The strength of Europe is the EU. The strength of America is the United States. The strength of Africa is the AU bound by the African Continental Free Trade Agreement (AfCFTA).
AfCFTA is the vehicle for the fulfillment of the vision of our Pan-African founding fathers. An Africa that is united economically and eventually, politically.
Recent developments have brought the vision of the Pan-African founding fathers a step closer to idealism.
Gambia’s parliament recently approved the Africa Continental Free Trade Agreement (AfCFTA), becoming the 22nd nation to do so, and effectively meeting the minimum threshold for the agreement to come into force.
Here’s a clear picture: African free trade is a platform for deepening trade ties. Nigeria exports rubber and crude oil to South Africa. We earn more if we export more, and this gives us more purchasing power to buy minerals from Cameroon and visit the Gambia for holidays, for instance.
In turn, Cameroon can now buy fertilisers from Morocco and mineral fuels from Nigeria. By trading amongst ourselves, these countries get the broadest range of goods and services at competitive costs.
This is a principle of comparative advantage and trade; rather than trying to do everything ourselves, each country focuses on the products with the lowest opportunity costs.
A quick look at the trade profile of developing nations will show their reliance on developed nations in trading relationships. For example, 80% of Mexico’s exports go to the United States, and Nigeria’s trade with other African countries represents less than 10% of our annual trade activities.
Nigeria’s story is replicated around Africa, and that is the problem that ought to be solved by the African Continental Free Trade Agreement (AfCFTA). It seeks to create a Free Trade Area within the continent that would reduce or remove barriers to facilitate the movement of goods and services. Varying customs duties are a big encumbrance.
Previously, African countries tried to boost regional trade through international commodity agreements (ICAs). As many African countries mainly trade commodities, the idea was to establish agreements that would help stabilise export prices and commodity supply.
Over time, however, ICAs grew increasingly ineffective as negotiations were driven by political rather than commercial concerns. Developing country exporters came to look at the ICAs as instruments for raising prices more than for stabilising prices.
Hopes are high that the AfCFTA, which would be the world’s largest free trade agreement by population size, will be the first step to boosting pan-African trade. In particular, the AfCFTA would be a way of establishing stronger links between the different regional blocs such as the Economic Community of West African States (ECOWAS) and the East African Community (EAC).
Furthermore, one notable focus area of the AfCFTA is the protection of infant industries.
Part VII Article 24 of the AfCFTA says:
“For the purposes of protecting an infant industry having strategic importance at the national level, a State Party may, provided that it has taken reasonable steps to overcome the difficulties related to such infant industry, impose measures for protecting such an industry. Such measures shall be applied on a non-discriminatory basis and for a specified period of time.”
Essentially, the agreement accounts for one common objection African countries make against free trade: many of their industries are young and vulnerable to being priced out by more advanced countries.
Another prominent issue is dumping, a situation where a foreign firm unfairly undercuts local competition by charging prices below the level in its home country, as China does.
Part V Article 17 says:
“Anti-dumping and Countervailing Measures – subject to the provisions of this Protocol, nothing in this Protocol shall prevent State Parties from applying anti-dumping and countervailing measures.”
So if a country like Nigeria feels other countries are unfairly dumping their products, Nigeria can respond by using anti-dumping duty to level the playing field for domestic producers that face unfair import competition. This will be done in line with provisions on trade remedies and the AfCFTA Guidelines on Implementation of Trade Remedies per relevant World Trade Organization Agreements.
With trade agreements, however, it is essential to read the fine print. This publication has already pointed out that high trade tariffs are not the only impediment to intra-Africa trade. Infrastructure and low mobility of labour and capital are equally significant particularly, transport costs are also an important consideration for trade. The cost of logistics in Africa is still about two to three times what it is in developed countries. If the price of Cocoa in Nigeria plus transportation now approximately equals the price of Cocoa in Congo, trade becomes irrelevant.
Inadequate infrastructure and logistics, as well as long queues at border crossings, contribute to exorbitant transport costs in Africa. This is exactly why Africa requires considerable investments in infrastructure to harness the full potentials of trade.
Furthermore, it is possible that the AfCFTA will lead to movements of people from one country to the other in search of opportunities. This migration of people can lead to some countries having excess labour, but wages and salaries will most likely adjust the excesses in a pure market economy. In a country where labour is abundant, wages will fall and vice versa. However, there is also a huge possibility that migration will not be significant.
The AfCFTA may not achieve the integration it was designed for but the terms of the agreement hint at the intent to create a single African market as in the European Union (EU). The EU is able to create a true single market by persuading member states to align monetary policy and stick at least partially to regional fiscal policies. Africa is far from this type of standard, though there have proposals for a single currency similar to the Euro.
In reality, international trade tends to bring about more efficient use of a country’s resources that leads to higher output and foreign exchange. Over time, increased income tends to result in more savings and, thus, more investment in capital expenditures. This investment generally results in a higher rate of economic growth.
Inasmuch as dissimilar policies may erect trade barriers and investment that stifle economic growth, the gains from free trade and regional mobility of labour and capital can shift the paradigm and radically change the African narrative to global economic reckoning, exactly desire of AU founding fathers and the celebration of posterity.
My concern, as a Pan-African, is that Nigera shouldn’t end up on the outside, looking in.
Our indecision, is inexcusable.
elisoil 