After many years of negotiations, the African Continental Free Trade Area (AfCFTA) came into effect at the beginning of this year. While the trade deal appears to have inherent benefits for the continent, the readiness of many African governments remains in doubt. Indeed, African leaders have come to the realisation they have to build infrastructure, improve port processes and generally facilitate seamless transit of goods for AfCFTA to work too. With its oil-dominated economy, there are questions about Nigeria’s competitiveness and readiness for trade.
The journey towards the AfCFTA gained momentum in March 2018 when 44 nations signed up during the African Union Extra-Ordinary Session in Kigali, Rwanda.
The free trade area was supposed to take effect last July but the AfCFTA secretariat delayed it to this month. Currently, 54 out of the 55 African Union member states have signed the deal that creates the single largest trade block in the world.
Notwithstanding the ideals of the trade area, the challenges however remain, as countries move at their pace in defining the strategies for implementation.
Already, AfCFTA Secretary-General, Wamkele Mene said the member states lack customs procedures and facilities to make tariff-free trade feasible this month when the treaty was meant to become effective.
This affirms concerns by members of the private sector on the readiness of the country to take advantage of the trade deal. For the AfCFTA to deliver on its promises, key concerns and issues need to be addressed, especially as it relates to extant trade rules.
A recent survey by the Organised Private Sector, showed that many small businesses are unaware about the trade deal, raising concerns about Nigeria’s implementation strategy, just as a large majority expressed worry about increased competition from other countries, despite the challenging business environment in the country.
Specifically, pre-existing nuances that are peculiar to African markets in terms of alignment with Western partners, language, visa restrictions, currency, insecurity, Customs Union, existing trade agreements in regions, dependence on commodity exports, infrastructure, low manufacturing activities among others, raise concerns about the expected progress from the AfCFTA market.
Similarly, with outstanding issue of Rules of Origin (RoO) dominating negotiations, the African Union (AU) has equally stated that the principle of reciprocity would define the exchange of tariff concessions between state parties under the AfCFTA.
With free movement of persons within the continent still a major challenge, there are also concerns about how services would be effectively rendered without harassment and intimidation among trade partners.
According to the Organised Private Sector, the AfCFTA serves as an avenue for local industries in Nigeria to penetrate new markets and establish strong cross-border supply chains with other African countries, even though it also poses new competitiveness risk for many firms, especially for those in the real sector.
This is because, the AfCFTA single market eliminates tariffs on 90 per cent of goods produced on the continent, offering investors potential economies of scale; enabling them, in theory, to manufacture goods in one country and export them tariff-free to the whole continent, if the goods are not on the exclusive list of the destination country.
Presently, crude oil remains Nigeria’s dominant revenue earner, as N2.78 trillion of the almost N3 trillion export earnings in the third quarter of 2020, came from oil export.
Indeed, Nigeria’s economic fortunes are tied to the boom and bust cycles of the oil market, but year 2020 reflected a change in fortunes, going by the impact of the coronavirus pandemic on the global oil industry, even as more than one-quarter of the country’s labour force remains jobless.
With the country still lax in tapping into trade benefits posed to it by several programmes like the African Growth Opportunity Act (AGOA), there are concerns about the capacity to take advantage of the new trade deal.
Export of agricultural products has also been largely impacted by the rise in banditry; herders-farmers conflict, flood and poor yield structure of the seeds.
The Manufacturers Association of Nigeria (MAN), had insisted that key technical concerns like the crafting of a robust national negotiation mandates, the Rules of Origin, phased liberalization, the developing and less developed countries dichotomy, schedule of specific tariff items in the basket for Trade in Goods, should be addressed with a strong commitment on the part of government to enhance competitiveness.
“The high cost operating environment, the dearth of basic infrastructure and uncompetitive nature of manufactured products may constrain Nigeria from securing maximum trade benefits”, the Manufacturers Association of Nigeria (MAN)
A lack of adequate modern transport infrastructure also impedes traders’ desire to reap the full benefits of free trade, studies show. With the right transport infrastructure and high integration, manufacturers of consumer goods could earn up to $326 billion per year, according to McKinsey & Company, a US-based management-consulting firm.
And according to the World Bank, it takes about three and a half weeks for a container of car parts to be cleared by Congolese customs. While East African countries Tanzania and Uganda have established a one-stop border post to slash time for cargo movement between them, new delays in the form of divergent standards for goods have quickly emerged, underscoring the mutating nature of non-tariff barriers.
Only recently, a Financial Times report revealed that the gridlock at the Apapa port terminals has become so devastating to the point that business entities pay more than $4,000 to truck a 40ft container 20km to the Nigerian mainland recently, almost as much as it costs to ship a container about 12,000 kilometres from China.
The President of the Manufacturers Association of Nigeria (MAN), Mansur Ahmed, expressed concerns about Nigeria’s readiness, even as he called on African governments to muster the political will to implement policies and regulations that will curtail trade malpractices and prevent the implementation of the AfCFTA from being sabotaged with the dumping of goods made outside Africa.
Ahmed, during a TV programme, said: “Are we ready to do the things we have to do to address the possibilities of dumping? First of all, we can’t be 100 per cent ready. But I believe that the first thing, which is important is to recognise that we have to do certain things to create the capacity needed to engage in this kind of trade.
“The dumping issue frankly is a matter of political will. Do our governments and political leaders have the political will to agree on those things that we have to do? The regulations we put in place for imports are regulations that all the countries agreed on. But the difference is that while some countries will ensure that these regulations are complied with, others unfortunately will not do so”.
He described AfCFTA as one of the most significant developments that has taken place on the continent since the dismantling of colonialism, saying that it has the capacity to redress the imbalance in global trade arrangements that has exploited African resources at the expense of the continent.
According to him, AfCFTA is intended to reverse this trend and build capacities that will enable African countries to trade among themselves and be equal partners in the international trading arrangements by boosting its industrial base.
He said: “AfCFTA will build Africans capacity to manufacture and change the narrative of African economy and give Africa a stronger voice and positioning in the global economy as we go on.
“I am confident that there will be tremendous opportunities for growth and development for each and every one if the countries that signed this agreement are willing to come together to make it a success. But this cannot come without challenges.
“Let me take the issue of dumping for instance. The key issue is that if you have imports coming into your country, you have to make sure that they meet the qualities required under the agreement and are not brought into your country without compliance of necessary regulations such as customs duties. If we do this, we will create the environment whereby goods that are able to come in do not necessarily displace our manufacturing capacities.”
Need for safeguard measures
If liberalisation under the trade deal is not checked through safeguard measures, 4301 of 4779 total manufacturing tariff lines of 5%, 10% and 20% will be moved to 0% in the first five years, thus leading to the closure of virtually all manufacturing companies within the period.
The first impact of liberalization through tariff cuts, according to the Manufacturers Association of Nigeria (MAN), is the surge in imports of manufactured goods into the country, while other impacts are on the outputs, incomes, employment and investment of the manufacturing firms.
In principle, the import surge is expected to reduce sales/output; the magnitude would be higher for competing manufactured goods. This implies that full liberalization from the onset moving 90% of tariff lines to zero percent would have catastrophic implications for Nigeria.
At the virtual launch of trading on the AfCFTA, the Executive Secretary of the Economic Commission for Africa (ECA) Ms. Vera Songwe said if done properly, AfCFTA “will be the plan that turbo charges investment, innovation and ultimately growth and prosperity for Africa.”
Ms. Songwe was one of the speakers at the event who included three African heads of state and the Secretary General of the AfCFTA, Wamkele Mene, who praised the ECA and other development partners who supported the AfCFTA to see the treaty become a reality.
Also, President Cyril Ramaphosa of South Africa, the Chairman of the African Union, said while the start of trading represented a milestone for the people, member states should ensure the creation of a conducive environment for the continent’s young people and women to benefit from the opportunities presented by the agreement.
President Mahamadou Issoufou of Niger congratulated African leaders who helped to shape the agreement, saying the commencement of trading was “one of the best new year’s gifts for the whole continent.”
In his own remarks, President Nana Akufo-Addo, whose country is hosting the secretariat, described the launch as an important step towards realizing the goal of continental integration.
According to Mene, “Today, Africa is trading under the AfCFTA; this is Africa’s time.”
“With 54-member states signing it of which 34 had ratified, the agreement was a strong signal that Africa was ready to commence trading on the basis of new rules and preferences that would ensure an integrated African market”, said Mene.