What is the Rationale for the African Continental Free Trade Agreement?
The African Continental Free Trade Agreement (AfCFTA) was introduced in March 2018 to eliminate barriers to trade among the countries that signed the agreement (partner states) and promote free trade and movement of business professionals and investments among partner states. Specifically, the AfCFTA aims at boosting intra-Africa trade by making Africa a single market of 1.2 billion people with a cumulative gross domestic product of more than $3.4 trillion.1 The United Nations Economic Commission for Africa (UNECA) estimates that the implementation of the agreement could increase intra-African trade by 52% by 2022 (compared with trade levels in 2010) and double the share of intra-African trade (currently around 13% of Africa's exports) by the start of the next decade.2 As of today, 52 out of the 55 Africa Union states have signed the AfCFTA while 24 states have ratified it.3 Benin, Eritrea and Nigeria are the only states that are not signatories to the AfCFTA.4 On 30th May 2019, the AfCFTA officially came into force.
Why is Nigeria not a signatory to the AfCFTA?
Nigeria has not signed the AfCFTA because according to its President, Muhammadu Buhari, the government wants to carry all the stakeholders along.5 The stakeholders include the domestic businesses, the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture; Manufacturers Association of Nigeria and the Nigerian Association of Small and Medium Enterprises. There is therefore the need for proper consultation with them in order to earn their consent and participation. There is also the need to ensure that the nation's interest as well as its regional and international obligations are balanced.6 Another reason cited for the delay in signing the AfCFTA is because the free flow of goods into the country may stifle the growth of domestic businesses and consequently harm the local businesses in the long run.
What are the Implications of AfCFTA for businesses?
The implications of the AfCFTA on businesses are varied. On the positive side, it may be argued that the AfCFTA will enable African companies enter new markets which would expand their customer base and lead to an increase in new products and services. The AfCFTA will also attract foreign investments due to the removal of the restrictions to free trade and foreign investments which may grow domestic businesses. The process of importing raw materials from other countries for the purpose of production will be easier. Furthermore, the AfCFTA will enable multinationals to partner with local firms to develop raw materials and this would help technology transfer in the process.
The negative implications of the AfCFTA include the fear of dumping of goods in partner states. For instance, the cost of production of goods in Nigeria is quite high compared to some partner states. This means that these partner states with low production costs can afford to import goods into Nigeria and sell at low prices. The domestic businesses would not be able to compete with these low prices and Nigerians would eventually settle for the cheaper alternatives. In addition, foreign companies could situate their production lines in these partner states with low production costs who will subsequently dump their products on Nigeria. Indeed, it has been suggested that as far as Nigeria is a net importing country of goods and services; is not technologically advanced; has a large population, and has high production costs, it will be a dumping ground for goods and services.7 The Nigeria Labour Congress has also argued that the unhindered movement of business and professionals would open the Nigerian ports to unfettered foreign interference which would harm local content and pose a threat to national security and safe practices.
Furthermore, once the AfCFTA comes into effect, the signatories will need to drop 90% of their tariffs for imports from other African states,8 thereby depriving, some have argued, the partner states of the opportunity to generate revenue through imposition of tariffs and duty.
Importation restrictions can arguably impede the ease of doing business in Africa which the AfCFTA seeks to address by promoting free trade and movement of business professionals and investments among partner states. It is therefore hoped that implementation of the AfCFTA will encourage economic growth and its advantages would subsequently outweigh any apparent disadvantages.
1. Ivan Mugisha and Hellen Githaiga, 'Africa leaders ink largest free market treaty' (Business Daily, 1st March 2018) (https://www.businessdailyafrica.com/news/Africa-leaders-ink-largest-free-market-treaty/539546-4351888-ubv411z/index.html) accessed 3rd June 2019.
2. Loes Witschge, 'African Continental Free Trade Area: What you need to know' (Al Jazeera, 20 Mar 2018) (https://www.aljazeera.com/news/2018/03/african-continental-free-trade-area-afcfta-180317191954318.html) accessed 3rd June 2019.
3. (https://www.tralac.org/resources/by-region/cfta.html) accessed 6th June 2019.
5. Ifeanyi Onuba, 'Why I refused to sign free trade agreement — Buhari' (Punch, 15th July, 2018) (https://punchng.com/why-i-refused-to-sign-free-trade-agreement-buhari/ accessed 3rd June 2019.
7. Dr Chijioke Ekechukwu, 'Should Buhari sign the African Continental Free Trade deal?' (World Economic Forum, August 14, 2018) (https://punchng.com/should-buhari-sign-the-african-continental-free-trade-deal/) accessed 3rd June 2019.
8. David Meyer, 'The Largest Free Trade Deal in Nearly a Quarter-Century Seeks to Make Africa a Single Market' (Fortune, May 25, 2019) (http://fortune.com/2019/05/25/africa-free-trade-agreement/) accessed 3rd June 2019.
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