CFTA: Between leveraging continental platform and strengthening local market
As the argument for and against the Continental Free Trade Area (CFTA) agreement rages, SULAIMON OLANREWAJU looks at the benefits and consequences of signing the agreement.
All appears set for President Muhammadu Buhari to join other African leaders to sign the Continental Free Trade Area (CFTA) agreement in Kigali, Rwanda capital, on March 21.
The CFTA, which is intended to open the African space up for African countries and companies to engage in business with one another without any form of restriction, has caused considerable disquiet in the Nigerian business community as many Nigerians see it as a move that will not only destroy many businesses and increase unemployment in the country but will also scale up poverty and are, therefore, calling on the President to exercise restraint about signing the document.
At the 18th ordinary session of the Assembly of Heads of State and Government of the African Union, held in Addis Ababa, Ethiopia, in January 2012, African leaders adopted a decision to establish the CFTA, which is expected to bring together 54 African countries with a combined population of more than one billion people and a combined gross domestic product of more than US $3.4 trillion.
The CFTA is meant to create a single continental market for goods and services, with free movement of business persons and investments, which would be a precursor to the establishment of the Continental Customs Union and the African Customs Union.
The advocates of CFTA claim it would expand intra African trade through better harmonization and coordination of trade liberalization and facilitation regimes and instruments across the continent, resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes as well as enhance competitiveness at the industry and enterprise level through the exploitation of opportunities for scale production, continental market access and better reallocation of resources.
A study by the United Nations Economic Commission for Africa estimates that, with the CFTA, intra-African trade would be 52 per cent higher in 2022 than it was in 2010 as a consequence of the removal of all tariffs.
This is one of the areas that many who have lent their voices to the call on the President not to go ahead with signing the agreement have pointed to as being inimical to the interest of the country.
According to Dr Adeola Omitowoju, an international trade consultant, while the idea of a unified African market is desirable given the population and the potential reach for Nigerian manufacturers, “going into that agreement now, will vitiate the interest of Nigeria as we are bound to lose revenue from tariff.”
He added, “The government is saying that it wants to increase its non-oil revenue and it is looking at revenue from Customs as one of the major alternatives to oil revenue but I can say with all emphasis at my disposal that signing that agreement will result in a huge loss of revenue for the country because what it would mean is that importation from African countries will no longer attract tariffs.”
Omitowoju also said that since the Nigerian government cannot control what happens in other African countries, the possibility of goods manufactured in parts of Europe and Asia being taken to some African countries to be repackaged and moved to Nigeria cannot be ruled out.
“Should that happen, not only are we going to lose revenue from tariff, the local manufacturing companies are going to be adversely affected. The idea of having an African market is very good but I am not convinced that Nigeria is ready for it. So, we would be short-changed if we go into it now,” he said.
Speaking in the same vein, Mr Chibuzor Nwachukwu, Chief Executive Officer of Graceway Investment Limited, noted that given the level of infrastructural development in the country, the government should protect the local manufacturing companies from stiff competition so as to preserve them.
“International trade is principally about competitive advantage; each country plays where it has highest advantage. So, when we are talking about free trade, we have to look into our own interests. We should not allow free trade where we are weak, otherwise we are going to kill our local companies. The cost of doing business in Nigeria is too high. So, it is going to be difficult for the local companies to compete with those from other African countries where the cost of doing business is reasonable. As of today, it is cheaper to produce in Ghana than in Nigeria, hence some companies relocated from Nigeria to Ghana. If you now open the space to them, there is no way the Nigerian companies can compete. In other words, many Nigerian companies are going to die.
“What the CFTA means is that there will not be tariff on goods moving within the African space. So, not only will the country lose revenue from tariff, we are also going to lose revenue from company taxes. So, it is an issue that requires deep reflection. The government must consider all facts before signing the document,” he said.
He also wondered why the government did not engage in adequate consultation with major stakeholders ahead of agreeing to being part of the CFTA.
“This is a major policy that will affect the way we do business in the country. The government should have sounded out those who are likely going to be affected by the policy before the decision to be a part of CFTA was reached,” Nwachukwu noted.
This is the major grouse of the Nigeria Labour Congress (NLC) with the government’s plan to be part of the CFTA.
In a statement signed by its President, Comrade Ayuba Wabba, at the weekend, NLC said, “Information reaching us suggests that the relevant business community has not been consulted.
“The drivers of this policy initiative, without consulting the relevant stake holders for possible impact assessment, have perfected a document for the signature of President Muhammadu Buhari at Kigali on the 21 of March.
“We at the Nigeria Labour Congress are shocked by the sheer impunity or blatant lack of consultation in the process that has led to this.”
The labour union described the CFTA as an “extremely dangerous and radioactive neo-liberal policy initiative being driven by the Ministry of Trade and Investment that seeks to open our seaports, airports and other businesses to unbridled foreign interference never before witnessed in the history of the country.”
The union added, “We are more worried by the probable outcome of this policy initiative if it is given life because of its crippling effect on the local businesses and attendant effects on jobs.
“We find it confounding that at a time nations, including the United States are resorting to protectionism in defence of their local businesses and protection of jobs, we have the audacity to want to fling open our doors, windows and roof tops.
“We have no doubt this policy initiative will spell the death knell of the Nigerian economy.
“Accordingly, we urge Mr. President not to sign this agreement either in Kigali or anywhere.
“We believe our national interest is at stake and nothing should be done to compromise this.
“The African Continental Free Trade Agreement rather than unite Africa, will only divide it the more; rather than enrich Africa will only pauperise it the more.”
The NLC expressed concern that while other countries “are resorting to protectionism in defence of their local businesses and protection of jobs, we have the audacity to want to fling open our doors, windows and rooftops.”
But Ambassador Chiedu Osakwe, the Chief Negotiator for CFTA, does not share NLC’s fear of the economy being exposed to dangers through the CFTA.
According to him, “We are putting in place measures to safeguard our unprotected economic environment from dumping, counterfeiting and unfair trading practices by some of the trading partners.
“One of our key mandate is to put in place anti-dumping measures, to safeguard the Nigeria economy from becoming a dumping ground, we are pulling all the stuff, this is one of the principles to ensure this is achieved.”
Speaking in a similar vein, the Minister of Industry, Trade and Investment, Dr. Okechukwu Enelamah, said “Increasing intra-African trade is crucial in a global economy that is turning protectionist. The CFTA negotiations provide a huge opportunity for economic growth and increased welfare in Africa, in a global economy in rapid but uncertain transformation. At the same time, we will continue to take into cognizance the complexities of our domestic market and ensure appropriate safeguards for the Nigerian Economy.”
But the position of both Osakwe and Enelamah is a hard sell to Nigerians who see the possibility of the CFTA further deepening poverty in Nigeria.
According to Dr Stephen Ligali of Arrion Associates, Lagos, “With over 80 million people living below the poverty line, with youth unemployment at an unprecedented height, with the number of private sector operators reducing instead of increasing, our concern as a nation should be how to increase opportunities for our people by coming up with policies that would help businesses to grow, not ones that will sound their death knell. If more businesses die, that means unemployment will increase and poverty will rise in the country. Is that what we want as a country? But that is what the CFTA is going to do unless we retrace our steps. The CFTA will work for some countries and prosper them but Nigeria is not one of them because we are not ready for it.”