By Henry Boyo
The African Continental Free Trade Area (AfCFTA) agreement was endorsed on Wednesday 21st March 2018, by forty-four African countries in Kigali Rwanda; nine other African Union member countries, including Nigeria and South Africa have delayed their assent to the treaty.
Hereafter, matters arising from the African Union’s vision of establishing free trade and 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 agreement signed in March 2018 commits countries to removing import duty on 90 percent of all goods, while identified “sensitive items” which make up the balance 10 percent would also be phased in later as tariff-free.
Furthermore, the agreement will liberalize commercial services and also tackle so-called “non-tariff barriers” which include extended delays and harassment at border posts, which hamper trade between African countries.
Ultimately, free movement of people and a common currency is expected to evolve in a free trade area, which is branded as second in size to the World Trade Organization.
What is the advantage of an African single market?
Intra-Africa trade is notably, relatively, modest and was barely 10 percent, of the total trade in the continent in 2010; thus, by creating a single continental 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, eight years ago. Notably, however, before the 2015 devaluation, Nigeria’s GDP, on its own, was reported to be close to $450bn (over 20 percent of Africa’s total GDP in 2010). Nonetheless, The United Nation’s Economic Commission for Africa (UNECA) has estimated that, by 2022 full implementation of the agreement could increase the Intra-Africa trade value by up to 52 percent.
If by 2022, Intra-African trade increases by about 52 percent of the continent’s total trade value of $2Tn in 2010, what would be the impact on government revenue and social welfare?
A research paper by UNCTAD 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.
Instructively, however, if care is not taken, with deepening poverty, millions of Africans would have needlessly died before salvation comes, if it ever comes!
Conversely, the $4bn projected yearly loss to African governments, from the Free Trade Agreement could, possibly, also multiply in the long run, to yield more than $16.1bn annually, if properly managed!
Notwithstanding, there are still fears, particularly among the poorer economies 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, especially when the Federal Executive Council on Wednesday 14th March, had announced that President Buhari would sign the framework Agreement in Kigali on 21st March 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 not on the same page with the Presidency and other major stakeholders on this issue, as the decision was already, formally, made public that Buhari would sign the agreement on behalf of Nigeria in Kigali, but would lobby for Nigeria to host the new Secretariat of the CFTA.
So was President Buhari wrong for the unexpected flip-flop at such an high-octane International Forum?
The evident contradiction between the FEC’s announcement, on Wednesday and Buhari’s cancellation, three days later, is a massive cock-up in diplomatic terms, in view of Nigeria’s role, as a major continental player.
However, on a lighter note, so long as government’s advance party which had earlier arrived in Kigali, before the cancellation are not expected to repay their estacode, they would probably remain unfazed by their attendance at that occasion, without their leader “wetin concern Agbero with overload”.
Nonetheless, President Buhari deserves commendation for his courage, despite the related national embarrassment, to extricate Nigeria from an economic trap, which had been approved by his political lieutenants, as the roadmap to more rapid economic and industrial expansion, with increasing job opportunities, even before, prior consultations were concluded with major stakeholders, particularly, Organised Labour and the Manufacturers Association of Nigeria.
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 also warned that Nigeria should not endorse the CFTA agreement, as the policy, would constrain their businesses, if foreign airlines could 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, has also rejected the ratification of the AfCTA, until issues of market access and enforcement of rules of origin, are addressed. MAN also decried the poor preparations, lack of consultations and non-inclusion of inputs of key stakeholders, before Nigeria’s position was presented, at the meetings of the ‘Technical Working Group’ on CFTA, in the buildup of the negotiations.
On Wednesday, March 21st, 2018, MAN President, Dr Frank Jacobs condemned the removal of tariffs on 90 percent of all goods and services offered and insisted that the balance 10 percent of goods which could be protected by tariff, was certainly not adequate to revive and sustain Nigeria’s Manufacturing sector. The MAN President, therefore, advised that Nigeria’s national interest should be the primary consideration, in any decision, to sign such an agreement. Jacobs, consequently called for the establishment of a committee of stakeholders to critically review the text of the AfCFTA agreement and ensure Nigeria’s interest is well protected before signing.
So is the President’s unexpected, but evidently welcome policy reversal in accord with the wishes of Labour and the Organised private sector?
Well, while briefing journalists, in Abuja on March 21st 2018, Femi Adesina, Media Adviser to the President, 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 the required amendments to make the Treaty more friendly to Nigeria’s interest.
Well 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, Nigeria’s economy will continue to be uncompetitive and falter until lower single-digit inflation rates and cost of funds prevail. Invariably, lower cost, import substitutes will continue to flood our markets and keep operations, well below full capacity, in local factories.
For example, the patronage for imported rice and smuggling will be sustained, so long as they remain cheaper than local production. We should be impressed, for example, that in Malaysia, in addition to incentives and credible infrastructure, interest paid on Agricultural loans, is barely 3.5 percent!
Instructively, in order to become sharply competitive and make our economy strong enough to embrace Free Trade, the purchasing power of incomes should be enhanced to spur vibrant consumer demand while our industrialists should be able to borrow with not more than 5 percent interest.