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Economy, Opinion

Is Africa Ready for AfCFTA?

Fifty-four African countries recently ratified a continental trade treaty that will create an estimated $3.4 trillion market opportunity.

Popularly called the African Continental Free Trade Area (AfCFTA), the trade treaty promises to liberalise trade among African countries and create a single market for goods and services on the continent.

It is easily the largest trade agreement since the World Trade Organisation (WTO) in 1994 and a flagship project of Africa’s Agenda 2063.

The treaty is expected to raise Africa’s nominal GDP to $6.7 trillion by 2030 and liberalise 90 percent of products manufactured in Africa. This means that a country can only protect 10 percent of its local industries.

Trade liberalists argue that it will favour small and medium-sized enterprises in Africa by enabling them to supply inputs  to  larger  regional  companies.

They cite the South African example. Due to free trade, large  carmakers  in  South Africa  source  leather  for  seats  from  Botswana  and  fabrics  from  Lesotho,  under  the preferential  Southern  African  Customs Union trading regime.

The AfCFTA officially came into force on 30th May 2019 when the required number of ratifications—22— were obtained, making the agreement a binding international legal instrument.  Negotiations are, however, ongoing.

After months of consultation and dilly-dallying, Nigeria’s President Muhammadu Buhari signed the AfCFTA  in July this year, seeking fair trade for Nigeria.

Speaking at an event in Niamey, Buhari noted that “Nigeria wishes to emphasise that free trade must also be fair trade.”

“As African leaders, our attention should now focus on implementing the AfCFTA in a way that develops our economies and creates jobs for our young, dynamic and hard-working population,” he added.

This made front pages of newspapers, but concealed a critical issue of trade readiness by Nigeria and the rest of Africa.

Today, many African countries, including Nigeria, are going against the spirit and letters of the AfCFTA.

In the first place, AfCFTA is targeted at open and free   trade, but Nigeria has been the biggest violator. The Central Bank of Nigeria is still increasing the list of items that are ineligible for foreign exchange access and is vehemently supporting closure of Benin borders.

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These two actions are anti-trade, according to experts, and they fail to factor in issues like the supply-side constraints in the agriculture sector, inflation, pressure on manufacturers and exporters as well as possible impact on trade, analysts say.

Olu Fasan, member of the International Trade Policy Unit (ITPU) of the London School of Economics and Political Science, said the border closure will enrich local producers, without increasing their productivity and competitiveness, while also harming the interests of Nigerian exporters and consumers.

“Truth is, Nigeria’s deep-seated protectionism is not compatible with its international legal commitments. It would have to decide whether to comply with its international obligations, legally invoke the escape provisions in international trade agreements or withdraw from them altogether,” he said in a Monday column in BusinessDay.

In his article entitled, ‘Border closure: Nigeria is trampling upon the world legal order’, Fasan said the border closure is a blatant violation of Nigeria’s commitments under the World Trade Organisation (WTO) and Economic Community of West African States (ECOWAS) treaties.

“Surely, by closing its land borders to stop cross-border movement of goods, Nigeria is, firstly, prohibiting or restricting imports other than through duties, taxes or other charges, and, secondly, nullifying and impairing the benefits accruing to other WTO members, especially those in West Africa, whose legitimate exports to Nigeria are being restricted, in violation of WTO law,” he said.

“What’s more, Nigeria could justify the closure of its borders on the ground of curbing smuggling or customs enforcement under Article XX or on the ground of national security under Article XXI, provided the border closure does not constitute ‘a disguised restriction on international trade’. But everyone knows that the underlying reason for the border closure was not smuggling or national security concerns, but the protection of local industries, and, thus, it’s a disguised restriction on international trade,” he further said.

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But Nigeria is not the only country in this party. Perhaps, much noise is made about Nigeria because of its strategic position as Africa’s most populous and biggest economy.

Sudan, in September, ordered closure of its borders with Libya and Central African Republic, citing security and economic dangers.

In June, Kenya shut its borders with Somalia for security reasons one week after outlawing along the coast near the Somalia border. Kenya authorities cited increased illegal trade, as well as human and drug trafficking in the area as major reasons for the latter action.

In April this year, Eritrea unilaterally closed all border crossings with neighbouring Ethiopia less than a year after the two countries made peace.

Before the outright closure in April this year, Ethiopia-licensed vehicles traveling to Eritrea from the Ethiopian town of Rama had been asked for permits in December 2018, according to a Reuters report.

“We did not receive any prior notice,” Reuters quoted  Liya Kassa, spokeswoman for the regional administration in the Tigray region which borders Eritrea, as saying in December 2018.

In March this year, Rwanda shut down borders against Uganda over diplomatic row that has seen the two countries suspecting each other.

In June this year, three civil society organisations sued  Rwandan and Ugandan governments on behalf of women traders suffering financial losses owing to the border closure.

The civil society groups said it contravened the 1999 Treaty for the Establishment of the East African Community  and violated the economic rights of women to engage in trade. Deaths were reported along the border, with security forces accused of perpetrating the acts.

In August, Equatorial Guinea said it was building a Trump-like border wall to stop Cameroonians and West Africans from illegally entering its territory.

Kenya, Rwanda, Equatorial Guinea, and Uganda, among others, are among countries that have signed onto the AfCFTA. Eritrea is not part of the AfCFTA.

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Analysts believe the AfCFTA may fail unless African countries understand the impact of unilateral trade policies.

“Border closures are against the spirit and letters of the AfCFTA,” said an analyst.

“If we continue this way, there will be a lot of unilateral trade decisions that will be taken across the continent in AfCFTA era. This could defeat the AfCFTA objectives,” the analyst further said.

Though few of the reasons are understandable, given their connections with health, security and politics, decisions of border closure should not be taken without due consultations, say trade analysts.  This leads to the question: Is Africa really ready for the AfCFTA?

Housing Development

Helen Suzman Foundation, which promotes liberal constitutional democracy through broadening public debate and research,  said in a publication that South Africa’s past experience of free trade paints a bleak picture.

The Southern African Development Community (SADC) was founded in 1992. Despite agreement to reduce tariff, Malawi, Mozambique and Zimbabwe failed to cut tariffs on South African goods, arguing that the loss of potential tariff revenue was too great. This is despite that the SADC, unlike AfCFTA, excluded a number of important products such as vehicles, base metals, minerals and textiles.

“Trade in sugar – viewed as a ‘political good’ – was a source of major dispute and eventual impasse,” the report said.

Many experts are keeping mute over possible issues that could arise when the AfCFTA starts, but they are aware that it will test Africa’s readiness to trade. The continent’s intra-trade is estimated at 16 percent, which is relatively low when  compared to Europe’s 59 percent, Asia’s 51 percent and North America’s 37 percent.

There is a potential danger, but Africa is yet to discuss it.

Source: businessdayng

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