| Nigeria | Sep 25, 2020
The 2019 ratification of the African Continental Free Trade Area by 54 of 55 AU member states promises to boost continental agro-industry, help SMEs, diversify exports, and increase intra-African trade by over 60%. However, it needs Nigeria just as much as Nigeria needs it.
Much ado was made over the signing in Kigali of the African Continental Free Trade Area (AfCFTA) in March 2018. Building on the legacy of the 1975 Economic Community of West African States (ECOWAS), AfCFTA has been hailed by economists and policymakers for being the largest trade agreement since the WTO was signed in 1995 and the largest free trade agreement on the planet to date. If successful, it will create a single market of some 1.2 billion people worth over USD3 billion, making it the fifth-largest economy in the world.
Celebrated for committing countries to reducing 90% of their tariffs on goods, AfCFTA has promised to go one step further: vastly reducing or eliminating tariffs on services, investment, intellectual property rights, competition policy, and possibly even e-commerce. Now signed by 54 of the continent’s 55 countries (only Eritrea has not ratified the agreement, though it has since expressed its interest in doing so), the agreement is expected to vastly boost intra-African trade.
As of 2017, only 17% of international trade conducted by African countries was intra-African, one of the lowest rates on the planet. Compare this to Europe, where 69% of international trade is intra-European, or Asia, which stands at 59%. If predictions of the UN’s Economic Commission on Africa (ECA) are correct, AfCFTA could boost intra-African trade by 60% by 2022 alone and bring its total to over 50% of all international trade in Africa by 2040.
Crucially, the deal should also increase trade diversification of exports across African economies. With greater competition and larger markets, the deal is expected to reward manufacturers and encourage greater efficiencies, allowing countries to build resilience to demand volatility from both economic downturns in importing countries and general price dips. Diversification should also help SMEs and boost productivity in response to greater competition. However, African agricultural exporters will also fare better under the agreement.
In 2015, for example, African countries spent USD63 billion on net food imports, largely from outside Africa. Not only is this a political-economic tragedy for the 54% of Africans that toil in the agricultural sector, it is also roughly the amount the continent needs to close its power deficit, believes former Nigerian Minister of Agriculture and President of the African Development Bank (AfDB) Akinwumi Adesina. As such, estimates by ECA that AfCFTA could boost intra-African food imports by 20-30% by 2040, with the greatest gains in sugar, vegetables, fruit, nuts, beverages, and dairy products, are highly welcome.
As the largest economy in Africa, Nigeria stands to gain significantly in the long term from the successful implementation of AfCFTA. Apart from reducing a wide bevy of prices for Nigeria’s vast consumer market, it would also give the country a prized leadership platform within the body’s dispute settlement mechanism, which was designed specifically to avoid the Africa-discriminatory pitfalls of the WTO. Oddly, however, Nigeria was one of the last countries on the continent to ratify the agreement. Met with resistance from the Manufacturers Association of Nigeria and citing the need to consult with the 4 million-strong Nigerian Labor Congress, Nigeria did not ratify AfCFTA until 16 months after the rest of the continent. Worse, in November 2019, it closed its land border to all trade with neighboring countries—namely Benin, Niger, and Cameroon.
Citing the need to curb smuggling, this caused prices on many staples such as rice, tomatoes, and poultry to double. And though other signatories of AfCFTA also closed their borders that year, only Nigeria sealed its own to hinder economic movement. Not only does this run counter to the very spirit of AfCFTA, it was also in breach of West Africa’s Regional Economic Community, which Nigeria itself helped broker in 1975. Though the promise of AfCFTA is great, it will only be possible through a leap of faith and great leadership from Africa’s leading economic player.