African Continental Free Trade Agreement (AfCFTA): Matters Arising, By Henry Boyo
By Henry Boyo
President Muhammadu Buhari’s endorsement, of the document establishing the AfCFTA, at the 17th Extraordinary Session of the Assembly of African Union Heads of government in Niamey, Niger Republic, last week, (July 2019), suggests that 53 Countries are now party to the same AfCFTA, which Nigeria, unexpectedly, refused to sign, even after 44 other Countries had endorsed the treaty in a similar convention in South Africa, in March 2018. Notably, President Buhari had, unexpectedly, delayed signing the treaty, on that occasion, in order to allow for extensive consultations with stakeholders.
Hereafter, matters arising from the AfCFTA and the later adoption of a single currency amongst member nations, will be examined in the following interrogative prose. Please read on.
What is the objective of the AfCFTA?
African Heads of government agreed, in 2012, to establish a Continental Free Trade Area, and negotiations to this end, started in 2015. The AfCFTA commits countries to removing import duty, on 90 per cent of all goods, while identified “sensitive items” which make up the balance 10 per cent would be phased in, later, as tariff free.
The agreement will liberalize commercial services and also tackle so called “non-tariff barriers” which include extended delays and harassment, which may hamper trade at border posts between African countries. Ultimately, free movement of people and a common currency is expected to evolve in a free trade area, which has been branded as second in size to the World Trade Organization.
What is the advantage of an African single market?
Intra-Africa trade is relatively, notably, modest and was barely 10 per cent of total trade in the continent in 2010; consequently, by creating a single market for goods and services, the African Union hopes to bring together 1.2 billion people, with a combined Gross Domestic Product of more than $2Tn. Furthermore, the United Nation’s Economic Commission for Africa (UNECA) also estimates that, by 2022 full implementation of the agreement could increase Intra-Africa trade value by up to 52 per cent.
If by 2022, Intra-African trade increases by about 52 per cent of the continent’s total trade value of $2Tn in 2010, what would be the impact on government revenue and social welfare?
An UNCTAD research paper concedes that the elimination of all tariffs between African Countries, would erode the trading States’ Treasury by up to $4.1bn annually, but would alternatively also create an annual welfare gain of $16.1bn in the long run, after millions of Africans would have needlessly, possibly, died before salvation comes, if it ever comes! Conversely, the $4.1bn projected yearly loss to African governments, from a Tariff Free regime could, ultimately multiply, in the long run, to more than $16.1bn annual loss in revenue, if not properly managed!
Furthermore, Africa’s poorer economies, particularly, still fear that the benefits in the free trade area may not be evenly distributed or even trickle down.
Why did Nigeria wait till the very last minute before it backed out of the agreement in 2018?
That was rather unfortunate; why the FEC, with Vice President Osibanjo, presiding, announced a decision that was, obviously, diametrically opposed to President Buhari’s wish, is still unclear. The Ministry of Trade and Investment, was clearly also not on the same page with the Presidency and other major stakeholders on this issue, as it was earlier, widely, formally, reported that, Buhari would sign the agreement in Kigali, and also lobby for Nigeria to host the new Secretariat of the AfCFTA.
So was President Buhari wrong for the unexpected flip-flop at such an high-octane International Forum?
In view of Nigeria’s role, as a major continental player, the evident contradiction between the FEC’s announcement, on Wednesday and Buhari’s cancellation, three days before his expected arrival in Kigali, is a massive cock-up in diplomatic terms,.
However, on a lighter note, government’s advance party, in Kigali, before the sudden cancelation, would probably remain unfazed by their futile attendance at that event, as estacode will be paid as usual; “wetin concern Agbero with overload”, you might say!
Nonetheless, despite the obvious national embarrassment, President Buhari deserves commendation for his courage, in extricating Nigeria from an economic trap, which was ‘wrongly’ approved by his political lieutenants, as the appropriate road map to rapid economic and industrial expansion, with increasing job opportunities, even when, consultations with stakeholders were not yet concluded.
Why did NLC and MAN oppose Nigeria’s endorsement of the Free Trade Treaty?
Well, the NLC National President, Comrade Ayuba Wabba, warned in a press statement that, signing the agreement was “extremely dangerous” as it was a “radioactive neo-liberal policy initiative, driven by a ministry of trade and investment, which seeks to open our seaports, airports and other businesses to unbridled foreign interference”.
Similarly, stakeholders in the Aviation subsector have also warned that Nigeria should not endorse the AfCFTA agreement, because the policy, would constrain their businesses, if foreign airlines could also schedule local flights in Nigeria, without any need to employ local staff or pay taxes. Besides, indigenous Airlines will, invariably, remain uncompetitive, against their foreign counterparts, who have greater access to much cheaper lines of credit to run their operations.
The Manufacturers Association (MAN), had rejected the ratification of the AfCFTA, until issues of market access and enforcement of rules of origin, are addressed. MAN have therefore, sensibly decried the poor preparations, lack of consultations and non-inclusion of inputs from key stakeholders, in the buildup of the negotiations.
MAN President, Dr. Frank Jacobs, on Wednesday March 21st 2018, condemned the removal of tariffs on 90 per cent of all imports and services offered and insisted that the balance 10 per cent of goods identified for tariff protection, was inadequate to revive and sustain Nigeria’s Manufacturing sector. The MAN President, therefore, advised that Nigeria’s national interest should be our primary consideration, and consequently, called for the establishment of a committee of stakeholders to, critically, review the AfCFTA and ensure Nigeria’s interest is well protected before signing.
So is the President’s unexpected, but evidently welcome policy reversal, not to sign, in accord with the wishes of Labour and the Organised private sector?
Well, while briefing journalists, in Abuja on March 21st 2018, Femi Adesina, the President’s Media Adviser, reiterated Buhari’s explanation, that “he would not agree to anything that would impede local entrepreneurs”, particularly, “anything that would encourage the dumping of finished goods, which is contrary to Nigeria’s interest.” Consequently, President Buhari has, reportedly set up a multi-disciplinary committee to consult and recommend some amendments to make the Treaty more friendly to Nigeria’s interest.
If the safeguards suggested by MAN and other stakeholders are adopted, will it then become safe for Nigeria to endorse the CFTA agreement?
Unfortunately, it’s not so easy, as Nigeria’s economy will definitely remain uncompetitive and falter until lower single digit inflation rates and cost of funds prevail with a stronger Naira. Furthermore, cheaper import substitutes will continue to flood our markets and keep local industrial output, well below installed capacity, and also compel significant job losses!
Instructively, in order to be competitive and strengthen our economy to embrace Free Trade, the purchasing power of incomes should be enhanced with below 3 per cent inflation to spur vibrant consumer demand, while, our industrialists will pay not more than 5 per cent interest on their loans.
Postscript July 7, 2019: The above article (without the introductory paragraph), was first published a March 28, 2018. However, although President Buhari recently endorsed the AfCFTA, it is regrettably, not clear whether or not the fears of both Labour and the real sector have been thoroughly addressed.
Furthermore, there is no indication that Buhari’s desire for Nigeria to host the Permanent Secretariat of the AfCFTA was approved at the latest Niamey convention. There is also no suggestion for adequate and reasonably priced power supply which would, expectedly, advise the choice of industrial locations; besides, both inflation and cost of funds remain stuck in double-digits!!