May 14, 2019

A challenge or two facing the AfCFTA

The agreement underpinning the African Continental Free Trade Area (AfCFTA) comes into effect at the end of this month, and the area is due to become operational on 07 July. Nigeria is one of three members of the African Union (out of 55) yet to ratify the agreement, and the union’s trade commissioner has urged the FGN to become a founding signatory. In our view, this is a rare case where ponderous decision-taking in government has its merits.

                                                                                                                  

  • The reasonable position of the Manufacturers Association of Nigeria (MAN) is that the FGN should not sign unless it can be proved that membership will be beneficial. It has also asked that the findings of the commission formed by President Muhammadu Buhari to examine the arguments should be made public. MAN is rightly wary of the impact on its members. Associations representing other industries tend to be more supportive of the AfCFTA.
  • On the surface, the package is a winner. Tariffs will be zero for 90% of trade between members, which should translate into lower prices. Governments will be able to protect domestic production up to the balance of 10%.
  • The forecasting industry has been busy. The UN Economic Commission for Africa has estimated that intra-African trade could increase by 52% by 2022 with full implementation. We wonder if the forecast allows for the reality that many African countries produce the same goods.
  • The regional economic communities are to be the building blocks for AfCFTA. Many of them, however, have achieved little in the way of integration. This is true of the Economic Community of West African States (ECOWAS), which has a regional trade but not an industrial policy. If members fail to consult on their exclusion/protection lists, the trade benefits are much reduced.
  • In this context we recommend a briefing by Michael Odijie (The need for industrial policy coordination in the African Continental Free Trade Area) in the journal African Affairs (Volume 118, January 2019). This academic piece is highly readable as well as being current in its analysis.
  • We are aware of the “first mover” argument whereby it pays to join an organization at the outset because of the opportunities to shape its development and place one’s nationals in core posts.
  • We also understand that AfCFTA will give members a five-year trial period post-ratification, allowing them an exit. It could be argued that there is therefore no reason not to sign. Nonetheless a public airing of the issues is advisable if the population is to buy into the vision.