nearest all-season road. This accounts for up to 40 per cent of the cost of trading goods between African nations.
Currently, the West African nations of Niger, Mali and Burkina Faso have declared their exit from the Economic Community of West African States (ECOWAS) for allegedly being pressed to return to democratic rule.
The leaders of the three Sahel nations claim that their ‘sovereign decision’ to leave the ECOWAS “without delay,” is informed by ECOWAS’ ‘inhumane’ sanctions against their countries, “under the influence of foreign powers.” ECOWAS suspended the trio following military coups that overthrew their democratically elected governments — in Niger in July 2023, in Burkina Faso in 2022 and in Mali in 2020 and 2021.
The Maghreb Arab Union (UMA), with five member states, is weakly integrated and suffers from the perennial Algeria and Morocco conflict and the 2011 implosion of the Libyan government. Its member states have sought membership in established RECs with little success. Morocco attempt to join ECOWAS in 2017 was thwarted when Nigeria, the bloc’s biggest member, was reluctant to give it a nod. Relations between the AU and RECs/RMs remain problematic, despite several attempts to achieve a strict division of labour.
The AfCTA positions Regional Economic Blocs as the foundation on which to build the Africa Economic Community. Less emphasis is placed on African entrepreneurs, Micro, Small and Medium and Enterprises (MSMEs). Africa’s private sector requires an urgent and deliberate recalibration from the majority merchant-trader orientation and poverty-survivalist driven MSMEs.
Also speaking on the effort, four years on, Director General of African Centre for Supply Chain and President of Association of Outsourcing Professionals (AOPN), Dr Madu Obiora, said though there might have been one or two shipments under the AfCFTA programme but it is very insignificant considering the expectations.
“The last time when they gave so many companies certificate of origin, it was merely symbolic. Most of those companies have not made any shipment till date, so, I don’t see where the benefits are so far for Nigeria.”
Dr Timi Olubiyi, however, argued that within the four years, AfCFTA has helped in facilitating better market access to other African countries. Olubiyi, nonetheless, noted that while the AfCFTA has significantly reduced tariffs, non-tariff barriers (such as customs procedures, standards regulations, and logistical issues) continue to affect Nigeria’s exporters.
“These barriers can slow down trade and increase the costs of doing business in certain African markets. Nigeria’s export sectors still face challenges related to infrastructure. Poor transportation networks and inadequate logistics systems can increase the cost and time required to move goods across borders within Africa. Despite the improvements made by AfCFTA, addressing these issues is essential for further boosting market access.”
He further said that another big issue is the different African countries varying standards and regulations. “This can complicate market access for Nigerian exporters. Therefore, it is important to seek for harmonising standards and regulations across the continent.
“Exporters, especially those in sectors such as agriculture and manufacturing will better have seamless trades. So, with continued focus on addressing logistical and regulatory challenges, Nigeria stands to see even greater benefits from the AfCFTA in the coming years.”
For an economist, MarceI Okeke, AfCFTA has not provided much gains that Nigeria can show for participating in the project. He, however, said what he can see are administrative efforts aimed at exploring the opportunities that AfCFTA offers.
Okeke said: “There is really not much Nigeria can show for belonging to AfCFTA. Rather the secretariat, which is in Ghana, has been trying to get it kick started in various African countries and then establishing some kind of collaboration with institutions across the continent.
“You should know that AfCFTA has a lot of connections with the African Export-Import Bank (Afreximbank) and Africa Development Bank. They also have some collaboration with many banks across the continent even in Nigeria, locally, with banks like Zenith Bank, First Bank and a few others.
“So, that is what they have been doing. And Nigeria itself has been trying to get the implementation secretariat functional. They appointed a coordinating secretary, in the person of Mr Segun Awolowo, who used to be Executive Director of the Nigerian Export Promotion Council.
“So, those administrative things are what have been going on in the past four years as far as Nigeria is concerned. But in terms of benefiting from intra-Africa trade, I have not seen much gain that Nigeria has to show for it,” Okeke stated.
With the AfCFTA’s removal of trade barriers, African countries are expected to diversify their exports beyond raw materials and commodities to include more manufactured goods.
This is why AfCFTA is expected to boost manufacturing by $10 billion yearly by 2035 as well as create over 18 million jobs across the continent by 2035, particularly, in sectors such as manufacturing, agriculture, and services.
But Obiora argued that the removal of the barrier will do nothing unless Nigeria has clear and intentional strategies on how to pursue the market because after the breaking down of the barriers, nations need to go back and do their homework to decide where their strengths are and then pursue it.
“For example, if you ask me where I think our strength will be in AfCFTA, I will say it is in services rather than in goods. The combination of the two, of course, is better, but services is likely to give Nigeria a lot more leverage as far as AfCFTA is concerned, not much in agriculture. Manufacturing and services are actually where the carrot is.”
Similarly, Okeke stated that despite the removal of the trade barriers, Nigeria is thoroughly disadvantaged to benefit and function maximally within the AfCFTA environment. He said in terms of infrastructure, Nigeria is seriously challenged aside the operating environment is generally not enabling, reason companies rather than remaining in the country will move to neighbouring countries to produce, and bring it to Nigeria.
“Thus, you can see how disadvantaged we are and not to talk about the bureaucratic red-tape of the people in the distribution chain if you want to export. Do you go through Customs, Nigerian Port Authority (NPA) and other agencies? The bottlenecks those ones cause in the bid to export? So those are things that Nigeria has to handle for us to even begin to benefit anything from the AfCFTA arrangement,” Okeke maintained.
Worthy to mention is that there were different projections about the impact of AfCFTA as the promoters of the project were pushing the idea. According to United Nations Conference on Trade and Development (UNCTAD), the total removal of tariffs pursuant to the establishment of AfCFTA could boost the GDP of every African country by 3 per cent, and in addition, a well-structured Rules of Origin (RoO) could greatly impact intra-African trade. Also, the AfCFTA is expected to increase Africa’s total GDP by $29 billion annually by 2035, according to the African Union and various economic studies.
Similarly, AfCFTA is projected to increase Foreign Direct Investment (FDI) into Africa by $1.7 billion annually by 2035, as it creates a larger, more integrated market for investors to access. Likewise, the World Bank forecasts that AfCFTA could lift 30 million people out of extreme poverty by 2035 through the stimulation of economic growth and job creation. It is also said that the agreement aims to reduce trade costs by up to 16 per cent to 20 per cent owing to the removal of tariffs, the reduction of non-tariff barriers, and the simplification of customs procedures.
This is just as the agreement is expected to boost intra-Africa agricultural trade by 20 per cent by 2035. A PricewaterhouseCoopers (PwC) 2023 report forecasted that industrialised nations in Africa, including Nigeria, could see a 40 per cent GDP growth by 2030 under AfCFTA.
Surprisingly, Nigeria, during the week, made its first shipment under AfCFTA to Kenya. The Nigeria AfCFTA Coordination Office said in a statement that the country’s shipment to Kenya underscores its growing role in fostering intra-African trade and economic integration.
The shipment, which consisted of synthetic filaments produced by Lucky Fibres Limited (Lush), a subsidiary of the Tolaram Group, was exported under AfCFTA preferential trade terms.
The shipment marks a significant step towards realising the vision of AfCFTA, a framework established to boost trade among African nations. Senior Trade Expert at the Nigeria AfCFTA Coordination Office, Olusegun Olutayo, described the development as a triumph for the continent.
Olutayo said, “in times of escalating geopolitical tension and looming geo-economic fragmentation, AfCFTA presents a perfect opportunity for Africa to leverage trade as a strategic instrument for enhanced market access among state parties. This is a historic moment, a realisation of the vision of our continent’s founding fathers and mothers.”
Though still at the formative years and in a slow start, are the projected economic impact of AfCFTA feasible going forward? Okeke argued that the country would achieve something, but noting: “I won’t say that the lofty ideals will be attained because there are a lot of political, social and economic issues that must be handled.”
He maintained that it is when the country navigates through the dynamics of the likely political, social and economic challenges that it would enter the autopilot level when things begin to work automatically. Okeke observed that what is being done in Africa, other parts of the world are interested in it.
“So, that is why despite the continent is trying to have AfCFTA to encourage intra-Africa trade, China is still trying to have China-Africa trade relationship. Also, there are efforts around America-Nigeria trade relationship, European-Africa trade relationships, as well as the United Kingdom trying to have trade relationship with the entire continent. It is same with France.
“Therefore, these are interests that will determine or might impact on the continent and that will to a large extent help to achieve or hinder the achievement of the lofty ideas from AfCFTA. Remember, we are modeling what we are doing so much after European free trade areas. They had their own challenges and issues and it took them a long time to get it right, to even arrive at Euro, the common currency.
“Also, under the AfCFTA, there is a plan for a common currency and Central Bank, which is the reason for the structures being put in place. And as we speak, some progress has been made in this direction.”
On her part, the Director General of LCCI, Chinyere Almona stated that despite the benefits AfCFTA offers, Nigeria faces challenges in fully leveraging the opportunities. She identified infrastructure deficiencies, such as inadequate transportation networks and limited shipping facilities, hinder efficient trade. “Additionally, complex and inefficient regulatory environments, including inconsistent customs procedures, increase trade costs and reduce competitiveness.”
Almona stated that addressing these obstacles is crucial for Nigeria to maximise the advantages offered by the AfCFTA. Obiora is, however, not seeing obstacles and challenges to maximising the opportunities within AfCFTA but unpreparedness on the part of the country.
“Nigeria needs to prepare. It should not be strategies on paper. We have a wrong culture as far as export is concerned. We don’t have export culture. Several opportunities had come before; the EU opportunities, AGOA opportunities, among others, we did not make anything out of those ones. So AfCFTA is not likely going to be exception unless we become intentional and change our strategies.
“The shift in trading pattern with other African countries remains the same. The necessary logistics and infrastructure to carry those things are not there. So, it is not going to change, not even significantly at all, we have to plan our strategy to take advantage of it.”
CEO of Dasun Integrated Farms Limited, Bosun Solarin, in an assessment of the logistical challenges hampering intra-African trade, observed that in certain situations, it is more economical to ship goods to Europe or the US than to other African countries.
“I have sent goods to Liverpool in the UK in 24 hours, but it can take seven working days to Ghana. The cost is so much, and the delays at borders are frustrating,” she added. Solarin recounted her personal experience travelling by road from Dakar to Lagos, which brought to the fore, the poor state of infrastructure and lengthy delays at borders.
She described the sight of trucks stretching from Senegal to Mali and then to Cote d’Ivoire as disheartening, a stark testament to the inefficiencies plaguing intra-African trade.
The agricultural entrepreneur cautioned that while road transportation might initially seem economical, the associated risks and inefficiencies often outweigh the potential benefits. Olubiyi noted that Nigeria has encountered several infrastructural and logistical challenges in facilitating smoother trade under the African Continental Free Trade Area (AfCFTA) framework. He added that if these challenges are left unaddressed, it can hinder the country’s ability to fully capitalise on the opportunities offered by AfCFTA.
“For instance, though Nigeria has railways and air transport infrastructure, the systems are underdeveloped and insufficient to handle the increased volume of goods expected under AfCFTA. The rail system, in particular, has limited coverage, and air freight is expensive, which affects the competitiveness of Nigerian goods. More so, Nigeria’s seaports, for shipping especially in Apapa, Lagos State, are overwhelmed by congestion due to poor management, insufficient handling equipment, and bottlenecks in customs processes.
“This causes delays in the loading and unloading of goods, which negatively impacts the efficiency of trade. Another key issue is the lack of technological integration of processes, currently large number of operation requirements are done manually. In fact, many trade processes in Nigeria still rely on manual systems, from customs declarations to logistics management. This inefficiency leads to delays and higher transaction costs. The lack of digital solutions hampers the full realisation of trade facilitation measures under AfCFTA, which emphasise the reduction of trade barriers and quicker processing.
“There might be need to look at Public-Private Partnerships (PPPs) and investment in these areas and for seamless logistics. Simply, what I am saying is that the ports should be modernised and trade processes automated across all routes. In short, it should be more technologically driven to unlock the full potential of AfCFTA, making it easier for Nigerian exporters to access African markets.”
Also commenting recently at a programme on AfCFTA, the Minister of Industry, Trade and Investment, Dr Jumoke Oduwole, stated that the implementation of AfCFTA has created new opportunities for trade across the continent.
She was optimistic that the AfCFTA would stimulate investment and enhance competitiveness for African businesses, as the framework is designed to facilitate the seamless and cost-effective movement of goods and services across borders.
“The AfCFTA is essentially the framework that Nigeria and African youths have been anticipating. We are already witnessing transformation with the elimination of tariffs on 90 per cent of goods traded across the continent. We have unlocked new trade opportunities to stimulate investment and foster competitiveness for African businesses,” the minister said.
She added that the ministry was committed to a continent-wide private sector approach, citing successes in the airline sector, and expressed confidence that Africa would benefit significantly from its implementation.
“In line with this approach, we are already committed to customs facilitation. Nigeria’s Customs Service has undertaken to convene a roundtable discussion in the country before the end of the first quarter of this year. This demonstrates our readiness to continue discussions in all preparatory areas, and Nigeria remains open for business under the AfCFTA framework,” she said.
