A free trade area is a group of countries that have few or no price controls in the form of tariffs or quotas between each other. Free trade areas allow the agreeing nations to focus on their competitive advantage and to freely trade for the goods they lack the experience at making, thus increasing the efficiency and profitability of each country.
On March 21, 2018, 44 African heads of state and government officials met in Kigali, Rwanda, to sign the framework to establish African Free Trade Agreement (AfCTA) Treaty, potentially the biggest free trade area yet in contemplation. AfCTA is a continental block that will hopefully comprise of all 55 African Union members will create a bloc with a cumulative GDP of $2.5 trillion and a market of 1.2 billion people. It is currently estimated that African countries only do about 16 per cent of their business with each other, which makes it the smallest amount of intra-regional trade compared to Latin America, Asia, North America and Europe.
The journey to Kigali actually commenced at 2012 Summit of African Heads of State and Government in Addis Ababa, Ethiopia, when they passed a resolution for the commencement of the process towards the continental free trade negotiations as a ploy to reverse this trend of low trade and transactions among Africa countries.
With AfCFTA, it is hoped the continent will accelerate its integration and address the overlapping membership of existing regional economic communities (RECs) like East African Community and the Economic Community of West African States. Most of the existing RECs are performing below expectations.
The treaty aims to boost African economies by harmonising trade liberalisation across both various sub-regions and continental level with countries committing to remove tariffs on 90 per cent of goods. United Nations Economic Commission on Africa (UNRCA) estimates that AfCTA should increase intra African trade by 52.3 per cent even double current figures upon the further removal of non-tariff barriers.
In addition, AfCFTA will foster a more competitive manufacturing sector and promote economic diversification by promoting intra-African trade. The removal of tariffs will create a continental market that allows companies to benefit from the economies of scale.
The United Nations Committee on Trade and Development warned the elimination of all tariffs between African countries would reduce the trading states’ treasury by up to $4.1billion annually thus deepening poverty, with millions of Africans potentially exposed to starvation and death although it has a potential to also create an annual welfare gain of $16.1billion in the long run.
Also, poorer economies and those with low manufacturing base that the benefits in the free trade area may not be evenly distributed, countries with large manufacturing bases, such as South Africa, Kenya and Egypt, would receive the most rapid benefits.
Critics equally highlight a dearth of transportation infrastructure such as roads, rail, waterways and even air service agreements linking different African nations, as well as the fact that many countries do not manufacture goods their neighbours may want to import, as challenges to the deal.
Before AfCTA, many countries within the continent have existing bilateral and tripartite agreements on trade with other economies in other continents. Francophone countries for instance continue to maintain their trade relationships with France and it is yet seen how this will not impact on the new treaty.
In Nigeria, there is a renewed effort to become self-sufficiency in food production and so, government intends to stop rice importation by the end of 2018. As a result, the country has substantially reduced its rice importation from countries such as Taiwan by almost 90 per cent. However, Benin, a neighbouring country with a small population has conversely increased its importation with credible sources disclosing that most of the imports are smuggled into Nigeria.
As a result of these, powerful voices from the manufacturing and trade sectors raised objections to President Buhari signing the AFCTA treaty even when Federal Executive Council (FEC) had given approval and the President was already scheduled to attend the Kigali conference.
To be sure, Minister of Industry, Trade and Investment, Dr Okechukwu Enelamah, who led Nigeria’s team to the negotiation rounds canvassed the need to develop a CFTA that supports and promotes structural reforms in Nigeria and across the continent rather than undermine it. The team urged AU to adopt best practices in the process to enhance ownership through increased consultation with domestic authorities and critical stakeholders, in order to deepen ownership of the process.
Enelamah warned that “trade agreements with binding obligations and economic consequences are not to be taken lightly. Trade liberalisation is good, but complimentary policies are required. Negotiations must be based on negotiating mandates that reflect national economic priority. Nigeria is reversing weaknesses and failures that we made in previous agreements. Those failures were made due to insufficient consultation with stakeholders and not taking into consideration the vulnerabilities of our domestic market.”
President of Nigeria Labour Congress (NLC), Comrade Ayuba Wabba said in a statement that the agreement, rather than unite the continent would lead to a greater division among African countries and describe the agreement a ‘neo-liberal document’ that would open Nigeria’s ports to free movement and interference from fellow African countries.
NLC also noted that in preparation of the trade agreement, relevant business stakeholders were not consulted, another indication that it was meant to create and divert wealth to the pocket of the corrupt citizens.
“There is a renewed, extremely dangerous and radioactive neo-liberal policy initiative being driven by the Ministry of Trade and Investment that seeks to open our seaports, airports and other businesses to unbridled foreign interference never before witnessed in the history of the country.
“The drivers of this policy initiative, without consulting the relevant stakeholders for possible impact assessment, have perfected a document for the signature of President Muhammadu Buhari at Kigali on March 21. We at the Nigeria Labour Congress are shocked by the sheer impunity or blatant lack of consultation in the process that has led to this. We are more worried by the probable outcome of this policy initiative if it is given life because of its crippling effect on the local businesses and attendant effects on jobs. We have no doubt this policy initiative will spell the death knell of the Nigerian economy. NLC, therefore, urged Buhari not to consent or sign the continental trade agreement because it comes with a burden that would increase hunger for Nigerians, debt hangover for the government, social strife and wars and make the nation more dependent on fellow African countries.
Also raising objection, Manufacturers Association of Nigeria (MAN) frowned at the contents of the agreement, noting that it will lead to gross unemployment in the country as most manufacturing companies in the country will be made to die a quicker death.
MAN President, Dr Frank Jacobs said his association would not support Federal Government’s adoption and ratification of the agreement establishing the African Continental Free Trade Area (AfCFTA) until issues of market access and enforcement of rules of origin are addressed.
According to MAN, the agitation from the private sector was a result of lack of consultation and inclusion of inputs of key stakeholders before Nigeria’s position was presented at the meetings of the African Union-Technical Working Group on CFTA in the build-up to AfCFTA negotiation by Nigeria.
Addressing the press, Jacobs explained that the issues of market access that allows only 10 percent of products to be protected as well as government’s enforcement mechanism in the area of enforcement of rules of origin need to be clearly defined before local producers can support the agreement.
While noting the benefits inherent in installing a continental trade agreement like AfCFTA that could improve intra-African trade and enhance economic growth and sustainable development, Jacobs said national interest should, however, be the primary consideration in the decision to sign-on to such an arrangement.
“Government should, as matter of urgency, convene a special meeting of the relevant stakeholders, including experts on trade policy to consider tariff lines rates along the line of efficiency, sectoral and sub-sectoral preferences that would be most beneficial to Nigerian businesses under the AfCFTA dispensation as well as reconsider the national position on EPA vis-a-vis the AfCFTA especially on tariff lines of products on the sensitive/exclusion list, with a view to ensuring that the EU-EPA is not reintroduced through the AfCFTA’s back door.
“Review presentations and prepare a detailed submission for the Government on ways and means of participating in the AfCFTA in a manner that our national interest and that of the budding manufacturing sector are effectively protected,” he added.
Following the agreement, African leaders agreed to have the AfCFTA come into effect within 18 months. Before then, however, at least 22 countries must ratify the agreement formally. Nigeria, South Africa, which has yet to sign on are asking for more time, especially given the need for debate and negotiations within each signatory nation.
Countries and RECs still have to complete negotiations on competition, dispute-resolution mechanisms, intellectual property rights and investments, among other issues. They should also agree on regulatory frameworks for service-trade liberalisation (to facilitate market access), submit tariff concessions schedules for trade in goods (specifying the timeline and nature of products that will be liberalised) and make progress in the signing of the free-movement protocol.
For the AU, final critical steps will be to persuade the remaining countries to join, to create a secretariat to coordinate the implementation and to provide enough resources to ensure the AfCFTA’s success. Although Nigeria is yet to sign on, it is lobbying to host the secretariat.