AfCFTA: Dismantling intra-Africa trade barriers for sustainable growth

By Uche Usim
For decades, Africa has remained stuck to protectionism and individualism in their trading system that the rest of the world seems to have left the content behind, its vast rich resources notwithstanding.
On a regular basis, the impact of African nations not interacting with one another economically has come under evaluation at various regional and international fora.
The push to correct the anomaly led to the birth of the African Continental Free Trade Agreement (AfCFTA) in 2012, when African Heads of State and governments resolved to establish a treaty to create a single continental market for goods and services , with free movement of business people and investments using a single currency.
Many experts who buy the AU decision on AfCFTA opine that the continent should rid itself of regional apathy and overreliance on Asian tigers for business, when a population of 1.2 billion and a combined Gross Domestic Product (GDP) of more than $2 trillion was capable of creating a single continental market for goods and services to the envy of the world.
They also say that a vital physical feature that provides a strong stimulus for enhanced intra-African trade is the number of landlocked countries, as 16, out of the 55 countries on the continent, are landlocked, relying to some degree on their coastal neighbours for extra-African trade using their ports and shipping lines.
Rather than latch on to this unique opportunity, it has remained wasted as trade among the landlocked countries and their neighbours has been low. Many see the implementation of the AfCFTA as a huge window for intra-African market access, and can significantly increase trade flows.
So far, 49 out of the 55 members of the African Union signed the AfCFTA agreement.
Countries that signed the Consolidated Text earlier are Niger, Rwanda, Angola, CAR., Chad, Comoros, Congo, Djibouti, The Gambia, Gabon, Ghana, Kenya, Mauritania, Mozambique, Côte d’Ivoire, Seychelles, Algeria, Equatorial Guinea, Morocco, Swaziland, Benin, Burkina Faso, Cameroon, Cape Verde, DRC, Guinea, Liberia, Libya, Madagascar, Malawi, Mali, Mauritius, South Sudan, Uganda, Egypt, Ethiopia, Sao Tome and Principe, Togo and Tunisia.
South Africa, Sierra Leone, Namibia, Lesotho and Burundi signed the AfCFTA at the summit in Nouakchott, Mauritania. Chad and Swaziland ratified the agreement, which brings the total number of ratification to six.
A minimum of 22 ratifications are required to enable the AfCFTA to come into force, while 15 ratifications for the protocol on free movement of persons, right of residence and right of establishment.
However, President Muhammadu Buhari has refused to sign the agreement citing economic protection as his reason. He says the agreement would expose industries and small businesses to external pressures and competitions, which could lead to closures and job losses.
“We are not enthusiastic about signing the EPA because of our largely youthful population. We are still struggling to provide jobs for them, and we want our youths to be kept busy.
“Presently, our industries cannot compete with the more efficient and highly technologically driven industries in Europe. We have to protect our industries and our youths.”
He also said Nigeria was delaying its signature to widen and deepen domestic consultations, to ensure all concerns were addressed, as it would not sign any agreement that would not fairly and equitably represent the interest of Nigeria and indeed, her African brothers and sisters.
However, the Director and Global Head, Communications and Events Management, Afreximbank, Mr Obi Emekekwue, while speaking at the annual Structured Trade Finance Seminar and Workshops held recently in Casablanca, Morocco, said the Agreement also comes with cost advantages and a robust chance to benefit from economies of scale. According to him, expanding markets offer important opportunities to develop regional value chains that can enhance diversification and competitiveness and consolidate and integrate production infrastructure and processes across borders.
Hear him: “Constrained access to markets limits the growth of firms. Therefore, for domestic firms, getting rid of local market constraints may improve growth prospects and access to finance and technology in the global economy.
“There are, however, notable challenges. If large firms gain a dominant position in the African market, they may crowd out small and medium-size firms. This suggests a need for complementary policies, including consumer protection and competition policies, to ensure a smooth transition.
“Full implementation of the AfCFTA would require the diverse countries in Africa to create shared institutions to provide public functions. There are clear economies of scale advantages in spreading these costs across the AfCFTA area.”
Emekekwue added that higher heterogeneity and political costs can be expected as a result of countries’ diverse cultural, political and economic arrangements, especially if some countries’ preferences for public goods and policies are incompatible with the preferences of other countries or subregions on the continent. “Heterogeneity can also be a source of value in the AfCFTA area if differences across the continent stimulate economic agents to specialise in the production
of different rival goods and services, while simultaneously learning from one another. And when there is little heterogeneity, conflict may arise because interest groups may have similar preferences for particular rival goods.
“To reap the enormous potential benefits of the AfCFTA, it is necessary that all African countries join. The sooner that the remaining nations join the AfCFTA, the sooner all countries will be able to realise these benefits,” he stated.
He also said the deal is also tied to the Boosting Intra-African Trade (BIAT) action plan, which forms part of broader initiatives under the African Union’s Agenda 2063.
“All these fall within the limited scope of intra-African trade, which at 15 percent compares unfavourably with Europe (67 percent), Asia (58 percent), North America (48 percent) and Latin America (20 percent).
“Intra-African trade and industrialisation are crucial to the prosperity and inclusiveness agenda articulated under the African Union’s Agenda 2063 development strategy and moving away from commodity and natural resource dependence is an indicator of success and transformation under the AU plan.
“It is also in line with Afreximbank’s 5th Strategic Plan which emphasises the promotion of intra-African trade as well as industrialisation and export development,” he added.
Emekekwue said it is important African nations have a good understanding of the extent of vulnerability and in designing the appropriate policy for promoting value addition and export diversification.
“The removal of tariffs and trade barriers to free up trade and deepen intra-African trade and regional integration is an important tenet of the AfCFTA,” he said.
However, some other stakeholders like Dangote Group, Manufacturers Association of Nigeria (MAN) and Lagos Chamber of Commerce and Industry (LCCI) have hailed the Federal Government’s decision to withhold its signature to the agreement.
According to them, there were many barriers in the tariff system among the regions of Africa.
Aliko Dangote, Chairman of Dangote Group, while speaking at the recent Africa Trade forum 2018, tagged, “AfCFTA Ratification and Implementation: A game Changer for Africa Economies” held in Lagos said: “What is the rationale behind formation of regional economic blocs if trade barriers still exist among African States?”
He highlighted the frustrations, administrative challenges and difficulties his firms often go through in exporting products to neighbouring African countries.
“There is need to consult widely and we are supporting the government in this regard. It is not that I am opposing AfCFTA, but there are many barriers especially in our tariff system among the regions of Africa. We don’t want a situation where Nigeria will become a dumping ground.
“There were some trade agreements in the past. Why are they not working? We as a company, Dangote, will benefit from AfCFTA. We need 80 percent of raw materials to be very productive; importation of raw materials is not the best for us if we must implement AfCFTA. We don’t want foreign goods to come and dominate our market. Just to take cement to Ghana we have to sign 38 documents.
“For example in Benin Republic that is 24 kilometres from us, taking our products there is difficult. So, all these and many other things need to be addressed. What we need is backward integration that will make us produce competitively.”
Corroborating Dangote’s views, Director-General, Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadir, noted that the body has consistently maintained that it was not against intra-African trade, especially one that boosts the market reach of Nigerian businesses, including manufacturers.
“But we don’t want a situation where Nigeria will be a dumping ground. However, when the agreement was being signed, we cautioned against signing an agreement without fully engaging the relevant stakeholders and adequately comprehending its implications for the Nigerian economy in general and the manufacturing sector in particular.
“We counselled that a country specific study should be carried out to ascertain its implications for the Nigerian economy, particularly the productive sector. A country that exports jobs, imports poverty.
“It is gratifying to note that the Federal Government embarked on the needed nationwide consultation and is doing the needful in reconstituting the presidential committee dealing with the matter and the private sector is called to join the process.
“At the end of the day, Nigeria will take an informed decision as to what type of AfCFTA it should sign and when to sign,” he explained.
Also commenting on AfCFTA, the President of Lagos Chamber of Commerce and Industry (LCCI), Mr. Babatunde Ruwase, said what was important was to ensure that appropriate safeguards were in place to protect the vulnerable sectors of the economy.
He noted that there was nothing wrong with free trade, but there was need for wider consultation.
“Nigeria must be part of the AfCTA for numerous reasons which include the fact that it is a platform for our Small Scale Enterprises (SMEs) to be integrated into the regional economy and a means of acceleration of women’s trade and economic empowerment.
“We counsel that in order to take full advantage of the AfCFTA, government needs to intensify current efforts to eradicate non-tariff and regulatory barriers to international trade such as border delays, burdensome customs and inspection procedures, as well as ensure that multiple licensing and taxes are eliminated. A situation where it is easier to import than to export will defeat the purpose of signing the AfCFTA,” he added.
Source: The Sun