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AfCFTA: Experts appraise expected impact on Nigeria’s economy

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By ADEBAYO OBAJEMU

At the recently concluded African Union Summit in Niger Nigerian President Muhammadu Buhari finally launched the African Continental Free Trade Area by signing the continent’s largest economy into the deal. After months of reluctance over competition concerns, Nigeria’s support has given weight to forming the world’s largest free trade zone — a 55-nation bloc worth $3.4 trillion.

Earlier in March this year, about 44 member countries of the African Union had endorsed the agreement during the 18th Extraordinary Session of the Assembly of (AU) Heads of State and Governments in Kigali, the capital of Rwanda. But  the two most important  African economies , Nigeria and South Africa, withheld  assent to the agreement meant to establish a common protocol to allow free movement of goods and services among member nations of the AU. They were joined by seven other countries, including Burundi, Guinea Bissau and Eritrea who also did not sign the agreement.

South Africa later signed the agreement, raising concerns among analysts who were favourably disposed to Nigeria being a part of the agreement. In March, for instance, former President Olusegun Obasanjo described Nigeria’s refusal to sign the agreement as “disappointing.”

Delayed Assent

Mr Buhari’s delayed signing of the agreement, according to the government, was borne out of the need to appraise its potential and possible danger to the local economy. It was borne out of sheer patriotism. With a porous border system, for instance, there were fears that the agreement would open the country’s seaports, airports and other businesses to unbridled foreign interference and domination.

The agreement was heavily criticised by prominent interest groups like the Nigeria Labour Congress and Manufacturers Association of Nigeria, with suggestions that aspects of the agreement would hurt Nigeria’s interest.

Following Mr. Buhari’s refusal to sign the agreement, the government called for adequate consultation and inputs from interest groups, particularly with the NLC, which called the treaty a “renewed, extremely dangerous and radioactive neo-liberal policy initiative.”

In June, Mr. Buhari received the report on the impact of the agreement on Nigeria’s economy.

“As Africa’s largest economy and most populous country, we cannot afford to rush into such agreements without full and proper consultation with all stakeholders,” the president said at the occasion. For AfCFTA to succeed, African nations must develop policies that promote African production, among other benefits, he added. The signing of the agreement  brought to an end several months of wait by many in the various sectors of the economy.

With a GDP of $405 billion, Nigeria is considered the largest economy in Africa. It is followed by Egypt ($332 billion) and South Africa ($295 billion). With a population of about 190 million, the nation is also Africa’s largest market. Analysts are however divided on the impact of the agreement on the economy and what Nigeria’s delayed signing would translate to.

A few analysts have argued that the treaty would impact on government revenue and social welfare negatively . According to them, elimination of all tariffs among African countries would erode the trading states’ treasury by up to $4.1billion annually and deepen poverty, with millions of Africans potentially exposed to starvation and death.

Ghana was selected as the host of the AfCFTA secretariat. A review committee said the West African nation was awarded the right based on regional balance formula. The country edged out six other countries that had submitted their bids to host the secretariat, including Egypt, Ethiopia, Kenya, Madagascar and Senegal. The secretariat’s primary mandate will be the implementation the agreement, which has been ratified by 25 countries, according to the African Union.

Dr. Olufemi Omoyele, public policy analyst and management expert, said the signing of the agreement was the right way to go. “If properly implemented and guided, Nigeria stands to gain a lot from that because as we do know, Nigeria is a huge market.”

He explained that with free movement of goods and services, the African market can help boost the nation’s economy because Nigeria has a comparative advantage if things are done right. To achieve maximum value, the nation must fix its infrastructure and develop local capacity, he added.

Professor Hassan Saliu, former Dean, Social Science, University of Ilorin  and public affairs commentator, said the arrangement would have been Nigeria’s ‘baby’, had the government and other stakeholders been proactive. According to him, with her huge potential and vast resources, Nigeria ought to have been the country driving the process, rather than being the nation trying to hold every other nation back on the continent.

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“We have lost the battle, at least psychologically, but could still win the war,” he wrote. “Ghana positioned herself and today hosts the secretariat. If nothing, that is a lot of tourism money that will be drawn to Ghana, especially from Nigeria where many people in government service are getting ready, smacking their lips for the deluge of trips for meetings and conferences – which is what we know how to do best.”

But for Ambrose Omokordion, chief research officer at Investa,  an investment consulting, Nigeria’s delayed signing of the agreement would not have much impact on what the nation stands to benefit in the long run. “We signed (the agreement) before the thing had really gone into full drive (there isn’t even a secretariat yet), so we will benefit from it completely.

However, Omoyele  said that he was worried about Nigeria’s level of preparation. He noted that the agreement is like the West African free trade agreement which Nigeria has failed to maximise. “How well-positioned are Nigeria’s businesses to take advantage of the agreement?” he asked. “Where is the infrastructure? How have we positioned the products that we seek to export?

“If we must take advantage of AfCFTA, we must incentive the private sector for value addition. We cannot continue to export raw materials and get peanuts in return.”

He also expressed fear over the possibility of having locally produced products dumped into the country and mislabeled by other countries across the continent. To check dumping, Nigeria needs to have some safeguards, he said, adding that the nation must develop infrastructure, protect her borders, set up monitoring teams and develop the capacity of local manufacturers.

If the government and relevant stakeholders fail to put these measures in place, he warned, the nation may not gain from the agreement.

“We may just be signing on to something that may be like paper tiger; something good on paper alone. Unless we develop capacity for value addition, we may not profit maximally from AfCFTA.”

Objectives of the CFTA

  • Create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Continental Customs Union and the African customs union.
  • Expand intra African trade through better harmonization and coordination of trade liberalization and facilitation regimes and instruments across RECs and across Africa in general.
  • Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes.
  • Enhance competitiveness at the industry and enterprise level through exploiting opportunities for scale production, continental market access and better reallocation of resources.

Background

The 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union, held in Addis Ababa, Ethiopia in January 2012, adopted a decision to establish a Continental Free Trade Area (CFTA) by an indicative date of 2017. The Summit also endorsed the Action Plan on Boosting Intra-Africa Trade (BIAT) which identifies seven clusters: trade policy, trade facilitation, productive capacity, trade related infrastructure, trade finance, trade information, and factor market integration. The CFTA will bring together fifty-four African countries with a combined population of more than one billion people and a combined gross domestic product of more than US $3.4 trillion.

Negotiations

Negotiations for the CFTA are expected to in June 2015 and the CFTA should be launched by an indicative date of 2017. The main objectives of the CFTA are to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Customs Union. It will also expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation and instruments across the RECs and across Africa in general. The CFTA is also expected to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access and better reallocation of resources.

The establishment of the CFTA and the implementation of the Action Plan on Boosting Intra-African Trade (BIAT) provide a comprehensive framework to pursue a developmental regionalism strategy. The former is conceived as a time bound project, whereas BIAT is continuous with concrete targets to double intra-African trade flows from January 2012 and January 2022.

 

 

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