AfCFTA FOR DUMMIES
Written by a dummy
Dangote, in an interview with Mo Ibrahim revealed among many things that he could not transport his cement from his factory at Ibeshe (Ogun State, Nigeria) into Benin Republic. He stated that his factory at Ibeshe was just 28km away from Benin Republic but Benin Republic would rather import cement from China. Quite illogical, you would say. Dangote stressed that price was not a barrier as he could supply Benin Republic at the same price they got from China. He also stated that transporting goods to Togo could take one week or more because of the long processes at the border and even custom issues.
Getting into some African country could also be very difficult. As a Nigerian, you need visas to visit over 30 countries in Africa. Some flight tickets are even more expensive when traveling to an African country than when you have to travel out of the continent. These issues could prove inconsistent with the one dream of having a United Africa.
Therefore, leaders (Presidents of African Union Countries), decided to do something about the situation especially in the aspect of trading amongst African countries. Even though conversations have been ongoing for a while, a document was open for signature at their summit at Kigali in March 2018.
QUICK FACTS
The truth is some level of exchange or trade exists among Nations in Africa. Statistics say that the level of trading amongst Africans (i.e. intra-African trade) is about 17%. This is not even a pass mark in high school and it becomes worse when you examine facts from other continents.
Intratrading among continents like Europe, Asia and America are estimated at 67%, 61%, and 47% respectively. That means the countries in Europe export and import goods amongst themselves at a high level. 67% compared to Africa’s 17%. That is huge. It means the monies circulate within their continents making them richer and their economies better (other factors contribute but let’s limit it to trading for now).
The total export from Africa to the other continents was around 80% to 90% from 2000–2017. Africa’s export is growing at a rate that is faster than our imports. This means that goods made in Africa were mostly exported to Europe, Asia, etc. Now that might sound like a good thing for individuals but the effect of this on the economy as a continent might be grave some of which include an increased rate of unemployment.
So what exactly is the AfCFTA
AfCFTA is Africa Continental Free Trade Area which was brought alive by the Africa Continental Free Trade Area Agreement.
The current status of intra-Trade in Africa is not impressive (17%), therefore, the African leaders came together to write an agreement that would foster trading amongst African Nations. They decided to put some rules in place so this 17% can increase to 52.3% or more as estimated by the Economic Commission for Africa. AFCTA seeks to create a single market for Africans estimated to be over 1.2 billion US dollars making it the largest trade area since the World Trade Organization.
AfCFTA seeks to remove the barriers to trade such as tariff and non-tariff barriers etc. It is important to note that this process is gradual and progressive. It does not happen overnight.
In addition, the AfCFTA goes beyond trade in goods; it covers services, investments, and intellectual property. There is also a part of the agreement that contains guidelines for free movement of persons, rights of establishment and rights of residence. It is a known fact that there are some African countries that are quite difficult to enter at the moment even though you are an African. The AfCFTA seeks to address this as movement is important in trading.
Apart from Protocol on Trade in Goods and Services, other parts of the AfCFTA include Protocol on Rules and Procedures on the Settlement of Disputes, Protocol on Competition Policy and Protocol on Intellectual Property. All of these guidelines protect levels of trading, services, investment, etc.
NIGERIA’S POSITION (OPPORTUNITIES, CHALLENGES, AND DISADVANTAGES)
As interesting as this agreement sounds, Nigeria was amongst the last nations to sign and even after signing, we are yet to deposit our instrument for ratification. The President of Nigeria, Muhammad Buhari, actually set up a committee on the Impact and Readiness Assessment of AfCFTA. The President finally agreed to sign based on the recommendation of this committee in July 2019.
I mean for such an agreement that holds juicy promises, why did it take long for us to sign? Why was it even important that Nigeria signed?
Well, Nigeria is a very strategic country in Africa. We are the most populous African country making us the largest market. Nigeria is Africa’s largest economy. Although the economy of Ghana, Rwanda or some other countries are said to be doing better than Nigeria’s economy, it still doesn’t undermine the fact that we have the market. Our size can be an advantage or a disadvantage depending on the role we play in this trading. Some of my thoughts are as follows:
· One of the disadvantages would be that Nigeria can become the target outlook for most nations. This means that most producers or manufacturers from other countries would want to bring their products to Nigeria first. We might end up becoming consumers of other countries' products.
· Another disadvantage is since we have one central market, most producers or entrepreneurs might have access to cheaper labor from other less industrialized countries in Africa. The income disparity among African nations can be a barrier to the AfCFTA this might, in turn, increase the rate of unemployment in the country.
· Currently, Nigeria’s manufacturing industry contributes about 9% to our total GDP and this itself is not enough to cater to the population of the country, talk less of the larger market. According to a source, manufacturing value-added in Nigeria is seven times more than the current average for the top 20 African countries. This figure is misleading because Nigeria has had a negative decline in manufacturing over the years.
The manufacturing industry in Nigeria has been plagued with a lack of inadequate/epileptic power supply, poor infrastructure, and high taxes amongst others. For Nigeria to be a major player in the African market, we need to increase the ease of manufacturing. Even though reports say the Government has been doing more to encourage local manufacturing through initiatives amongst others, there is still more to be done. We need an improved system of transportation. Currently, we depend heavily on our roads but these roads are not in good condition. Also, Manufacturing Industries are limited by power. We need to get our power conditions fixed. We need more investments in industries like Agriculture and Agro-processing, Pharmaceuticals, etc. Small businesses should have an increase and easy access to loans from the banks and the Government.
· The quality of the goods we produce will matter more now because we are not only producing for ourselves but for the larger market. We would now be competing with a country like South Africa whose product quality is better than ours.
· Nigeria is at the forefront of IT, Financial Services, Entertainment (Music, Fashion, Movie, etc.) compared to some other countries. Therefore, we can leverage our strengths and build great competition and value in these industries.
· There is the problem of security and insurgency. Nigeria has security problems so do other African countries. With the AfCFTA in place, there would be free movement of people and as a result, security might become a major concern.
· There is also a concern that countries might not comply with the rules of origin i.e. some countries might snitch. There have been repeated concerns that African Governments do not actually comply with texts of regional or international trade agreements as seen with ECOWAS and others. But we hope that every government complies with this agreement.
PRESENT
AfCFTA entered into force on the 30th of May 2019 as 24 countries already deposited instruments of ratification. It is expected that negotiations on Phase 11 will end in 2020 all things being equal. Nigeria has still not deposited her instruments of ratification but I would expect that we do that soon.
One of the key economic policies that would shape 2020 is the AfCFTA, therefore it is important that you understand the implication of this agreement and decide how you want to play as an individual.
As an entrepreneur, it is time to start thinking about how you can serve the continent. Think beyond Lagos, think beyond your city, and think for the countries in Africa.
As Nigerians, we have the market advantage but depending on how we position ourselves, the AfCFTA would be to our advantage or disadvantage.
PS: This article was not written by an economist or a financial guru. I tried to get my facts right but I might have missed some things (Pardon me). Most importantly, I expect that this research spurs you into investigating more on the AfCFTA.
