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African continental free trade area: Matters arising

By HENRY Boyo

THE African Continental Free Trade Area (AfCFTA) agreement was endorsed on Wednesday 21stMarch 2018, by forty four African countries in Kigali Rwanda; nine other African Union member countries, including Nigeria and South Africa have delayed 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 tariffs on 90% of all goods, while the balance 10% of identified “sensitive items” would also be later phased in 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. Ultimately, free movement of people and a common currency is expected to evolve in a free trade area, which is branded as only second in size to the World Trade Organization.

What is the advantage of a single market?

Intra-Africa trade is notably, relatively, modest at barely 10% of the total trade in the continent by 2010; thus, by creating a single continental market for goods and services, the African Union, brings together 1.2 billion people with a combined Gross Domestic Product of more than  $2Tn. Notably, however, before the 2015 devaluation, Nigeria’s GDP, was reported to be close to $450bn (over 20% of Africa’s total GDP). Nonetheless, The United Nation’s Economic Commission for Africa (UNECA) has estimated that, by 2022 full implementation of the agreement could increase the 2010 Intra-Africa trade value by up to 52%.

If by 2022, Intra-African trade increases by about 52% of the continent’s 2010 total trade value of $2Tn, 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 reduce the trading States’ Treasury by up to $4.1bn annually, but would also create an annual welfare gain of $16.1bn  in the long run.

Instructively, however, with deepening poverty, if care is not taken, 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 arguably 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.

Why did Nigeria wait till the 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 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 announced that Buhari would sign the agreement on behalf of Nigeria in Kigali, but would lobby that Nigeria should  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 and Buhari’s cancellation is a massive cock-up in diplomatic terms, especially with Nigeria’s role, as a major continental player. 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 road map 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, said 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, which has never been witnessed in our history.”

Similarly, stakeholders in the Aviation subsector, also warned that Nigeria should not endorse the CFTA agreement, as the policy, would constrain their businesses, as foreign airlines could schedule local flights in Nigeria, without any need to employ local staff or pay taxes. Besides, indigenous Airlines will invariably be unable to compete, with their foreign counterparts, who have greater access to much cheaper lines of credit to run their operations.

The Manufacturers Association of Nigeria, has also rejected the ratification of the  AfCTA, until issues of market access and enforcement of rules of origin, among other concerns, are addressed. MAN have 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 negotiations.

On Wednesday March 21st  2018, MAN President Dr Frank Jacobs, also decried the removal of tariffs on 90% of all goods and services offered and also insisted that the balance10% of goods 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 a committee of stakeholders to review the text of the AfCFTA agreement to ensure Nigeria’s interest is protected before signing.

So is the President’s unexpected, but evidently welcome policy reversal in accord with the wishes of MAN?

Well, while briefing journalists, in Abuja on March 21st  2018, Femi Adesina, Media Adviser to the President, reiterated President 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 set up a multi-disciplinary committee to consult and recommend the appropriate review required.

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, 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 market and keep our factories’ operation well below full capacity.

SAVE THE NAIRA, SAVE NIGERIA!!

 

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