DEVELOPMENT - 24 MAY 2018

The Continental Crossroad

The Continental Crossroad
Across Africa, goods, services and people still find it difficult to freely travel across borders

"When will the African people unite?"

Musical maestro Majek Fashek posed this question in his legendary album, The Rainmaker. The narrative of a United Africa is founded on the belief that by coming together, the continent can solve overcome its many challenges as it speeds towards economic and social development. 

That journey looked to have gotten a little smoother in March of this year as 44 of the continent's 55 Heads of State gathered in Kigali to ratify the African Continental Free Trade Area Agreement, which could create a free trade bloc and remove tariffs on 90 percent of products in the region. 

However, Nigeria and South Africa, two of Africa's largest economies, eschewed the agreement, failing to turn up for the event. President Buhari cancelled on the Sunday before the event, citing worries that Nigeria was not ready for the pact and arguing that the country could become a dumping ground for African and other foreign products. 

This was quite a turn as the President had initially supported the trade deal. Yet it was in line with his approach to major trade negotiations; in April, he rejected the Economic Partnership Agreement, a trade agreement between the European Union and 16 West African countries.

Cyril Ramaphosa, the new South African President, was also absent, though he claimed that he needed to consult with his cabinet and partners at the National Economic Development and Labour Council before signing the deal. 

 

A Surprising U-turn

The journey towards the pan-African deal began in 2012, with Nigeria leading the charge. Even just a week before the Kigali meeting, Nigeria’s Chief Negotiator Ambassador Chiedu Osakwe enthused over the benefits of being part of the deal. He explained that Africa currently has eight Regional Economic Communities (RECs), and the ACFTA would act as an extension and integration of these zones.

For example, the ACFTA would connect other African countries with the East African Community, a bloc that already has features of a free trade area, and constituent nations have benefited from the symbiotic relationship with their neighbours. 

However, President Buhari has a point. Nigeria already suffers from high rates of smuggling through its land borders, and further liberalising these may fuel an even larger influx of foreign goods. Between January and October 2014, 845 million kilograms of parboiled rice was imported into Benin, food staple hardly consumed in Benin. One World Bank report suggested that over $5 billion of merchandise is smuggled through Benin each year. 

 

Is Africa Ready?

The contrast between President Kagame's dream of East African integration and Nigeria's fears over dumping could not be starker. At the heart of this, perhaps, are different levels of confidence in each country's ability to produce mature products and compete in the global trade arena. 

However, such fears are not unfounded. Though Africa may be ready for a free trade area, Nigeria is not. The country still relies on oil & gas exports which account for over 90% of its export earnings, with very little coming from the sale of manufactured goods. In that regard, opening up borders would likely stimulate imports without a corresponding increase in exports. More imports could make it harder for Nigeria to grow its industrial base. 

But all of this ignores the gains from trade available to Nigerian businesses operating in a free trade area. For example, Nigeria's fashion industry contributes nearly ₦380 billion each year while relying on foreign imports for key inputs such as textiles. Reducing tariffs would boost the competitiveness of the industry, and go some way to compensate them for the high costs of doing business in Nigeria, arising from inadequate infrastructure and an unproductive workforce. Rather than trying to restore its textile industry to past glories, Nigeria can leverage on countries like Kenya and Lesotho, where mass production is already prevalent.

International fashion brands often exploit the benefits of outsourcing parts of the value chain and access to cheaper inputs. This has affected the local fashion scene and forced many local designers to price their products in the high-end segment, significantly reducing their target market. Meanwhile, cheaper akube – second-hand wears – are imported into the country to satiate the demand for affordable local designs.

 

Lingering Questions on Free Trade

Despite the economic appeal of reduced tariffs, joining the ACFTA may not have been the panacea Nigeria sought. And not because of dumping; rather, as Your Nigerian Economist argued, high trade tariffs are not the primary impediment to trade between Nigeria and her African countries. The country needs to focus on other barriers to trade: social relations and travel within Africa – 116 Nigerians were killed in South Africa during the 2017 and 2017 xenophobic attacks.

Moreover, after centuries of championing free trade, economists are coming to accept that the picture is more complex. Free trade creates large winners and losers, can drive inequality, and deepen social divides. And while many policy-makers lament the emphasis placed on the costs of trade, globalisation is facing an unprecedented level of backlash, manifesting in Brexit and Trump. 

Amid all this, Africa's move towards greater integration is laudable, despite its fragility. Ultimately, Nigeria decided it would not be part of this phase of the journey. Was that a good decision or not? Well, with free trade agreements, you never really know. 

Akinkunmi Akingbade

Akinkunmi Akingbade

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