Monthly Archives: March 2018

Intra-African trade: On the AfCFTA

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

My column this week is an abridged version of the article I wrote for the March 2018 issue of African Business magazine on the AfCTA, which African heads of state are scheduled to sign in Kigali, Rwanda, on 21 March 2018. The complete version, with comments by experienced executives and analysts, can be found in the magazine (available at newsstands).

After about two years since the signing of the Sharm-el-Sheikh Tripartite Free Trade Area (TFTA) agreement in June 2015, which brought together member states of the Southern African Development Community (SADC), East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA), trade ministers from all of Africa’s 55 countries, including those of the Economic Community of West African States (ECOWAS) which already have a Common External Tariff, met in Niamey, the Nigerien capital, in early December last year to agree final terms for the African Union’s Continental Free Trade Area (CFTA). They made some good progress; by and large. A formal signing of the trade deal by heads of state is expected in March. There are still a few pending issues, though. They are yet to agree on tariffs on all goods, for instance. But on services, they successfully closed the book.

Intra-African trade recovers
The objective of the CFTA is primarily to engender more intra-African trade; currently 15 percent of the continent’s total merchandise trade. When compared with intra-regional trade in other continents – 67 percent in Europe, 58 percent in Asia and 48 percent in North America – this is quite low. Efforts, thus far, at improving the low trade interactions within the continent, have not been quite effective, clearly. There are signs of improvement, though. According to most recent data from Cairo-based African Export-Import Bank (Afreximbank), intra-African trade grew by 8 percent in the first nine months of 2017; with Guinea, Ethiopia, Burkina Faso, Equatorial Guinea, and Sierra Leone in the lead. This is definitely better than the marginal 0.6 percent growth to US$156.94 billion recorded in 2016. Even so, there is still much road to cover before intra-African trade recovers to the 2013 peak level of US$174.9 billion. And as recent as 2015, intra-African trade growth was almost 9 percent. Afreximbank attributes the latest recovery to rising commodity prices, “improved regional trade across regional economic communities and some countries’ increased focus on promoting intra-African trade”. There is beginning to be a paradigm shift it seems.

One big step but…
Otherwise, it could be rightly averred that after the typical jamboree around continental initiatives like the CFTA, the various heads of government could again probably just go back to their capitals and do whatever they like. Things could be different, this time around, though: the need for improved intra-regional trade relations is now almost existential. With additive manufacturing, automation and other fourth industrial revolution innovations likely keeping developed economies at an insurmountable advantage yet again, African manufactures would probably only thrive in the future if they are traded within the continent. And since it is only by trading more with each other that this could be achieved, African governments would need to ensure hassle-free market access for African-made goods. This is the underlying motivation behind the CFTA.

Challenges remain, however
Negotiations on such important issues like intellectual property rights, some tariffs, what constitutes proper competitive behaviour and so on, are still pending. Besides, there is the bigger issue of how African countries would extricate themselves for constraining bilateral and multilateral trade agreements with developed economies, which at first glance, seem beneficial to African countries, but on further scrutiny, would be found to be ultimately detrimental to their long-term industrial development. The European Union’s Economic Partnership Agreements (EPAs) are top among them. Considering the likelihood that African-made goods would ever be as competitive as foreign ones is quite slim, African countries would in addition to trading more with each other also need to exclude outsiders with as much zeal; for a while, at least.

Disunity elsewhere
Should the CFTA vision be realised, intra-African trade could increase by at least 50 percent over the next five years, some estimate. A market of more than 1.2 billion people with a combined GDP of $2.2 trillion is a far stronger bulwark against limiting external trade forces than the tiny ones that inevitably get overwhelmed in negotiations with humongous countries – even as stand-alone economies – like America, Britain and China. Incidentally, even these countries who already trade a great deal within their respective continents, are becoming increasingly isolationist. So, just as African countries are beginning to find trade unity, previously globalist and more integrated ones abroad are beginning to flirt with insularity.

Actions speak louder
In any case, the trade barriers that really require attention on the continent would barely surface in negotiations or be amenable to them. For instance, infrastructure, the financing deficit (US$93 billion per annum) or terrible state of which, add to logistical costs and retail prices, is one of the reasons why African goods are not competitive. Non-tariff barriers like that would require not just collaboration between African governments but a sense of initiative by each of them. And even as the raison d’etre of the CFTA is palpable, would there be similar enthusiasm in implementing it?

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://businessdayonline.com/intra-african-trade-afcfta/

AfCFTA: Nigeria could have declared but not signed

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

What could have made Nigeria’s president, Muhammadu Buhari, suddenly change his mind about the African Continental Free Trade Area (AfCFTA) agreement? I pondered this question with some emotion. More than any other continental gathering and epoch, the signing ceremony was perhaps the greatest symbol yet of African unity; in recent times, at least. And Nigeria was conspicuously absent. (No, the presence of the foreign minister does not suffice.) More than when the Organisation of African Unity (OAU) was established more than half a century ago and later transformed into the African Union (AU) almost forty years later, the AfCFTA is perhaps the one concrete step Africans have taken since then to take charge of their destiny. Unless Africans trade more with themselves and in fact block outsiders for a while, the automated industrial world that is already afoot would forever put a lid on any attempt by the continent to lift itself out of its technological backwardness. To be clear, one is not suggesting that Africa should shut itself from the world as it tries to master what are increasingly obsolete technologies. Not at all. But under the current global trade order, there is little chance for Africa to catch up with Europe, America and indeed Asia without greater trade interaction within the continent and indeed some protectionism. Even for those developing countries in Asia already taking over from China, if advances in automation, robotics and additive manufacturing continue at the current pace, there might be little need for their services in the future. In that future, a huge population is not likely to be much of an advantage as currently assumed: robots would likely make up for the demographic shortfall quite easily.

Concerns could have been raised and negotiated earlier
If Africa is currently dependent on the developed world, the imminent new world is likely to make that dependence permanent. So while not a one-fit-all solution, an instrument like the AfCFTA that engenders intra-African trade is one of a few options available to African leaders to buy the continent some time to catch up with the rest of the world. If our basic needs, whether food or simple manufactures, can be catered for within the continent, we stand a better chance of determining our future. Unlike the European Union’s Economic Partnership Agreements (EPAs), for instance, there is little chance that even smaller African countries would not benefit from the AfCFTA. But that is only one side of the argument. Some African countries have a larger manufacturing base than others. The AfCFTA would immediately offer them tremendous advantages. So what? Is that to forever be our excuse? Another point raised is that the EPAs, which countries like Nigeria have not been enthused about, and have not signed, could via the AfCFTA, be put in effect. How so? If all African countries can trade freely with one another, the European Union, say, would not need to enter an agreement with all the countries on the continent. It would only need one to agree and effectively European goods would be able to move through the continent via that one country. These are genuine fears. But surely the Nigerian “professionals” who negotiated the agreement were aware of these. And surely, they could have put in measures to prevent such an occurrence. Incidentally, Nigeria, which raised its concerns belatedly, via its manufacturers’ association and labour unions no less, was in charge of the negotiations, and could easily have ensured that its concerns were addressed. Besides, the other continental giant, South Africa, had similar concerns. As such, the AfCFTA that was signed by 44 African countries recently could easily have been one that addressed such concerns during the earlier negotiation stage.

Missed history
More importantly, the event was so monumental that for President Buhari not to have attended was a great disservice to the nation. Mr Buhari says the decision was in the best interest of the nation. He could have attended nonetheless, show support for the so-called “Kigali Declaration” and ask for time to consult on the other two agreements. The foreign ministry must take full blame for not advising as such. Or did it and was ignored? South Africa’s president, Cyril Ramaphosa, attended, and gave perhaps one of his best speeches yet, and probably the best of all the speeches at the ceremony. He signed the Kigali Declaration to celebrate the epoch and declared his country’s firm intent to join the free trade area while asking for some time to consult with stakeholders back home. Besides, why did the Nigerian Labour Congress (NLC) and Manufacturers Association of Nigeria (MAN) wait till a deal had been reached before raising their concerns? There was some talk about the authorities not being responsive to their enquiries. That is complete nonsense. Had they been as enthused and loud much earlier as they were once the agreement had been finalized, their concerns would definitely have been points for negotiations. To add to the anomaly, the federal cabinet approved the AfCFTA with little opposition. Quite frankly, I thought it was really strange and most unfortunate that we failed to show up for a party we virtually organized. What Mr Ramaphosa did is what you get when you have competent functionaries advising you. He attended his party, poured himself a drink, raised his glass with his contemporaries and took a sip. He did not have to eat the food. To use the Nigerian parlance, he packaged the food given to him at the party as a “takeaway.” The event was too important to miss. For the record, Mr Buhari’s absence at the AfCFTA was a diplomatic blunder. Irrespective of any likely redress or compromise we might seek in the future, history was made in Africa on the 21st of March 2018. Without us.