The Much Talked African Continental Free Trade Agreement; A Look From A Broader Spectrum- Covid-19 And Nigeria In Perspective

By Kayode Olude and Isimeme Andrew.

ABSTRACT
A continental agreement seeking to deepen and increase participation in trade, involving goods and services supply chain within the continent, to astronomical depths, and one seeking to strengthen regional integration and further entrench Africa as a global trade hub in the comity of nations is what the African Continental Free Trade Agreement (AfCFTA) stands to achieve.

Reputed as potentially the largest trade bloc in the world as it brings 55 African nations under one trade umbrella, needless to say, the benefits that underlie the implementation of this agreement cannot be wished away by any nation serious about improving the economic disposition of its citizens. The significant reduction in traditional tariff and non-tariff barriers which has stunted the growth of trade in the continent is the juice of this landmark agreement.

With the Covid-19 pandemic having stalled the original implementation date of the agreement from the scheduled date of July 1st, 2020 to January 2021, this paper offers an in-depth look at the potential benefits this multilateral agreement can reflect on the Nigerian market – as Africa’s largest economy amid this pandemic crisis, also, the practicality of exposing Nigerian market to this agreement is addressed, the potential barriers likely to be confronted with any possible implementation is also addressed, conclusively, best practices and reforms that must be undertaken by the government towards harnessing and yielding the dividends of the agreement is suggested, unless, the creative benefits of AfCFTA will remain elusive like the search of a holy grail.

INTRODUCTION

Remarkably, between March 17th and 21st, 2018, Africa experienced one of its most progressive moments as its Leaders gathered in Rwanda for an extraordinary summit and this led to the agreement establishing the AfCFTA and also the signing of same by AU member States. 44 out of 55 member States (excluding Nigeria) signed the AfCFTA. After much persuasion, Nigeria signed the agreement on July 7th, 2019, a year after! The agreement however came into force on May 30th, 2019 after the ratification of the agreement by 22 member States of the African Union which is the minimum ratification threshold.

Presently, the President, Muhammadu Buhari had constituted a National Taskforce Committee headed by the Minister of Trade, Investment and Industry, Mr. Niyi Adebayo, to decide the verdict to the domestication of AfCFTA upon due consultation with the Governmental agencies, Private Bodies, etc. It must be remembered that Nigeria who had reluctantly signed the agreement but failed to domesticate same awaits the verdict of this committee’s decision[1]. With the Covid-19 pandemic still prevalent, and the committee still deliberating, Nigeria is indeed most fortunate for its failure to have long ratified the agreement, this is no thanks to the gift of time the pandemic has blessed us with which has now led to the postponement of the agreement to a 2021 date as opposed to July 2020 kick-off date[2], undoubtedly, we have enough time to explore the nooks and crannies of this agreement and put our house in order before coming up with a verdict.

THE AFRICAN CONTINENTAL FREE TRADE (AfCFTA) AGREEMENT AGENDA

With the coming to force of AfCFTA imminent, the benefits of the agreement is a reminder of the nostalgic age-long proverbial African wisdom which asserts that “If you want to go fast, go alone, but if you want to go far, go together” the wisdom embedded in this words cannot be more apt if the actualisation of ‘Agenda 2063’ of the African Union for an ‘independent, prosperous and peaceful Africa’ is to be actualised.

This continental agreement which leads to a combined Gross Domestic Product (GDP) of $3.4 trillion and also recognized as the world’s largest trading agreement since the creation of WTO in 1995 will work great good for the continent and its constituents. More also, it not only connects and improve the lives of over 1.3 billion people on the continent, it also projects a further increase in intra African trade to 52% by 2022 as opposed to the current abysmal 15%, when compared to other state parties trade relations of around 47% in America, 61% in Asia and 67% in Europe[3].

If actualisation of AfCFTA is achieved, Nigeria’s indelible role will forever be ‘written in gold’, this saying is not ascribed due to the largeness of the country’s economy, but much more, its pivotal role of championing the talks on economic integration in the continent far back as 1980. History reminds us that Nigeria had in the past hosted two African Union summits towards an integrated Africa, the first summit produced the Lagos Action Plan for African Economic Community, whilst the second summit in 1991 led to the adoption of the treaty that established the African Economic Community, now known as the Abuja Treaty. The Abuja Treaty of 1991 laid the foundation for the formation of a continental free trade area, namely the AfCFTA. In fact, a Nigerian was the chairman of the Negotiating Forum for AfCFTA; the late Ambassador Chiedu Osakwe, a technocrat by all standard, also, Nigeria’s trade minister, Okechukwu Enelamah, was responsible for the AfCFTA negotiations at the ministerial level.

The AfCFTA Agreement is a framework agreement that covers Trade in Goods and Services, Investment, Intellectual Property Rights and Competition Policy. This agreement is being implemented in two phases. Phase 1 of the agreement relates to a framework for the liberalization of trade in goods and services, and a mechanism for dispute settlement. Phase 2 of the negotiations covers Investment, Competition Policy and Intellectual Property Rights, the negotiation for this phase is expected to be completed by January 2021.

Currently Phase 1 of the agreement which bothers on Trade in Goods and Trade in Services are still being negotiated on a number of issues (e.g. tariff concessions, rules of origin for goods and schedules of specific commitments for services). As it stands, the agreement on trade in goods eliminates a 90% tariff reduction on products.

In regional agreements, one critical issue presented to state parties is how the pursuit of their nationalistic interest can be balanced with the object of the regional agreement which creates for a ground playing field for everyone, this is a bane to the success of trade agreements of which the AfCFTA seeks to explore for success given the continent’s decades-long disintegration.

ECONOMIC BENEFITS OF AFRICAN CONTINENTAL FREE TRADE (AFCFTA) AGREEMENT TO NIGERIAN MARKET

Given the huge market of over 1.2 billion persons in Africa, there is enviable possibility of AfCFTA becoming Africa’s success story in no distant future. No doubt, the success probability of the agreement is strongly hinged on the quality of negotiation, concession and implementation by African countries who must be constantly reminded to see the bigger picture of a greater good to the greatest number of people.

A peep at Nigeria’s present day economy reveals a fiscal policy designed to discourage importation and encourage exportation. The latter has indeed seen the country adopt strong protectionist policies to its neighboring states over the years. It is believed that the implementation of the Tariff Progressive Elimination provision of the agreement will water down the dictates of the policy and consequently change the status quo of Nigeria’s Fiscal policy.

Understandably, the reluctance exhibited by the Nigerian Government to sign the agreement was borne out of the concern of different segments of the Nigerian economy regarding the possible negative consequences of ratifying the agreement. Policy makers in Nigeria have argued that AfCFTA could easily be transformed from a free trade area into a free transfer of resources arrangement from one economy to the other.

The Nigerian Economic Summit Group (NESG) conducted an impact assessment study and economic wide implication of AfCFTA on the Nigerian Economy[4]. The study had some interesting findings on wide-ranging implications for the Nigerian economy. The study predicted the AfCFTA as a trade-diverting mechanism given that Nigeria’s imports from non-African countries will be substituted by imports from African countries. This statistics underscores the objective of the AfCFTA, which is an infiltration of African countries with ‘Made in Africa’ products and nothing else.

The laudable benefits this continental agreement affords Nigeria cannot and must not be excused from implementation by the government, any non-implementation on grounds of a ‘not too favourable investment climate’ in Nigeria could prove costly and myopic for the country in the long run, with our present crises, opportunities still abound for businesses, consumers, and government to be properly positioned to reap the benefits in the long run, below are a few:

WIDER REACH FOR GOODS AND SERVICES:

No doubt the manufacturers are presented with a myriad of opportunities as they will have access to a market of over 1.2 billion people which can help deepen their supply chain for goods, as the advantage of tariff barriers removed will help in penetration of our continental market. With this advantage come onerous obligation on manufacturing companies to step up their game to compete on a global scale, our manufacturers are still confronted with lack of a thriving enabling environment which affects their supply chain. This lacuna beckons Nigerian manufacturers need to reposition their industrial structure and strengthen their access to capital, as this opportunity will serve as a catalyst of improving the supply chain of goods within the continent. This are critical times in the destiny of Africa of which Nigeria cannot afford to be a neutral onlooker to allow this opportunity pass us by.

The critical objective of the AfCFTA is an increase for competitiveness[5] among member states, while it is agreed that there will be multiple choices for consumers, it will further allow Nigerian manufacturers to scale their level of production which can further scale the quality of goods accessible to the global market towards ensuring an economic integration and economic development of Nigeria and increase the GDP of the nation. With increased competitiveness also comes lack of access to revenues by African countries which isoriginally generated from tariffs, as such, the need to strengthen export sector of every nation will be critical if reaping the dividends of the agreement is an objective, unless, it will be at a colossal loss if the country is transformed to a destination of export by other countries.

CREATION OF INCREASED JOB:

With Nigeria’s projection of unemployment in 2020 to reach 33.5%[6], the AfCFTA comes as an ameliorating factor towards this growing decadence of unemployment rate in the nation’s economy, the AfCFTA promises job opportunities and with the private sector in tune with this agreement, it is believed that the agreement will serve its purpose in Nigeria by the employment of competent hands in the country. Also, this agreement will make access to cheaper raw materials and intermediate inputs from the continent.

Nigeria, a country enveloped with a large population of productive age whom are majorly youths, an agreement of this nature can serve as a key cornerstone towards job creation. Undoubtedly, the role the informal sector, a major contributor of about 65% to the nation’s GDP cannot be overlooked, it is believed that the yielded benefits as well-positioned small medium enterprise (SME) will stand to gain in this agreement is enough to facilitate and drive the economic growth agenda in the country.

FOSTER FOREIGN INVESTMENTS IN NIGERIA BY NON-SIGNATORIES:

In order to access the single market of trade of 90% tariff remover, any goods must satisfy the Rule of Origin – the criteria needed to satisfy the nationality of products. The Rule of Origin requires the finished goods to be substantially manufactured in member states before it can benefit from the agreement. The AfCFTA could lead to a collaboration of foreign counterparts with existing Nigerian businesses who seek to benefit under this significant tariff reduction, and this is capable of increasing the Foreign Direct Investment of the country. With the laudable administrative and regulatory achievements the Nigeria Investment Promotion Council (NIPC) and the Presidential Enabling Business Environment Council (PEBEC) has contributed towards investment growth in Nigeria, which led the country ranking 131 on World’s Bank index for doing business, it is certain Nigeria will be an attractive investment hub for foreign investors who want to deal with an African continent as a whole, thus, Nigerian businesses stand to reap from such collaboration.

INCREASE IN EXPORT OF SERVICES:

No doubt, the provision of services will be essential towards the success of the agreement, a typical scenario is evident when a company resident in Africa has manufactured goods, services will be invoked if these finished goods are to be made accessible by end-users, thus, services involving the transportation services needed to ensure delivery of the goods to fellow African countries for dispatch, administrative and legal services needed to ensure the legal framework governing the importation of the goods have been adhered to will all be collaboratively needed to ensure the success of this trade agreement., this is a sneak-peak of the trade facilitator role ‘services’ plays in achieving the ideals of this continental agreement.

In sum, we can liken trade in goods and services as complimentary tools needed towards ensuring the success of a continental agreement of this nature. With the numerous service needed, Nigeria is sufficiently positioned to export services like insurance, finance, logistics, legal, accounting, construction, real estate development, and other consultancy based services, the same way these services are currently imported into the country due to high caliber of services professional in the country. Thus, this agreement can create an avenue for expansion for the service sector and further improve their revenue generation to the country’s economy invariably increasing the GDP.

The question remains how competitive can our nationals compete on a global scale with fellow African counterparts, Nigeria has demonstrated capabilities to provide these services given the edge some sectors have gained in the provision of services in other African countries, an example of this is seen in sectors like banking, transportation, etc.

CAN NIGERIA AFFORD DOMESTICATION OF AFCFTA?

The question on our minds is whether the state of Nigeria’seconomy isripe for the implementation of the AfCFTA agreement. Many issues seem to cluster around the implementation of the agreement since its ratification. We would take a few of them.

The Nigerian economy is faced with challenging domestic realities which need to be overcome to ensure that the private sector is able to compete under a liberalized African market. These challenges include high interest rates, corruption, unreliable power supply and inadequate infrastructure.

As the clock continues to tick towards AfCFTA implementation, the cost of doing business in Nigeria coupled with physical infrastructures, are particular areas that needs to be addressed. Small and Medium Scale Enterprises (SMEs) should be capacitated with awareness and sensitization workshops on what the AfCFTA is, with emphasis being placed on how they can penetrate the regional and global value chains in doing business. No doubt, issues of rules of origin, standards, technical regulations and conformity assessment which are currently being negotiated, if not well addressed, could become trade barriers.

We must address Nigeria’s attitude towards imposing trade ban via border closure and whether the prevailing issues that led to the ban have been ratified before domesticating this agreement, vividly in August 2019, just three months after celebrating the signing of the AfCFTA, Nigeria placed a ban on the importation of all goods from countries with which it shares land borders: Benin, Niger and Cameroon, effectively banning all trade—import and export—with its neighbors. We are forced to inquire if Nigeria’s decision signaled a readiness of trade and whether such decision was a mockery of the AfCFTA agreement.[7]

Also, Nigeria’s failure to administer solutions to administrative bottlenecks to trade within the country challenges our readiness to accommodate trade with over 50 countries. Presently, the Apapa Port, a primary destination hub of goods in the country, is a highly congested place, and the levies before goods are either shipped from the port to another country or even from the port to designated locations in Nigeria is not cost friendly.

Thus, it seems the AfCFTA, at its very core, is moving in a certain direction and the economic policies of the Federal Government of Nigeria is moving in an opposite direction. AfCFTA preaches open boarders for synergy of African countries while the Nigerian Government is preaching closed borders for local economic growth. It seems one of these policies must be sacrificed for the other to thrive. The above seems to be quite an unfortunate situation and thus poses a threat towards the actual implementation of the AfCFTA.

The Nigeria Economic Summit Group (NESG)also reveals the following as a consequent effect of the Agreement on the Nigeria’s economy towit;

AfCFTA will be trade-diverting as Nigeria’s imports from non-African countries will be substituted by imports from African countries;
Implementation of the AfCFTAis expected to trigger a surge in imports across sectors of the Nigerian Economy.The major concern here is the issue of dumping. Strict enforcement of the Rules of Origin should be enshrined as is, in AfCFTA framework document[8];
In view of the findings that Nigeria’s GDP will be negatively impacted when the AfCFTA agreement comes into force, and in view of the need to make the economy more competitive; it was recognized that relying on the inflow of foreign saving to grow the economy may not readily pay-off, Producing highly competitive products in the foreign market also require strengthening government regulations and internal quality control of products produced in the country;
Nigeria needs to maximize the opportunities that are available to it in the AfCFTA agreement by enhancing the space for both domestic and foreign investments; There is a need for measures to counter the expected negative impact of AfCFTA on government revenue; The Government may begin to undertake deliberate measures that will strengthen sectors including health, education, electricity, transportation, textile, apparel and footwear to maximize the benefits that are likely to accrue to them when the AfCFTA agreement comes into force
Going Forward, It is our thought that the Nigerian government needs to demonstrate the political will to resolve the issues that led to the border closure in other to facilitate thequick domestication of the Agreement. Concrete engagements with countries whose ports and countries are used as landing ports for bringing in goods that are smuggled into Nigeria could be a starting point.

TOWARDS ADOPTING A TRADE DIGITILIZATION AGENDA WITH AFCFTA?

Can Digital trade facilitate the implementation of AfCFTA in Nigeria, are there goldmines to explore in this age of digital economy which can be harnessed by the country towards a sustainablecross bordertrade within the continent between Nigeria and its counterparts? Theseissues have been explored to proffer a digital agenda which can be partnered for achieving results.

Digital trade is reducing the cost of engaging in international trade, connecting businesses and consumers globally. For a country like Nigeria the digital economy offers opportunities, but also comes with the risk of been left behind. Improved digital connectivity and inclusive growth can only achieve the desired transformational impact on economic growth if combined with improvements in digital skills and literacy, access to digital payments and other financial services with such capabilities, the Nigerian economy can harness digital data and new technologies, generate new content, link individuals with markets and government services. Sadly, this remains an illusion for Nigeria who is yet to attain this height.

With the launch of the African Continental Free Trade Area (AfCFTA), the importance and relevance of Digital Financial Services becomes primordial in facilitating a greater intra-African trade and put in place the needed cross border payment systems in the operational phase of the AfCFTA. It would also facilitate the transactions involved in other financial products and services (e.g., to deposit savings or make a loan payment). Transaction data produced by digital payments can also reduce informational asymmetries between borrowers and lenders, and serve as a useful input into credit decisions, including choices related to trade finance for small businesses.

In 2017, e-commerce accounted for 12 per cent of global trade in goods. The International Trade Centre estimated that the market size of e-commerce would reach US$50billion in 2018 from US$8billion in 2013 (International Trade Centre, 2015), while McKinsey has projected that the value of e-commerce will reach US$300billion by 2025 (McKinsey, 2013). For cross-border trade, there is the opportunity to export a greater number and diversity of goods to a larger pool of countries.[9]Nigeria is currently capturing only a fraction of this growth and needs to strategically invest in the foundational elements of it’s digital economy to keep pace.

Another issue is whether current trade rules adequately address trade in the digital age. Indeed, existing multilateral trade rules were negotiated when digital trade was in its infancy and even if conceived to be technologically neutral, questions arise over whether they might require clarifications to reflect new forms of and issues raised by digital trade. The question is not whether the rules apply but how they apply.

CURBING THE NORM

Although, Existing World Trade Organization rules and agreements cover digital trade, there are questions about how well adapted current frameworks are to the new realities of trade in the digital era. Barriers to digitally enabled services, which form the backbone of digital trade transactions, are growing, We need approaches that are more holistic, spanning goods, services and digital connectivity; approaches that involve more stakeholders, including governments, civil society and the business community; and approaches that are informed by the interests of a range of countries at different levels of development. As the current debate on data flows shows, the road ahead will be difficult. Many digital infrastructures are born global, raising key challenges for domestic and international policy in a world where borders and regulatory differences between countries remain. Principles of market openness, enshrined in trade agreements like AfCFTA, can help countries approach some of the challenges in ensuring that the benefits from trade and key public policy goals can both be realized.

The Digital Transformation Strategy for Africa as released by the African Union intends to build on the existing initiatives and frameworks such as the Policy and Regulatory Initiative for Digital Africa (PRIDA), the Programme for Infrastructure Development in Africa (PIDA), the African Continental Free Trade Area (AfCFTA), and other framework.

With that said and hopefully with the implementation of the AFCTA Agreement and the conclusion of the Nigeria Customs Service Automation system by 2022 as promised Nigeria is sure to be taking a bold step towards digitalizing its economy but not without employing meticulous strategies in resolving very fundamental issues that may be instrumental in realizing the benefits of the agreement.

CONCLUSION

The benefits of this agreement can fully be harnessed by businesses if the government shows political will to erect the right structure and facilities with the creation of a thriving enabling environment for businesses to thrive and compete on a continental level, thus, we need to strengthen our infrastructure and areas that we have comparative advantage to reap the dividends of AfCFTA.

Also, recommendations of the Nigeria Economic Summit Group (NESG) and other stakeholders should be critically analyzed by the Presidential National Taskforce on AfCFTAin reaching a decision towards the domestication of the AfCFTA.

Nigeria as it stands has always been plagued with uncertainty surrounding this trade agreement, both pre Covid-19 and during Covid-19, unfortunately if we must truly harness our potential and overly dependence on oil, we must begin to take proactive steps towards recognising by law an agreement of this nature that shows a shift from the tradition oil-driven revenue generation means for the country.

Authors: KayodeOlude : (Associate Perchstone and Graeys), kayodeolude33@gmail.com

IsimemeAndrew : (Associate Nakudu Law Partners), isimemeandrew@gmail.com

[1]https://www.bbc.com/news/world-africa-48899701 Accessed June 12, 2020.

[2]https://www.thisdaylive.com/index.php/2020/04/30/african-leaders-mull-2021-as-afctas-new-take-off-date/ accessed on June 12, 2020.

[3] United Nations Conference on Trade and Development (UNCTAD) data for 2015 to 2017, https://unctad.org/en/pages/newsdetails.aspx?OriginalVersionID=2128 accessed on June 17, 2020.

[4]https://nesgroup.org/blog/Impact-Assessment-Study-and-Economy-Wide-Implications-of-the-African-Continental-Free-Trade-Area-%28AfCFTA%29-on-the-Nigerian-Economy, accessed June 15, 2020

[5]See Article 3 of the Agreement, p. 4.

[6]https://www.premiumtimesng.com/news/top-news/328137-nigerias-unemployment-rate-hits-33-5-per-cent-by-2020-minister.html accessed on June 17, 2020.

[7] https://www.google.com/amp/s/www.brookings.edu/opinions/nigerias-benin-border-closure-and-what-it-means-for-the-african-continental-free-trade-agreement-afcta/amp/ accessed June 2oth 2020

[8]The Economic Development of Africa report 2019, the United Nations Conference on Trade and Development.

[9](International Trade Centre, 2017).