Nigeria, Africa’s largest economy on July 7, 2019, signed the African Continental Free Trade Area (AfCTFA) agreement, expected to improve intra-African trade, enhance economic growth and sustainable development.
Nigeria became the 53rd country to join the African Continental Free Trade Area after President Muhammadu Buhari signed the AfCFTA Agreement at the 12th Extraordinary Summit of the African Union on the launch of the Operational Phase of the AfCFTA in Niamey, Niger Republic.
The Republic of Benin also joined the group, bringing to 54, the total of African countries out of 55 that had endorsed the AfCFTA agreement, with Eritrea as the only nation yet to sign.
As at the day Nigeria sign, a total of 26 African countries have deposited instruments of ratification, with Gabon being the latest after depositing its instrument of ratification during the Extraordinary Summit.
The AfCFTA Agreement came into force on May 30, 2019, thirty days after having received the twenty-second instrument of ratification on 29th April 2019 in conformity with legal provisions.
It aims to bring all 55 members of the African Union (AU) together in a single market of 1.2 billion people by removing trade barriers such as tariffs across Africa.
The deal is expected to boost regional trade and allow companies to expand and enter new markets. Regrettably, manufacturing industry currently accounts for only about 10 per cent of the African Union’s combined GDP of $3.4 trillion and the trade deal, is believed could make the sector more competitive and productive.
The first step of the deal is to cut tariffs for goods from countries within the bloc but the timeframe to do this is yet to be announced.
The African Union says that the African Continental Free Trade Area – called AfCFTA – will create the world’s largest free trade area.
It also estimates that implementing AfCFTA will lead to about 60 per cent boost in intra-African trade by 2022.
Only 16 per cent of international trade by African countries takes place between African countries, according to research by the African Development Bank in 2014 .
At the moment some of that intra-Africa trade range from fresh fish from the Seychelles to petrol from Angola.
Background to Nigeria’s signature
AfCFTA, a brainchild of the African Union to deepen regional integration, had been in the works since January 2012 – with Nigeria as one of its major promoters.
The federal cabinet earlier last year has approved the signing of the deal, which it said would boost the country’s export, “spur growth and boost job creation as well as eliminate barriers against Nigeria’s products and provide a Dispute Settlement Mechanism for stopping the hostile and discriminatory treatment against Nigerian nationals and corporate business persons in other African countries.”
But the AfCFTA hit a hurdle last year when Nigeria pulled out days before the country was due to sign the agreement following pressure from local unions and businesses that feared they would be uncompetitive if trade barriers are removed.
Another reason given by stakeholders was the concern over unfair trade practices, such as dumping, which could be occasioned by a later decision to lower the sales of the country’s exports below the cost of production.
President Buhari also had cancelled his scheduled trip to Kigali, Rwanda to attend an Extra-Ordinary Summit of the African Union to sign the framework agreement for establishing the African Continental Free Trade Area in March last year .
Nigeria being Africa’s biggest economy and has long been a regional leader. So when its signing was stalled, observers questioned if the African trade bloc would ever actually happen.
But despite Nigeria’s absence, its determination to be the world’s largest free trade zone, the AU still initiated the move in March 2018, with 44 countries signing onto the deal.
President Muhammadu Buhari noting that he needed further consultations among stakeholders in the country set up a special panel equally in March last year to assess the impact of the African Continental Free Trade Agreement (AfCTA).
Buhari accepted to sign the agreement after a presidential panel he set up to look into the AfCFTA, advised that Nigeria would benefit economically from the envisaged trade relations with other African countries.
However, the panel noted that some negative impacts included massive smuggling that could turn Nigeria into a dumping ground for goods produced outside of Africa.
But Buhari had noted that Nigeria’s signing of the AfCFTA and its Operational Launch at the 12th Extraordinary Summit was an additional major step forward on the AU’s Agenda 2063.
He however emphasized that as much as Nigeria supported free trade among the African countries, the trade must also be fair to all.
He added, ‘‘As African leaders, our attention should now focus on implementing the AfCFTA in a way that develops our economies and creates jobs for our young, dynamic and hard-working population.
‘‘I wish to assure you that Nigeria shall sustain its strong leadership role in Africa, in the implementation of the AfCFTA. We shall also continue to engage, constructively with all African countries to build the Africa that we want.”
‘‘In fact, you will recall that the treaty establishing the African Economic Community was signed in Abuja in 1991.
‘‘We fully understand the potential of the AfCFTA to transform trade in Africa and contribute towards solving some of the continent’s challenges, whether security, economic or corruption.
‘‘But it is also clear to us that for AfCFTA to succeed, we need the full support and buy-in of our private sector and civil society stakeholders and the public in general.”
Stakeholders have advanced what could be the benefits and negative sides of the AfCTFA depending on Nigeria’s disposition to the new era in Africa.
Nigeria they believed has a lot to gain from increasing access to its goods and services to a wider African market. But many of those consulted also feared increased regional integration would lead to unfair competition for jobs and the goods they produce.
Executive Director of Nigerian Export Promotion Council, Mr Segun Awolowo, for instance, disclosed that 22 non-oil sector products have been identified by the Federal Government for export, worth about $30 billion in earning yearly.
Awolowo, who spoke recently in Abuja, also said Nigeria could create as much as 500,000 new export-related jobs by belonging to the AfCFTA.
He listed cocoa, cotton, cement, leather, cashew, Sesame, Shea butter, palm oil, fertiliser, petrochemicals, and rubber among other products to be exported in favour of Nigeria.
The Manufacturers Association of Nigeria (MAN), which took the lead in agitation for caution against signing the agreement said the all stakeholders should work towards having a beneficial trade engagement in Africa. Effectively mitigating the risks and taking advantage of the opportunities of the 1.2 billion market and $2.5 trillion GDP.
According to Segun Ajayi-Kadir, Director General, MAN Nigeria should critically analyze the continental market and strategically capacitate its domestic economic actors to benefit maximally therein.
He said, “What we have to gain from the $2.5 trillion GDP. Our current portion of intra African trade is about $7.1billion or 5.5 per cent of total trade, while that of South Africa is $32 billion or 25 per cent. So we need to up our game. And there is no better way to do it than to remove the supply side constraints that limits our production capacities; push northwards our production costs, that bedevils our competitiveness and the non-tariff barriers that inhibit our export to other countries, as well as investment in those economies.
“We currently operate at a little above half of our installed capacities. So with improved power supply and pricing mechanism, access to credit at no more than 5%, improved port facilities and logistics, elimination of multiple taxation, supportive performance of the regulatory and other agencies or institutions of government we can improve our performance. Our private sector also needs industry friendly tax rates and incentives, friendlier export expansion policy regime, drastic reduction in smuggling and other trade infractions to grow under an AfCTFA regime. There is also need to increase in incentive for resource based industrialisation as we should be able to optimise our capacity to compete and increase the contribution of the manufacturing sector to the country’s GDP.” He noted that jobs will be sustained and new ones created, more taxes will be paid by functioning industries to augment the loss of revenue that will result from reduction in duty owing to the onset of AfCFTA.
For it part, the Lagos Chamber of Commerce and Industry (LCCI) said it had earlier called for the signing of the agreement, “as we believe that the country stands to gain more than lose from signing the Free Trade agreement.”
The LCCI Director General, Muda Yusuf, said with AfCTFA, Nigeria will have access to larger market of 1.2 billion population and a $2 trillion economy.
“This offers tremendous opportunities for economies of scale for our firms. Not signing before now has denied us opportunity to put our views on the table to shape the structure of the agreement. But the reality is that the agreement is work in progress and we can always revisit the gaps in the agreement that may not be favourable to us.
“We maintain that, while this would improve trade among African countries and provide opportunity for Nigeria to export to other African countries, appropriate safeguard measures should be put in place to protect vulnerable sectors of the economy. It is also critical ensure that there is effective enforcement of the Rules of Origin”, he said.
He however said that LCCI was of the opinion that, in the long run, the country should focus more on building an economy that is competitive rather than having a disproportionate focus on protectionist approach to industrialisation. “We need to fix infrastructures to bring down operating and production costs in the economy. Our policies and institutions must also be in consonance with the quest for a competitive economy”, he said.
However, MAN Director General also warned that the gains may be inaccessible for Nigeria, “If we maintain our current level of inadequacy of infrastructure and the cost of production remains as high, we certainly will become net losers in this continental trade arrangement. Government is aware of this ominous reality and we are confident that necessary steps will be taken to avert this. Mr. President assured the nation that this will not happen and we believe there are strong indications that all hands would be on deck to ensure we succeed.”
The Nigeria Employers’Consultative Association (NECA) said the larger Organised Private Sector endorsed the signing with preconditions on what Government must do to ensure that Nigeria optimise or reaps the maximmum benefit derivable from the agreement.
Mr Timothy Olawale, the Director General of NECA said these will also mitigate the fear of Nigeria becoming a dumping ground for foreign goods, ensure the competitiveness and sustainability of the local manufacturing industries and encourage foreign investors inflow into the country.
He said, “Government is expected to improve generally on infrastructures chief among which is Power (Electricity supply) and road network and of course resolve the lingering issue of insecurity which has become an albatross. These would create a conducive environment foe businesses to thrive and be competitive with the expected result of job creation and improved earning exports for the country as well.”
The Nigeria Labour Congress (NLC) also corroborated the views of the Organised Private sector, maintaining that the agreement would rather be beneficial to Nigeria.
“It a progressive train which Nigeria cannot afford to be left behind. But I am happy to say that the Federal Government did carry out an all inclusive nationwide consultation and conducted a country-specific study on the potential impact of AfCFTA. We participated in the Presidential Steering Committee on Impact and Readiness Assessment of the AfCFTA at the Steering Committee level as well as the Technical Working Group. It was based on the outcome of these processes that Mr. President was advised and he did append his signature at the just concluded Extra-ordinary Session of the African Union.
“You would recall that we had cautioned against signing the agreement without first adequately consulting the relevant stakeholders and carrying out a country specific study to assess the potential impact of the agreement on the manufacturing sector in particular and the Nigerian economy in general.
“The President when he received the report of our Committee had said in unmistakable terms that the agreement should carry with it a manufacturing agenda for the continent and quite importantly, that the goods to be traded should be made in Africa products. He said there should be commitment of all parties to comply with the rules of origin and operate in a fair manner to get us the Africa we want. There were also quite a number of conditions that we advised should accompany our consent l believe that had been taken on board. And what we can expect is economic of scales and localisation of industry, more jobs will be created, there will be migration of workers, our fashion industry and creative sector will get a boost, and more investors will come into the country.”
Also the Managing Director of Financial Derivatives, Bismarck Rewane said AfCTFA is the best thing that has happened to Nigeria economy in recent time.
Rewane noted that Nigeria will play a major role in driving the African economy and will see rapid growth in the refinery sector with Dangote Refinery coming on stream next year, cement sector, food processing and others.
On whether the government will be able to meet up with the infrastructural development which is key to Nigeria companies participating at advantageous position, Rewane affirmed that Nigeria will be forced to invest in the electricity sector, “if not the companies will go to a lesser countries to produce and bring the products to Nigeria to sell.”
He also expressed that it would lift up the standard of living in the continent as it happened to lesser European countries like Portugal, Spain, Greece.
In 2017, export to other African countries accounted for 12 percent of Nigeria’s total export and only 4 percent of its import came from other African countries, according to Nigerian government data.
However stakeholders have stressed that there has never been a better time to invest and trade in Africa. With a combined GDP of US $ 6.7 trillion in purchasing power parity, business and consumer spending at US $ 4 trillion, over 400 companies with revenues of over US$ 1 billion, 60 per cent of the world’s arable land and vast strategic minerals, Africa seems ready to truly take off.
Stakeholders also advanced that AfCTFA will change the political and economic geography of Africa from now on.