The commencement of the African Continental Free Trade Area (AfCFTA) agreement is suppose to open up the continent to trade among each other, however, there are fears that it may not be smooth sailing for a Nigerian economy that is already in a wobbly state; BENJAMIN UMUTEME reports
Meant to bridge the huge gap in inter and intra African trade, the African Continental Free Trade Agreement (AfCFTA) which involves 55 member states of the African Union looking to create a single continent-wide market for goods and services and facilitate capital movement.
AfCFTA agreement has all members states who have duly signed up except Eritrea, this making the world’s largest free trade area.
Besides AfCFTA, several treaties and agreements exist in different parts of Africa. We have the East African Community (EAC), the Economic Community of West African States (ECOWAS), and the Common Market for Eastern and Southern Africa (COMESA) to mention a few.
Nigeria had initially refused to sign the agreement in Kigali saying it wanted to consult with all stakeholders in the country before appending its signature to the agreement.
Regarded as the largest in the world in terms of participating countries since the formation of the World Trade Organisation (WTO), the agreement initially requires members to remove tariffs from 90 per cent of goods, allowing free access to commodities, goods, and services across the continent.
The United Nations Economic Commission for Africa (UNECA) estimates that the agreement will boost intra-Africa trade by 52 per cent by 2022 involving about 1.2 billion people across the continent.
“Challenges run deep”
In spite the enormous benefits inherent in the agreement, challenges in the Africa Free Trade Agreement run deep and it might just be a drop in the ocean of easing Africa’s cross-border trade.
For FS Leader and Chief Economist, PwC West Africa, Andrew Nevin, it is not uhuru as is being touted l. According to him, “the impact will not be felt overnight. For now, it would be best to be cautiously optimistic about the impact of the agreement.
“There are issues around physical and soft infrastructure connecting countries in Africa. Right now it’s much easier to ship by sea. We would need better roads and effective rail systems across Africa for a more effective trading system,” he says.
Rails are an efficient way of moving vast amounts of goods across long distances, but it has witnessed a gradual decline in Africa. According to the African Development Bank (AfDB), rail transport’s market share in most African countries accounts for less than 20% of the total volume of goods transported.
Despite recent years’ progress, Africa’s road network, both within and between countries, leaves much to be desired.
Deepening Internet connectivity, easing cross-border payments, creating digital identities, and improving Africa’s addressing system has remained a challenge.
Besides infrastructure, Nevin insists that each country would have to harmonise several policies to a unified standard.
“If you produce a product or service that satisfies the Standards Organisation of Nigeria (SON), it has to be the accepted standard for other countries, to ease economic transactions. Ultimately, the AfCFTA agreement will take a lot of goodwill from member states,” he explains.
For West Africa, Nevin argues that relations might continue to be handicapped by the language barriers between Francophone and Anglophone West Africa.
Also, some African countries are historically territorial. South Africa has battled with long with xenophobia, Nigeria’s borders are closed despite the prospect of a free trade treaty, and Kenya wants its citizens to hold significant equity in ICT companies operating in the country.
In the same vein, public affairs analyst, Mr. Godwin Ubochi, does not share in the current optimism being bandied around.
In chat with Blueprint Weekend, Mr. Ubochi insisted that with Nigeria’s infrastructure still in the stage it would be difficult for small businesses to compete as implementation of the agreement starts.
He said, “When it comes to this kind of agreement you need to make sure that infrastructure is working. In our case where power is vanishing with very few people in the industrial sector connected to the national grid, how would one be able to compete?”
He noted that with the poor road network, the cost of production is bound to rise.
“Unfortunately, we know how people are frustrated when they transport their goods on Nigerians roads. These are the things that are supposed to encourage manufacturing which are lacking.”
According to him, Nigeria signed the agreement with the expectation that things will get better, which according to him is a gamble.
“It is purely based on expectation because as it is now there is nothing to write home about with regards to our road network which is part of the things that encourage manufacturing and production. Then there is power which has been an issue for a long time. Many factories have shut down and left the country.
“The policies that will put these things in place are also not there as government is not running with the right policies that will make these things happen.”
For the Manufacturers Association of Nigeria (MAN), potential threat to Nigeria’s manufacturing sector is enormous. The umbrella body of manufacturers noted that possibilities of people bringing goods that are sub standard is huge.
According to MAN, this is expected to pose a new and serious challenge to the country’s regulators.
“This creates a new a new demand to the Standards Organisation of Nigeria and other regulators to scale up their activities to ensure that this doesn’t happen because now we are not only going to protect the interest of the Nigerian manufacturer but the interest of the African manufacturer,” MAN said.
Excitement
For development consultant, Mr. Joe Afolayan, the agreement will bring enormous benefits to Small and Medium Enterprises (SMEs).
Responding to a question by Blueprint Weekend, Mr. Afolayan said the AfCFTA will facilitate and increase intra-African trade which will invariably increase economic activities in the SME sector.
“With increased intra-trade also comes with Economics of Scale and cheaper raw materials and other inputs in the SME sector,” he said.
He further said with increased internationalisation of their products and services, SME players will benefit from Standardization and Quality Assurance when dealing with continental firms. Just as he opined that it will ease access to finance and capacity building across the continent.
“Above all, due to access to one single AfCFTA market across Africa, there will be reduced regulations and customs issues for SME exporters in Nigeria. For dispute settlement nearness of the AfCFTA secretariat based in Accra-Ghana is another plus for Nigerian SMEs.”
The Director General of the NACCIMA, Ambassador Ayo Olukanni, stated that there is excitement in the private sector on the news of the commencement of trading under the AfCFTA.
Olukanni illustrated the excitement that pervaded the Nigerian business community with the preemptive strategic repositioning by an Ogun State based coffee farmer to capture the benefits that the AfCFTA would offer.
He said: “I am aware of a Nigerian Small and Medium Enterprise (SME), which is doing profitable business by supplying coffee to the local Nigerian coffee market. When I visited its premises, the owner revealed that they have acquired about two acres of land somewhere in Ogun State to expand its production of coffee.
“The company explained that it has taken that strategic initiative with an eye on the AfCFTA in order to be able to compete, specifically with coffee from Ethiopia and Kenya. That is the spirit Nigerian private sector should have regarding the trading under the AFCFTA.”
He added that NACCIMA has been emphasising that the AFCFTA will not be a 100-metre dash, but a long distance race.
The Director General of the LCCI, Dr. Muda Yusuf, also said the OPS is excited about the commencement of the AfCFTA because it is something members have always wanted.
“We believe that economic integration has several benefits in terms of the market size that is about $3 trillion of 1.2 billion people. That is a huge opportunities for Nigerian businesses and investors,” Yusuf said.
He, however, noted that businesses also need to be well positioned competitively in order to benefit from the opportunities since trade is all about competition.
“But unfortunately, not all of us are properly positioned yet, especially those in the manufacturing, production and agric processing and particularly those in the SMEs. The cost of production is still very high. Therefore the AfCFTA presents a significant competitiveness challenge to them,” he added.
Yusuf identified five major challenges to be addressed to make Nigerian businesses ready and fully prepared for AfCFTA.
He listed them as infrastructure, institutional, regulatory, foreign exchange and policy environments.
He said: “You know that trade is about competitiveness. It is the survival of the fittest. It only underscores the need for us to scale-up our competitiveness as an economy.
“What that requires is that the government should move very quickly to support enterprises in reducing their production costs by improving the regulatory and policy environments in a way that will make enterprises competitive and give them opportunity to be able to take advantages and the opportunities of the AfCFTA.
In his reaction, the President of ACCI, Mr. Al-Mujtaba Abubakar, said the AfCFTA would enhance Nigeria’s economic influence on Africa.
Abubakar stated that as the leading economy in the continent, Nigeria has a historic opportunity with the commencement of the AfCFTA to deepen its economic reach and depth across Africa by leveraging on its affirmed strengths in services and manufacturing sectors.
In a statement to commemorate the implementation of the free trade area agreement at the weekend, Abubakar said Nigerian firms are already strongly rooted in many African countries and the take-off of the AfCFTA has presented them opportunities to accelerate trade.
He explained that ACCI is re-committing itself to continuous mobilisation of its members to tap into the various sectoral action plans to enhance their capacities to trade within the context of the AfCFTA.
“We want to note that Nigeria has been fervently preparing for this day, especially through the mobilisation and strategic activities of the national committee on readiness for the AfCFTA,” Abubakar said.
The Free Trade Agreement’s implementation is expected to increase foreign direct investments and, by extension, startup funding in Africa. However, the issues that could arise from its implementation present different kinds of openings.
Titi Akinsanmi, an economist, opines that technology would need to be employed for several new agreement features to come into effect. The new agreement opens up a wealth of opportunities from fintech companies and tech-enabled logistics and distribution platforms to the entertainment industry.
“Cross-border payments already happen in Africa, so what’s required now is to build upon the existing infrastructure and make it less onerous to send money from one African country to another,” she states.
“The banks have done quite well, but the next stage might just be for the disruptors like Paystack and Flutterwave, to further deepen Africa’s payment infrastructure.”
