A Brief Review Of The African Continental Free Trade Agreement

On the 28th of June, 2019, news broke out that the Desmond Guobadia-led panel set up by the Federal Government to review the African Continental Free Trade Agreement (AfCTA) had amongst other things, put forward a recommendation that President Buhari should go ahead with signing the free trade agreement which would give Nigerian businesses unfettered access to the over $2.5 trillion dollar African market, and also give other African businesses access to Nigeria’s 200-million population strong market.

This recommendation is poignant considering the fact that Nigeria, earlier an advocate of open markets in Africa, pulled out of signing this deal in March of this year, based on legitimate fears that it would spell doom for the country’s nascent industrial base. In this article, I’ll be presenting a balanced view of the pros and cons of the AfCTA for the Nigerian economy and people. It is up to you, the reader, to decide where you stand.

Have you ever heard stories about how it is cheaper to import goods from China to Tin Can Island Port in Lagos, compared to merely transporting those same goods from Lagos to Kaduna?

Well the cost of exporting from Nigeria to other African countries, especially those outside of the Economic Community of West African States (ECOWAS) sub-region, is still significantly higher. Ratifying the AfCTA would end the regimes of import duties that raise the cost of conducting intra-African trade.

There is however a dark reality to this, which is already playing out within the ECOWAS sub-region. The ECOWAS treaty which Nigeria is already part of, achieves almost the same ends as the AfCTA, but for the West African sub-region. Countries that ratify this agreement are exempt from the 35% import duty that goods from outside the ECOWAS region are subject to. This treaty has however been abused by some of Nigeria’s neighbours. Countries like Benin Republic are in the habit of importing 3 times the volume of palm oil they require for local consumption. What do they do with the excess, you may be asking? Well, it is repackaged as originating or made in those countries and then resold or exported to Nigeria, duty-free. If Nigeria has been the subject of this kind of smart play, there is the risk that it might play out on a larger scale once 54 African countries have unfettered access to our markets.

On the plus side, the Nigerian consumer wins in this scenario. We will enjoy a wider variety of goods from neighbouring African goods, all of them competitively priced, apart from our locally-produced goods and services. Indeed, this might actually give more truth to the phrase, ‘Customer is King’.

But not everyone will be smiling to the bank because they were able to get value for their money if this deal is signed. The average Nigerian on the street may be happy once the effects of this deal come into play, but the employers of labour in Nigeria’s industrial estates and free trade zones will not be very glad. Already, Nigeria is one of the worst countries in the world to do business, with high multiple taxes, epileptic power supply, frequent industrial actions, cost of registering businesses and transactions, poor road network, lack of adequate raw materials, plus many other factors that we’re all too familiar with.

The sum of these factors ensures that the cost of production in Nigeria is higher than that of neighbouring African countries. This higher cost of production usually translates into higher cost of goods and services. Currently, Nigerians have no choice but to make do with these prices, but once they have access to cheaper goods and services, the biggest losers of our patronage will be our own local businesses. It is difficult to predict what the result of this might be. Some businesses might collapse or downsize, just to stay in business. Whichever choice they make, the result would still be a bitter pill forced down the throat of many Nigerians.

The AfCTA is a mixed blessing for Nigeria, not because of any inherent flaws, but because of the general backwardness of Nigeria’s economy. This may be why the Desmond Guobadia panel only recommended that President Buhari sign the deal, not ratify it, which is a safe middle ground. Merely signing it gives Nigeria limited access to the provisions and benefits of the free trade agreement. Ratifying it would demand that the Executive prepare a bill to incorporate the AfCTA into our laws. Once the National Assembly passes this bill, it would be fully operative in Nigeria.

If President Buhari follows this agreement, he will in effect, be buying Nigeria more time to observe the workings of the agreement while preparing for it.

So, what do you think? Should we go all in, or tread softly?

-by Akin Agunbiade