AfCFTA: Nigeria’s long walk to global competitiveness

Trading under the African Continental Free Trade Area (AfCFTA) agreement officially commenced on January 1, 2021.

However, negotiations on the instruments that will facilitate trading such as market access, rule of origin and tariff concessions for trade in goods are yet to be concluded. Technically, this means that trading has not really started.

But, there are fears that when it finally does, Nigeria may not benefit from first-mover advantages that come with the AfCFTA and also leverage it to become competitive.

According to some industry operators, some issues Nigeria, ideally, should have addressed before now are still inconclusive. Assistant Editor CHIKODI OKEREOCHA reports.

There is a consensus around the fact that Africa’s push for market integration through the African Continental Free Trade Area (AfCFTA) agreement is not a hundred meter dash; rather, it is a long-distance race.

Not a few private sector operators in Nigeria, including experts in international trade and economic diplomacy concede that for a trade agreement that took over 60 years to put into place, significant trading under the AfCFTA will take some years to take off fully. Accordingly, it will take some time before the envisaged direct benefits of the trade liberalization deal begin to manifest.

For Instance, AfCFTA Secretary-General Mene Wamkele put in perspective when he said market integration, which the Agreement seeks to achieve, is not an event, but a process that takes time, pointing out that it took the European Union (EU) almost 60 years to achieve its current depth of integration. “I have never heard of a trade agreement where all countries were ready on Day One; I don’t know it.  Africa’s market integration would take some time, but you have to start somewhere,” he said, at a virtual news conference to announce Ghana’s official recognition of the first consignment of goods to be exported under the AfCFTA on January 4, 2021.

Renowned diplomat and Director-General of National Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Ambassador Ayo Olukanni, said significant trading under the AfCFTA can’t take off anything less than 15 years from now.

“It’s a long road to walk. There are so many outstanding issues to be sorted out,” he told The Nation. While noting that not much trading has taken place, he added that “If anything at all is going on, it’s skeletal and more symbolic to keep the momentum going.”

The AfCFTA seeks to create a continental trade bloc of 1.3 billion people across 55 countries, with a combined Gross Domestic Product (GDP) valued at $3.4 trillion. The Agreement, which was seen as an important milestone in promoting Africa’s regional integration and helping to increase intra-African trade, commits countries to removing tariffs on 90 per cent of goods and to liberalize services. Apart from its inherent capacity to promote economic growth and development, reduce poverty in the partnering countries, it was also expected to help expand and diversify trade and increase domestic and foreign investments.

The continental trade deal was earlier scheduled to start officially on July 1 last year, but was postponed by six months due to the COVID-19 pandemic. Accordingly, trading officially commenced on January 1, 2021. However, checks by The Nation revealed that technically, commercial trading under the pact that holds so many promises for Nigeria and other partnering African countries is yet to take off. Some private sector operators in Nigeria, who spoke with The Nation, said negotiations on the instruments that will facilitate trading under the AfCFTA such as market access, rule of origin and tariff concessions for trade in goods are yet to be concluded.

For instance, Amb. Olukanni said Rules of Origin (RoO), which is key for trade in goods, as they are used to determine the country of origin of a product for the purpose of international trade, are yet to be completed. Also critical to the start of actual trading under the AfCFTA, according to him, is the issue of tariffs reduction and the ambitious goal of gradual reduction to zero of the tariffs. Closely connected to this are issues of reciprocity of product lines between State Parties, all of which in some cases, “Has been projected to take as long as 20 years.”

The NACCIMA boss also said the Services and Investment Protocols, which are important aspects of the AfCFTA, are way behind and still being negotiated. “They are just around 30 per cent completed,” he told The Nation, adding that the issue of non-tariff barriers has also not been touched, just as issues of trade facilitation are also yet to be comprehensively tackled. He said what countries including Nigeria are doing at the moment is sensitization of all stakeholders to what will come and dealing with various internal regulations that may require rectification.

Perhaps, as part of the sensitization of stakeholders, Amb. Olukanni said the AfCFTA Secretary General Mene and his team has commenced visits to the Customs Departments of some strategic State Parties, including Nigeria to ascertain the status of their readiness and encourage them to help get their Customs Departments ready because they are crucial to seamless implementation and trading under the Agreement. “A lot of work is also going on regarding capacity development of those that will trade under the AfCFTA especially manufacturers,” he added.

The NACCIMA DG said this was why members of the Organised Private Sector in Nigeria (OPSN) are involved and advising that Government should work closely with the OPSN as Nigeria prepares its private sector for trading under the AfCFTA. The OPSN is made up of Manufacturers Association of Nigeria (MAN), NACCIMA, Nigeria Employers’ Consultative Association (NECA), Nigerian Association of Small and Medium Enterprises (NASME), and Nigerian Association of Small Scale Industrialists (NASSI).

Amb. Olukanni said even though some Nigerian manufacturers, including Small and Medium-scale Enterprises (SMEs) are doing a lot of exports to other African countries presently, with some of them indicating that they are ready and poised for operations under the Agreement, “We are not aware of anything Nigeria is exporting under the AfCFTA now.” “How long will it take for State Parties to deal with the outstanding issues?” he asked, noting, however, that “It will certainly take time.”

He, however, expressed optimism that “We can effectively compete under the AfCFTA, as some of our manufacturers have shown and the Nigerian Banks are gradually making inroads and in fact, being invited to commence operations in some African countries. Continuous preparations are the key strategic options now in readiness when the momentum and condition for trading will increase.”

But it appears that the NACCIMA chief’s optimism is not being shared by other members of the OPSN particularly MAN. If anything, manufacturers are worried. For instance, while noting that actual trading under the AfCFTA is yet to fully commence, MAN Director General Segun Ajayi-Kadir said the discourse so far has been centered on what should be done to ensure that the private sector in Nigeria quickly occupies a vantage position in AfCFTA’s implementation at the continental level, including measures that should be taken to insulate the private sector from its potential backlashes.

The other aspect of the discourse, he said, is how the economy, particularly the manufacturing sector, can be positioned for beneficial trade in the continental-wide free trade area. And flowing from these, Ajayi-Kadir told The Nation that MAN observed that since the official commencement of trade on January 1, 2021, “Information on vital aspects of trade under the AfCFTA are not readily available and some issues that ideally should have been addressed before its commencement are still inconclusive.”

The MAN DG was emphatic that the issues need to be quickly addressed to ensure Nigeria’s maximum benefit from the first-mover advantages that come with a trading arrangement like AfCFTA. He listed some of the issues to include the need to list documents and procedures for export under the AfCFTA regime and provide specimen of relevant application forms, import and export documents; share the regulation on AfCFTA Special Economic Zone (as provided for in Article 22 of the Framework Agreement) with the national position.

Others include the provision of the agreed schedule of Tariff Concessions for Trade in Goods to be used for trading under AfCFTA and the approved tariff dismantling calendar; share information on strategies in place to balance offensive market access priorities with defensive safeguard interests and to empower SMEs to participate in AfCFTA; provide national positions/strategies on safeguarding of the Balance of Payment, infant industry protection, conditional exceptions to liberalization and rules & procedures for settling disputes as provided for in Article 26, 23, 25 and 29.

Ajayi-Kadir also harped on the need to constitute the National Rules of Origin Administration Board that will superintend the implementation of RoO and also validate the process (application and registration) of issuing the Certificate of Origin.

His argument in favour of constituting the Board is understandable. Even before Nigeria signed on to the treaty, RoO was a subject of intense agitation by MAN, which had expressed fears that the RoO in the AfCFTA cannot be adequately enforced to guard against the influx of goods into the Nigerian market.

MAN specifically argued that RoO may not be adequately enforced because goods from the EU may find their way into one of the African countries that have bilateral agreement with the EU, and when the goods get into any of the African countries, they can repackage them, change the label from made in Europe to that of the African country. That way, those same goods will surely find their way to Nigeria, which is the main target market for the EU.

Ajayi-Kadir also said before the commencement of trading, Nigeria should have established the National Trade Malpractices Investigative Council with representation from relevant stakeholders in the public and private sector, as well as put in place national legislative and institutional framework for Trade Remedy Infrastructure (as provided for in Article 22) to see to the implementation of other relevant Articles like 16-19. “These are perquisites for seamless trade,” he said

He also wants the Nigerian Government to ensure that the Steering Committee of the National Action Committee on AfCFTA meets regularly to receive progress report on the Continental Free Trade Area and implementation of readiness requirements; make public the schedule of government’s AfCFTA implementation plan, clearly stating the issues, activities, deliverables, implementing agency and timeline.

Other issues agitating the minds of manufacturers with regards to Nigeria’s level of preparedness to take advantage of the treaty include listing regulations for specific components of the Framework Agreement and the regulatory agencies with such statutory mandates; commencing discussions with neighboring countries on how to jointly develop infrastructure along strategic economic hubs within the region and the continent.

The MAN DG also said there is need to set machinery in motion for the finalization of work on Trade, Industrial and Investment Policies and ensuring that they are in sync with national, regional and continental aspirations. He also pushed for government to support MAN’s quest to establish the National Private Sector Trade Consultative Council.

Economic giant hobbled by infrastructure deficitNigeria’s failure, so far, to address the afore-mentioned issues around instruments that will facilitate trading is not the only factor that may hurt her chances of leveraging the AfCFTA to boost her competitiveness. Lacks of infrastructure is also a sore point. For instance, MAN President Mansur Ahmed has never hidden his fears that with the economy lacking in key infrastructure, the manufacturing sector is currently too fragile to become competitive under the AfCFTA or even withstand competition from other countries.

“We cannot achieve competitiveness without the provision of infrastructure such as good road networks and electricity, not only within African countries, but also across the borders. There is also the aspect of the provision of soft infrastructure – like visa, tariffs, and foreign exchange – that will help ease the process of carrying out business transactions between countries,” he said, at a recent forum in Lagos.

While insisting that “We must address all these issues since the AfCFTA is not just about trade in goods, but also trade in services,” Ahmed said modern industry competitiveness depends to a great extent on the provision of adequate and efficient infrastructure. “From the availability of power and energy to transport and logistics, the role of infrastructure cannot be overemphasized in trade and economic development on the continent,” he stated.

For instance, he pointed out that transportation is vital to enhancing competitiveness in trade, noting, however, that due to poor transport infrastructure, it costs a business owner in Nigeria more to transport goods from Lagos to Kano than it costs a Chinese business owner to transport the same goods from China to Lagos.

Ajayi-Kadir is no less worried over the possibility of Nigeria’s failure to leverage the AfCFTA to emerge competitive. “We may not be competitive and benefit from AfCFTA,” he told The Nation, citing the supply side constraints experienced by manufacturers in Nigeria as well high cost of production as a reason. “Supply chain constraints and high cost of production may put us at the losing end,” charged.

He also lamented that Nigeria’s monetary policies, in terms of multiple exchange rate and interest rate have not really helped the manufacturing sector, as they have negatively affected the cost of output. Also, non-alignment of monetary and fiscal policies is a challenge to the sector.

“For instance, over two years now, no new fiscal policy has been released. The lack of a decision on the part of government has taken its toll on manufacturers who are inhibited from planning and manufacturing effectively to capacity,” he pointed out, adding that even the agricultural sector is being handicapped because of the current insecurity crisis in Nigeria.

While private sector operators are worriedIt is easy to see why the private sector, particularly manufacturers are apprehensive. Nigeria was tipped by development experts as AfCFTA’s biggest potential beneficiary, given her nearly 200 million population and huge market for trade.

The thinking was that the free trade deal potentially handed Nigeria the opportunity of boosting her competitiveness and remaking her economy severely battered by constrained economic activities forced by the COVID-19 pandemic and the oil price crash.

For instance, those knowledgeable about international trade said Nigeria, which accounts for about 76 per cent of the total trading volume of the Economic Community of West African State (ECOWAS) stands the chance of leveraging the AfCFTA to increase her export trade by 100 per cent to $50 billion in the next ten years.

Overall, intra-African trade is currently put at just 16 per cent, compared with 19 per cent in Latin America, 51 per cent in Asia, 54 per cent in North America and 70 per cent in Europe. But the coming into force of the AfCFTA is expected to bring the share of intra-African trade to 22 per cent by 2022. It will also bring total intra-African trade to about $250 billion, from about $160 billion currently.

To boost Nigeria’s competitiveness and chances of cornering a chunk of the share of intra-African trade under the AfCFTA, Ajayi-Kadir said the ease of doing business policy has to be improved upon and the cost of doing business reduced. According to him, this will enable Nigeria to stand the chance to compete with products from neighboring countries.

He also said from MAN’s knowledge of the key provisions of the Framework Agreement and high level interactions with top echelons of the AfCFTA Secretariat, African Union, Afreximbank, ECOWAS and other relevant national Ministries, Departments and Agencies (MDAs), it has become obvious that a number of steps must be taken by member-companies of MAN particularly the MSMEs to benefit maximally from the Agreement.

Some of the steps, according to the MAN boss, include the need for MSMEs to begin to accelerate export diversification by targeting products that are largely demanded on the continent and mostly sourced from outside the continent; re-align their production processes in line with the agreed RoO for their product line to ensure qualification for the preferential tariff that AfCFTA seeks to build; RoO and the Trade Remedy Mechanisms.

He further said MSMEs should begin to embark on capacity building on export trade logistics and modalities for shipment amidst huge infrastructure deficit prevalent on the Continent; develop skills required to effectively participate in the continental value chain; improve on product packaging to engender increased market penetration; adopt the market entry strategy that best suits their products, giving adequate attention to the culture of the people in the target market.

Although, price competitiveness of Nigerian manufactured goods remains a challenge, operators and stakeholders in the MSME group, The Nation learnt, are on the same page on the need to adopt the best pricing strategies by ensuring efficiency in their production and logistics processes. Same on the need for capacity building in the area of paperwork because there is a tendency for failed transactions and ultimately, losses when the documentation is faulty hence the need for pre-export and post-export documentation.

Ajayi-Kadir also said appropriate familiarisation with payment systems like Letter of Credit, Bill for Collection, Open Account and Advance Payment is also required, as there will be needed for sourcing of funds to pay local suppliers and getting payment from the buyer after shipment. “MSMEs must also ensure quality assurance before products are shipped to the final destination,” he added.

While the AfCFTA, admittedly, is a process that takes time; in fact, a long distance race, the consensus is that addressing all the issues agitating the minds of private sector operators in Nigeria via government’s strategic policy responses is key to galvanizing the country to leverage the AfCFTA to remake the economy and position it to compete at the global stage in the long run.