Background
The African Continental Free Trade Agreement (AfCFTA) was promulgated at the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union at Addis Ababa, Ethiopia in January, 2012. The aim of the Agreement was to establish a continental free trade by an indicative date of 2017. The AfCFTA would be the world’s largest free trade area since the formation of the World Trade Organization bringing together 55 members of the African Union and covering a market of more than 1.2 billion people and combined gross Domestic product of more than US $3.4 trillion.
An extraordinary summit was held, premised on the AfCFTA, from 17th – 21st March, 2018 in Kigali, Rwanda by African Leaders during which the agreement establishing the AfCFTA was presented for signing by the AU member States. 44 out of 55 member States (excluding Nigeria) signed the AfCFTA agreement. Nigeria would, after much reluctance, sign the agreement on the 7th of July, 2019. The nation is, however, yet to domesticate it as local law[1].
The agreement however came into force on the 30th of May, 2019 after the ratification of the agreement by 22 member States of the African Union which is the minimum ratification threshold.
The Main Thrust of the Agreement
The general objectives of the AfCFTA are to:
- Create a single market for goods and services, facilitated by movement of persons in order to deepen the economic integration of the African continent.
- Create a liberalized market for goods and services through successive rounds of negotiations;
- Contribute to the movement of capital and natural persons and facilitate investments building on the initiatives and developments in the State Parties and Regional Economic Communities recognized by the African Union;
- Lay the foundation for the establishment of a Continental Customs Union at a later stage;
- Promote and attain sustainable and inclusive socio-economic development, gender equality and structural transformation of the State parties;
- Enhance the competitiveness of the economies of State parties within the continent and the global market;
- Promote industrial development through diversification and regional value chain development, agricultural development and food security; and
- Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration process[2].
Economic Implication on Nigeria’s Industrial Sector
Given the huge market potential in Africa, there is positive possibility that AfCFTA will become Africa’s success story. However, the amount of success that is achievable with the AfCFTA agreement will depend to a large extent on the quality of negotiation and implementation of the AfCFTA agreement by African countries. Although Nigeria signed the AfCFTA framework agreement in July 2019, the initial reluctance of 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 joining the AfCFTA. 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 present day Nigerian Economy operates a fiscal policy designed to discourage importation and encourage exportation. 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[3].
The Nigerian Economic Summit Group (NESG) conducted an impact assessment study and economic wide implication of AfCFTA on the Nigerian Economy. The study has some interesting findings with wide-ranging implications for the Nigerian economy.
For instance, the results indicate that the AfCFTA will be trade-diverting as Nigeria’s imports from non-African countries will be substituted by imports from African countries. The losses in government revenue are more likely to have resulted from the decrease in tariff revenue – as a tax on imports constitutes a major source of government non-oil revenue.
It was noted, however, that government revenue was positive in both the first and second period of the ACFTA implementation when foreign investment inflow and an increase in labor supply was assumed. The African Continental Free Trade Area implementation in Nigeria is expected to create the phenomenon of trade-diversion and this will be more prominent in Nigeria’s imports from West African countries and South Africa. Investment is expected to decline in all simulations.
The implementation of the AfCFTA has had a positive impact on Nigeria’s export. If linear cuts are applied to tariff elimination, aggregate export will increase by 0.02 percent in both the first and second five-year implementation periods respectively. If the tariff elimination is back-loaded, aggregate export is expected to increase by 0.01 percent and 0.03 percent in the first and second implementation periods respectively. Even when tariff elimination is front-loaded, aggregate export will still increase by 0.02 percent in both the first and second five-year implementation periods respectively.
When sensitive products are protected from tariff cuts, aggregate export will also increase by 0.02 percent in both the first and second five-year implementation periods respectively. The tariff liberalization provision of AfCFTA will also result in a marginal decline of household income.
This can only be reverted by a deliberate intervention of the Government, inflow on foreign investments and increase in labour. The above results strongly suggest the existence of opportunities and potential risks associated with the AfCFTA agreement.
Early Obstacles to the Implementation of AfCFTA
The recent happenings after the coming into force of AfCFTA suggest that many African countries are obviously unprepared to implement their AfCFTA commitments. In August, just three months after celebrating signing the AfCFTA, Nigeria slapped 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.
Increase Uche, President, National Association of Government Approved Freight Forwarders (NAGAFF), described the policy as ill-timed and of great danger to Foreign Direct Investment (FDI). He observed that while Buhari’s security advisers might have genuine concerns, the decision was coming at a time Nigeria had just signed the AfCFTA.
Couldn’t Nigeria’s decision be seen as a mockery of the AfCFTA agreement? Godwin Emefiele, the Central Bank Governor, said the border closure is a means of rejuvenating Nigeria’s economy and creation of employment opportunities, stressing that there has been resultant astronomical growth of the local economy and the number of rice farmers and local production of the commodity has increased exponentially[4].
Nigerian officials have pointed to the primary objective of curbing smuggling of goods such as rice, tomatoes and poultry to bolster Nigeria’s agricultural sector. President Muhammadu Buhari, in a press statement released in August, 2019, stated that the closure was necessary to allow Nigeria’s security forces develop a strategy on how to curtail the incessant smuggling (of prohibited food items, arms and ammunition as well as other contraband goods), and its wider ramifications. He noted that in particular, the activities of the rice smugglers have threatened the self-sufficiency already attained under his administration’s agricultural policies.
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.
Another major obstacle is the friction between the Nigerian traders doing business in neighboring States and the local traders of that State as there have been reported cases of repeated clashes between Ghanaian and Nigerian traders since 2019, resulting in closure of shops belonging to Nigerian traders in Ghana. Allegedly, over 600 shops belonging to Nigerian traders in Kumasi and other areas were shut down in 2020 by the Ghana Union of Traders Associations (GUTA). Subsequent intervention by the Federal Government to curb the uproar has proved abortive. In October 2019, the GUTA called on citizens of the country to stop patronizing products that are imported from Nigeria. While making the call for the boycott, the regional secretary of the union, David Kwadwo Amoateng, said the Ghanaian Government was not being fair to the local traders. He said shunning Nigerian products would serve as a payback to Nigeria for closing its border.
The GUTA resorted to citing Section 27 of the Ghana Investment Promotion Center (GIPC) Act 865[5] to support its clampdown on Nigerian businesses. However, while the sale of electronic and electrical materials do not fall within any of the businesses listed above, the Electrical Dealers Association in Ghana cited the section to defend its shutting down of over 50 shops belonging to Nigerians in November, 2019 alone.
The above seems to be quite an unfortunate situation and thus poses a threat towards the actual implementation of the AfCFTA.
The extant provisions of the African Continental Free Trade Agreement are tailored to ensuring a cordial and lasting intra-trade relationship amongst African countries. Ghana, having ratified and domesticated AfCFTA, is bound by its provisions. The reason behind the action of GUTA as posited by its Regional Secretary Stems obviously from a wrong perception as Nigerian’s border closure was basically for security reasons and no more. The act in itself does not augur well with the current provisions of the AfCFTA.
Article 17 paragraph 2 under part IV of the AfCFTA provides as follows:
“Each State Party shall notify, through the Secretariat, in accordance with this Agreement, the other State Parties of any actual or proposed measure that the State Party considers might materially affect the operation of this Agreement or otherwise substantially affect the other State Party’s interests under this Agreement.‖
Nigeria currently cannot be visited by the venom of this provision as it has not yet ratified same but not withstanding the delay in ratification, Nigeria reserves its sovereignty and is entitled to exercise protective measures as it relates to its security. However, adequate notice should be given to affected state parties in accordance with the agreement.
It is our thought that the Nigerian government needs to demonstrate the political will to resolve the issues that led to the border closure resulting in the speedy ratification and 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. Meanwhile, the Federal Government of Nigeria ought to consider the recommendations of the NESG and other stakeholders in reaching a decision towards the ratification and domestication of the AfCFTA.
EDITORIAL TEAM
1. Anthony Madukwe
(Senior Partner)
anthony.madukwe@nakudulawpartners.com
2. Emmanuel Omole
(Senior Associate)
emmanuel.omole@nakudulawpartners.com
3. Isimeme Andrew
(Associate)
Isimeme.andrew@nakudulawpartners.com
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[1] See Section 12 of the Constitution of the Federal Republic of Nigeria on Ratification and domestication of foreign treaties.
[2] See Article 3 of the AFCFTA
[3] The Nigerian Economic Summit Group (NESG) Report On The Implication of AFCFTA on Nigerian Economy.
[4] https://economicconfidential.com/2020/01/nigerias-AfCFTA-agreement/
[5] Section 27 of the GICP Act states that:
“A person who is not a citizen or an enterprise which is not wholly owned by a citizen shall not invest or participate in the following enterprises, the sale of goods or provision of services in a market, petty trading or hawking or selling of goods in a stall at any place, the operation of taxi or car hire service in an enterprise that has a fleet of less than twenty-five vehicles, the operation of a beauty salon or a barber shop, the printing of recharge scratch cards for the use of subscribers of telecommunication services, the production of exercise books and other basic stationery, the retail of finished pharmaceutical products, the production, supply and retail of sachet water, all aspects of pool betting business and lotteries, except football pool.”
