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On January 1, 2021, the African Continental Free Trade Area officially took off. It is the culmination of endless years of political push towards free trade across Africa. Nosa James-Igbinadolor analyzes Nigeria’s place within the new free trade zone
The African Continental Free Trade Area (AfCFTA) has finally taken off across the continent. Originally scheduled to begin on July 1 of last year, the coronavirus crisis and other factors crippled the proposed takeoff.
In March 2018, African heads of state and government held an extraordinary summit in Kigali, Rwanda and agreed to establish the Free Trade Zone.
The agreement to create the AfCFTA paralleled the Kigali Declaration, which called for the “operationalization” of the AfCFTA and the initiation of the more ambitious Phase II talks, which would cover competition policy, intellectual property and investment. A protocol on the free movement of people was also signed.
The AfCFTA, according to South African President Cyril Ramaphosa, will boost intra-African trade, promote industrialization and competitiveness and contribute to job creation, and unleash regional value chains that will facilitate Africa’s meaningful integration into the global economy. The AfCFTA will also enhance the prospects for Africa as an attractive investment destination. It will help promote the empowerment of African women by improving women’s access to business opportunities, which in turn will facilitate economic freedom for women and expand the productive capacity of countries. “To support this, we must strengthen women’s participation in the continental economy by ensuring increased public procurement for women-owned businesses. We must ensure that sufficient support is provided to women-owned SMEs and cooperatives in local economies and regional “, emphasized the South African leader
In addition to increasing trade flows for both new and existing products, the AfCFTA has the potential to generate substantial economic benefits for African countries. These benefits, according to the International Monetary Fund, include “higher revenues derived from increased efficiency and productivity from better resource allocation, higher cross-border investment flows and technology transfers. In addition to reducing import tariffs, to guarantee these benefits, African countries need to reduce other trade barriers by making their customs procedures more efficient, reducing their wide infrastructure gaps and improving their trading climate. At the same time, policy measures must be taken to mitigate the differential impact of trade liberalization on certain groups as reallocated resources in the economy shrink and activities migrate to places with comparatively lower costs. “
The expectation is that services and goods flow freely in and out of participating countries, making the continent the largest free trade zone in the world.
The free trade initiative could create an integrated market with a total GDP of more than $ 3 trillion, according to the US think tank Brookings Institution.
The AU says the deal will create the world’s largest free trade zone. It also estimates that the implementation of AfCFTA will lead to a boost of around 60% in intra-African trade by 2022.
Currently, the continent lags behind other regions of the world in terms of continental trade. According to the African Development Bank (AfDB), intra-African exports represent only 16.6% of total trade.
In 2018, the African Export-Import Bank reported that only 15% of the international trade of African countries takes place within the African continent. This percentage compares unfavorably with other continents such as Europe (67%), Asia (58%) and North America (48%).
In July 2019, Nigeria finally signed the AfCFTA after withdrawing days before the agreement’s scheduled signing date in March 2018. President Muhammadu Buhari said he needed more consultations in Nigeria.
Trade within Africa is dominated by trade within regional blocs and not by trade between regional blocs, therefore most trade and investment takes place close to home.
Intra-regional trade in sub-Saharan Africa is currently highly concentrated, with around 66% of regional demand for intra-regional exports represented by just 10 countries, including Côte d’Ivoire, the Democratic Republic of the Congo, South Africa and a few other southern African countries.
Tensions continue to exist between the smallest and largest states across the continent when it comes to trade and market access. This is because the potential forward and backward links between their economies, creating cross-border value chains, have yet to be established.
As Professor Carlos Lopes from the University of Cape Town noted in 2018, “Once the studies have been done, it will be possible to establish which countries can specialize in which elements of which supply chains. For example, the South African automotive industry uses But South Africa is not a big producer of leather, but other African countries could supply the leather. So the key is to establish these links. Once the agreement is ratified, opportunities will arise.
For Nigeria, the prospects for increased trade across the continent represent an opportunity to expand its trade balance as well as its balance of payments.
The country’s trade with the other countries that belong to the Economic Community of West African States (ECOWAS) remains deficient, as does the aggregate trade flows between all ECOWAS member states. The vast majority of Nigeria’s exports to ECOWAS are fuels and mineral oils, and agriculture and manufacturing make up a tiny percentage of the country’s exports to the subregion. The numbers are even scarier when it comes to trade across the continent.
Simply put, Nigeria does not trade much with other African countries and the AfCFTA represents a real opportunity to expand trade, grow the economy and generate development.
The service sector accounts for 65% of global production and more than half of Nigeria’s economy, and as Gbemisola Alonge noted in Stears Business, “for Nigeria to fully reap the benefits of a closer Africa, it must think beyond from the old focus on goods and positioning to win in the services game. The service sector is an escalator for new economic growth in Nigeria and plays a larger role than industry in the economy through its contribution to Gross Domestic Product (GDP), capital imports and employment.
In August, just a few months after celebrating its signing of the AfCFTA, Nigeria imposed a ban on the movement of all goods from countries with which it shares a land border: Benin, Niger and Cameroon, effectively banning all trade (import and export). -with your neighbors. The border closure has affected Nigerian consumers and exporters, as traders are denied entry of goods, even those for which they have already paid customs duties, and consumers face inflated prices for imported food products, and some products have doubled in price.
The closure of the Nigerian border was against the spirit, and the AfCFTA letter, and as noted in a Brookings Institution report, is “inconsistent with its 44-year commitment to the Economic Community of West African States (ECOWAS). , West African Regional Economic Community, which Nigeria spearheaded in 1975, and is one of the eight building blocks of the AfCFTA. Under the ECOWAS Protocol, member states committed to establishing a common market, including through trade liberalization by abolition, among member states, of customs duties on imports and exports, and abolition, among member states, of non-tariff barriers to establish a free trade area … Specifically, the 15 countries of the ECOWAS have pledged to eliminate customs duties, quotas and quantity restrictions and to grant themselves most-favored nation treatment.
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Supply-side constraints, such as the current government’s reverse macroeconomic and monetary policies, as well as underdeveloped physical and institutional infrastructure, continue to threaten Nigeria’s effective participation and efficient derivation of critical economic and commercial benefits. of the AfCFTA. Therefore, although market access exists, supply-side constraints limit the country’s ability to respond to the opportunities inherent in the AfCFTA and remain a barrier to Nigeria’s competitiveness.
Nigeria’s inability to take advantage of the US-designed Africa Growth and Opportunity Act (AGOA) could be an indicator of the country’s ability to take advantage of the AfCFTA.
The AGOA project initiated by the United States of America in 2000 aimed to help develop trade and facilitate the export of more than 6,000 goods to the United States without tariffs. The trade agreement was primarily intended to galvanize the African economy.
Although the AGOA program has been in place for the past 20 years, Nigeria has never fully exploited the potentials due to its over-dependence on oil. The country is said to have exported goods worth less than $ 10 million to the United States under the program in 20 years.
It is relevant for Nigeria to respond to the opportunities presented by the AfCFTA by designing policies and promoting market access for Nigerian exporters of goods and services, boosting growth and boosting job creation.
It is also critical that the country move quickly to remove barriers against Nigerian products, stimulate the country’s industrialization by providing an expanded platform for Nigerian manufacturers and service providers to connect to regional and continental value chains, enhance the competitiveness and stimulate increased exports. of goods and services throughout the continent. The government should also provide a platform for the integration of small and medium-sized enterprises (SMEs) into the regional economy and accelerate the empowerment of women.
