Trade liberalisation as game changer in Africa’s quest for development
Last week, President Muhammadu Buhari signed the African Continental Free Trade Area (AfCFTA) agreement, making Nigeria the 53rd country on the continent to append its signature to the document.
The President signed the Agreement at the opening of the 12th Extraordinary Session of the Assembly of African Union Heads of State and Government on AfCFTA and the first mid-year coordination meeting of the African Union (AU) and the regional economic communities (RECs) in Niamey, Niger Republic.
That significant move meant Nigeria, Africa’s largest economy, had finally accepted, after a four-month delay, to sign the agreement launching AfCFTA. President Buhari had reportedly delayed the signing to give room for what he described as extensive consultations with stakeholders, especially trade unions and local manufacturers.
And with The Republic of Benin having also signed the agreement in Niamey, bringing the number of countries who have signed up to 54, Eritrea being the only exception, the bloc has emerged as the world’s largest free trade area.
The AfCFTA aims to, among several other objectives, create a single market for goods and services and facilitate the free movement of people, capital, goods and services. The Agreement would simply open up the borders and eliminate barriers to trade across the continent.
In the coming days, notwithstanding the lingering regional issues and low level of trust among member-countries, President Buhari and other African leaders, will now have to address critical issues in the continental free-trade area agreement if the implementation of the trade deal is to be successful.
Specifically, the establishment of the free trade zone could hurt local industries in countries like Nigeria that have struggled to survive because of government’s protectionism and lack of critical infrastructure.
Indeed, the trade agreement is still subject to negotiations on a number of implementation aspects and modalities.
Among the key issues where negotiations are still needed include, the rules of origin, non-tariff barriers, the structure of implementation, schedule of concessions and tariff books.
Such agreements will determine tariffs applicable to goods and commitment by countries.
In terms of the number of countries participating, the AfCFTA is envisioned as the world’s largest free trade zone since the establishment of the World Trade Organization, in 1994. The trade deal will start by cutting tariffs for goods traded within the bloc and then eventually expand into other areas.
Citing his concerns, Africa’s richest man and industrialist, Aliko Dangote in a conversation with Mo Ibrahim in April raised concerns about the visa regime in the continent, saying African governments need to make regional trade workable before swinging fully into the continental trade agreement.
He cited his experience in the case of Benin Republic, saying the country does not patronise his Cement product but imports from China, just as Ghana continues to use legislation and non-tariff barriers to check Nigerian businessmen in the country.
Specifically, trade organisations, like the United Nations Conference on Trade and Development (UNCTAD) noted that under the African Continental Free Trade Area, it is the rules of origin – establishing the nationality of products produced in Africa – that will determine whether preferential trade liberalisation can be a game changer for Africa’s industrialisation.
The Manufacturers Association of Nigeria (MAN) had insisted that the Federal Government specifies the protectionist mechanism to check influx of goods that may collapse domestic manufacturing.
The fears stem from arguments around Nigeria’s infrastructural deficit and the deal turning the nation into a dumping ground for goods from the rest of the continent, especially countries with more advanced manufacturing capabilities such as South Africa and Morocco.
According to MAN, the recommendations of the Presidential Committee on Impact and Readiness assessment of the AfCFTA informed the decision to sign the pact.
Though the negotiations are a complex issue, as it involves multiple stakeholders negotiating a range of issues, the process is expected to take up to one year before the agreement takes effect in June 2020.
The trade bloc spanning 54 countries with a combined GDP of $3 trillion, is expected to facilitate inter-regional trade, boost growth and help to alleviate poverty.
But sceptics have pointed to the impending challenges of uniting countries with the greatest level of income disparity and development between them, under the umbrella of one trade bloc.
For example, over 50 per cent of Africa’s cumulative GDP is contributed by Egypt, Nigeria, and South Africa, while Africa’s six sovereign island nations collectively contribute just 1 per cent.
According to MAN, certain product lines need to be protected from the liberalised items to avoid dumping and disruption in the local markets.
It’s Director-General, Segun Ajayi-Kadir added that exclusivity is being sought against the importation of some products that are being/can be produced locally.
He said the country owed it to itself to protect exclusive industries producing products that have intrinsic quality, irrespective of ECOWAS conventions, such as the Common External Tariff (CET) and the African Continental Free Trade Area (AfCFTA) agreement, noting that this was necessary to protect jobs and grow the economy.
In its economic note on the AfCFTA, Rating agency, Agusto&Co stated that the nation’s capital market must begin to position itself for cross-border listings of some of the biggest companies across the continent whose home countries do not have developed capital markets.
According to the rating firm, the financial sector, especially the capital market must also begin to think continental, especially as the real sector and trading sector go continental.
Though the challenges are rife, Agusto stated that AfCFTA would open up Nigeria’s market to the rest of the continent, initially, as trading posts, before unfolding into multinationals.
The Lagos Chamber of Commerce and Industry (LCCI) also advocated that necessary safeguards, systems, soft and hard infrastructures, including viable ICT policies must be activated to maximize the potential benefits of the AfCFTA, following Federal Government’s ratification of the deal.
The Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture (NACCIMA) had equally supported the move, stating that only six per cent of the excluded products have been identified out of the 10 per cent provided under the treaty’s safeguard measures.
Specifically, the LCCI, through its President, Babatunde Ruwase, urged the government to maximise benefits accruable from consumers and market right of access to multiple and diversified products and services, and seek protection against abusive and injurious parties in and outside Nigeria based on ongoing capacity expansion of trade laws.
The LCCI said: “We support the recommendation of the presidential committee on impact and readiness assessment of the AfCFTA, which urged the signing of the agreement.
“Recall that we had earlier called for the signing of the agreement at our last press briefing, as we believe that the country stands to gain more than lose from signing the Free Trade agreement. We maintain that while this would improve trade among African countries, it would also provide an opportunity for Nigeria to export to other African countries.”
The International Monetary Fund (IMF), in a May report, described a free-trade zone as a potential “economic game changer” of the kind that has boosted growth in Europe and North America, but it added a note of caution. “Reducing tariffs alone is not sufficient,” it said.
Co-Founder & CEO of Kobo360, Obi Ozor said, with AfCFTA facilitating the movement of goods across Africa, from agricultural produce and medical supplies to manufactured goods, it will lead to healthy competition among key players and increase innovation across the continent.
“As we explore the new opportunities, technology will play a big part in finding solutions to many of the other challenges that prevent goods from moving freely and efficiently. From the safety of goods to the ability for them to be delivered on time, a combination of emerging and established technologies can provide the needed visibility and transparency that will put businesses’ minds at rest.
“We are certain that this will stimulate economies across the continent, as well as lead to a rise in job opportunities for the haulage sector,” Ozor added.