Buhari
Nigeria finally signed the African
Continental Free Trade Agreement (AfCFTA), but what are the broader
implications for the country’s economy; BENJAMIN UMUYEME asks in this report.
When Nigeria
and South Africa declined assent to the African Continental Free Trade
Agreement (AfCFTA) after 44-member countries of the African Union endorsed the
agreement at 18th Extraordinary Session of the Assembly of AU Heads of State
and Governments in Kigali, Rwanda, many were taken aback knowing the country
had championed the need for the continent to have a trade pact.
It meant
Nigeria, regarded as a power house in Africa, is not on the same page with the
rest of the continent in an agreement that is meant to establish a common
protocol to allow free movement of goods and services among member nations of
the AU.
They were joined by seven other countries,
including Burundi, Guinea Bissau, and Eritrea who also did not sign the
agreement. South Africa later signed the agreement, raising concerns among
analysts who were favourably disposed to Nigeria being a part of the agreement.
Why Nigeria delayed assent
The main
contention for Nigeria’s declining the signing of the AfCFTA Treaty is
stakeholders’ fear of numerous bilateral trade agreements of some African Union
(AU) countries with the rest of the world and Nigeria’s underdeveloped
industrial and infrastructural profile, which some stakeholders argued that
this Agreement will potentially make Nigeria a dumping ground due to our
uncompetitive manufacturing sector, large market size and population.
With a
porous border system, for instance, there were fears that the agreement would
open the country’s seaports, airports and other businesses to unbridled foreign
interference and domination.
According to
a former Minister of Industries, Trade and Investment, Okechukwu Enalemah,
there is need for the government to consult widely with stakeholders before
signing a critical document that has wide implications for the economy and the
well-being of over 200 million Nigerians.
According to
Enelamah, as Africa’s largest economy and most populous country, Nigeria cannot
afford to rush into such agreements without full and proper consultation with
all stakeholders.
The
government called for adequate consultations and inputs from interest groups,
particularly the NLC, which called the treaty a “renewed, extremely dangerous
and radioactive neo-liberal policy initiative.” But the Manufacturers
Association of Nigeria (MAN urged the government to act with caution, noting
that some aspects of the agreement has the potential to hurt Nigeria’s
interest.
After wide
consultations, President Muhammadu Buhari received the report on the impact of
the agreement on Nigeria’s economy and subsequently he assented to the
agreement bringing to an end months of waiting by several sectors of the
economy.
Bridging the continent’s trade gap?
It is
expected that when the continent’s biggest trade agreement finally comes into
play, it would create a single continental market for goods and services, with
free movement of people and investments.
Businesses
around the continent currently face higher tariff when they export within
Africa than when they export outside it. The average is put at 6.1 per cent. Of
course, AfCFTA is expected to progressively eliminate tariffs on intra-African
trade, making it easier for African businesses to trade within the continent
and tap from the huge potential of a larger African market.
While
signing the agreement President Buhari spoke of “fair trade” in relation to
free trade. “Nigeria wishes to emphasise that free trade must also be fair
trade,” he said.
Over the
decades, development has always been a big challenge across the African
continent. AfCFTA, a flagship project of Agenda 2063 of the AU, is expected to
help accelerate Africa’s own development vision. It was approved by the AU
Summit as an urgent initiative whose immediate implementation would provide
quick wins, impact on socio-economic development and enhance confidence and the
commitment of Africans as the owners and drivers of Agenda 2063. The effect, as
projected, will contribute to the achievement of the United Nations 2030
Agenda, especially the Sustainable Development Goals (SDGs).
The
Agreement covers Protocol on Trade in Goods and Services, Rules and Procedure
on Settlement of Disputes, Investment, Competition Policy, and Intellectual
Property Rights.
In addition,
it seeks to expand intra-Africa trade which currently stands at low 16 per
cent, in contrast to other regions and continents.
In the
European Union, intra-regional trade is between 65 per cent and 70 per cent;
while in APEC (Asia-Pacific) it is 70 per cent, but the same cannot be said of
the African Union where intra regional trade is less that 30 per cent.
Even the big
economies of Nigeria and South Africa combined cannot boost of a strong intra
African trade.
Agreement divides opinions
With a GDP
of $405 billion, Nigeria is considered the largest economy in Africa. It is
followed by Egypt ($332 billion) and South Africa ($295 billion). With a
population of about 200 million, the nation is also Africa’s largest market.
A school of
thought argues that the treaty would impact on government revenue and social
welfare. According to them, elimination of all tariffs among African countries
would erode the trading states’ treasury by up to $4.1billion annually and
deepen poverty, with millions of Africans potentially exposed to starvation and
death. But are these conjectures true in real sense?
For public
policy analyst and development expert, Jide Ojo, signing the pact “is the right
way to go.”
According to
Ojo, “If properly implemented and guided, Nigeria stands to gain a lot from
that because as we do know, Nigeria is a huge market.”
A don, Dr
Ovat Oyama, says the signing of the African Continental Free Trade Agreement
(ACFTA) by Nigeria will boost Africa’s contribution to global trade.
He said
Africa’s contribution to global trade was below 10 per cent. Oyama said the
agreement would enable member countries to harmonise their tariffs and have a
common front on development. The lecturer noted that since free trade
agreements are designed to cut trade tariffs, member countries would have
access to a market of over a billion people.
“A billion
people are a huge market that will lure any investor to invest his money and
make good returns within few years. The continent enormous population and its
resources are huge assets for any foreign investor not to look the other way,
considering its prospect,” he said.
The Nigerian
Office for Trade Negotiations (NOTN) says by signing the African Continental
Free Trade Area (AfCFTA) agreement, the federal government has reaffirmed
Nigeria’s leadership on African trade integration.
NOTN
director-general, Ambassador Chiedu Osakwe, said the president’s signature was
a bold step forward for Nigeria African trade integration and Nigeria’s
leadership in the AU.
“The
president has demonstrated a remarkable leadership commitment to due process of
the rule of law for trade integration, openness to trade and investment in a
period in the global economy characterised by protectionism,” he said.
Even the
Nigerian electricity generation companies are excited as they say the agreement
will boost power generation and supply in the continent.
According to
the Executive Secretary of the umbrella body of the GenCos, Joy Ogaji, they
were confident the AfCFTA agreement will boost intra-Africa trade among African
countries from the current 16 per cent to about 60 per cent.
“Under the
agreement, there will be no quota system; trade will be conducted according to
trading capacity; exports of goods and services will be cheaper, leading to
more competitive pricing,” she said.
An expert’s view
However, an
economist, Tope Fasuba, said the arrangement would have been Nigeria’s ‘baby’,
had the government and other stakeholders been proactive.
According to
the former presidential candidate, with her huge potential and vast resources,
Nigeria ought to have been the country driving the process, rather than being
the nation trying to hold every other nation back on the continent.
“We have
lost the battle, at least psychologically, but could still win the war,” he
wrote. “Ghana positioned herself and today hosts the secretariat. If nothing,
that is a lot of tourism money that will be drawn to Ghana, especially from
Nigeria where many people in government service are getting ready, smacking
their lips for the deluge of trips for meetings and conferences – which is what
we know how to do best.”
Challenges
One of the
major challenges of the treaty is inclusiveness. Out of the 54 countries in
Africa, South Africa and Nigeria stand out. Inclusion of Nigeria and South
Africa, respectively the largest (17% of Africa’s GDP) and third largest (13%
of Africa’s GDP) economy in Africa, is crucial for the success of the
agreement.
However,
transforming trade is complicated since it has a large and heavily protected
home market. The World Bank in a report, “Trading Across Borders” noted that
Nigeria exports little to Africa (just 9% of its merchandise exports were
directed to Africa over 1995-2008 according to ECA (2012)) and its merchandise
exports are composed of 76% of fuels and mining products, commodities whose
revenue stream depends on trends in world markets and bears little relation to
trade reforms at home or in the rest of Africa.
But Nigeria
is not Saudi Arabia, whose vast oil resources allow it time to embark on a
course of diversification. Nigeria’s rapidly growing population of 186 million
cannot hope to develop in the long run based only on its fuel and mining
exports. While Saudi Arabia’s trade per capita was $73.79 in 2016, Nigeria’s
trade per capita was just $351, about one thirds of that of Morocco and nearly
40% lower than that of Cote D’Ivoire.
Allowing
protection to continue on 10% of products can, in practice, negate a large part
of the benefits of the agreement by strategically selecting products that will
retain protection.
Again, the
imperative of improved infrastructure might just be the real challenge. Several
studies have shown that infrastructure constraints in Africa are important in
explaining low levels of trade. Paved roads especially are sparse compared to
the size of the continent. In African low-income countries, there are 318 meters
of paved road per 1000 population, compared to 1000 meters per 1000 population
on average in the developing world and 15000 meters per 1000 population in an
advanced economy such as France.
According to
NLC president Ayuba Wabba, the Congress is opposed to the treaty because of its
implication to the economy in the long run.
“We are more
worried by the probable outcome of this policy initiative if it is given life
because of its crippling effect on the local businesses and attendant effects
on jobs.
“We have no
doubt this policy initiative will spell the death knell of the Nigerian
economy. Accordingly, we urge Mr President not to sign this agreement either in
Kigali or anywhere. We believe our national interest is at stake and nothing
should be done to compromise this,” he said.
Again, Mr
Ojo said despite signing the agreement, there are fears for Nigeria’s readiness
to implement the treaty, adding that the agreement is like the West African
free trade agreement which Nigeria has failed to maximise.
“How
well-positioned are Nigeria’s businesses to take advantage of the agreement?
Where is the infrastructure? How have we positioned the products that we seek
to export? If we must take advantage of AfCFTA, we must incentive the private
sector for value addition. We cannot continue to export raw materials and get
peanuts in return.”
To check
dumping, Nigeria needs to have some safeguards, he said, adding that the nation
must develop infrastructure, protect her borders, set up monitoring teams and
develop the capacity of local manufacturers. If the government and relevant
stakeholders fail to put these measures in place, he warned, the nation may not
gain from the agreement.
“We may just
be signing on to something that may be like paper tiger; something good on
paper alone. Unless we develop capacity for value addition, we may not profit
maximally from AfCFTA.”
“Nigeria’s
infrastructure deficit and insecurity are major challenges that could hamper
production in the country. The availability of skills for the job is also a
major concern. Nigeria has not provided sufficient ecosystems to attract,
incubate and accelerate businesses,” Dr. Ikpenmosa Uhumuavbi, an International
Finance expert and lecturer at Bolton University Law School, said.
“High
transaction cost within Nigeria may lead to cheaper imports from the bloc or
other markets. This may put local manufacturers out of business and increase
Nigeria’s import dependency.
“Although
Nigeria remains the largest economy in Africa, the economies of scale and other
advantages that comes with tariff-free intra and inter Africa trade may affect
competitiveness of Nigerian businesses on the continent.”
