AfCFTA: Policy questions and key next steps


A Republican lawyer and 30th President of the United States of America, Calvin Coolidge, (1872-1933), once remarked that no enterprise can exist for itself alone, it ministers to some great need, it performs some great service, not for itself, but for others, or failing therein, it ceases to be profitable and ceases to exist…adding that “the business of America is business.”

Rational minds considered similar sentiments regarding Africa, away from ethnic strife, internecine religious wars, hunger, poverty, disease, environmental degradation, over-reliance on international aid and agreed, not in so many words, but that the business of the continent ought to be just that: business! And that makes sense because growth emanates from innovation, productivity, predictable regulatory policies, intra-continental and inter-continental trade and cooperation, law and order, in aspirational market economies and progressive democracies.

That’s the logic of the African Continental Free Trade Agreement (AfCFTA). But what exactly is it and what is its purposive intent? AfCFTA was signed in Kigali, Rwanda, on March 21, 2018, by 44 out of 55 African countries at the 10th Extraordinary Summit of the African Union with the aim, as the name suggests, of embedding a free trade area traversing the continent. The Agreement was effected 14 months after its March 21, 2018 execution on May 30, 2019. Nigeria signed the Agreement on July 7, 2019.

AfCFTA’s Article 3 defines its general objectives to; (a) create a single market for goods, services, facilitated by movement of persons in order to deepen the economic integration of the African continent and in accordance with the Pan African vision of an integrated, prosperous and peaceful Africa; (b) create a liberalised market for goods and services through successive rounds of negotiations; (c) contribute to the movement of capital and natural persons and facilitate investments building on the initiatives and developments in the State Parties and Regional Economic Communities (RECs); (d) lay the foundation for the establishment of a Continental Customs Union at a later stage; (e) promote and attain sustainable and inclusive socio-economic development, gender equality and structural transformation of the State Parties; (f) enhance the competitiveness of the economies of State Parties within the continent and the global market; (g) promote industrial development through diversification and regional value chain development, agricultural development and food security; and (h) resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes.

Article 4 of the said Agreement establishes the specific objectives to (a) progressively eliminate tariffs and non-tariff barriers to trade in goods; (b) progressively liberalise trade in services; (c) cooperate on investment, intellectual property rights and competition policy; (d) cooperate on all trade-related areas; (e) cooperate on customs matters and the implementation of trade facilitation measures; (f) establish a mechanism for the settlement of disputes concerning their rights and obligations; and (g) establish and maintain an institutional framework for the implementation and administration of the AfCFTA.

On the plus side, AfCFTA (like the North American Free Trade Agreement (now the U.S., Mexico, Canada Agreement) represents a significant opportunity for the countries to catalyse growth, reduce poverty and expand economic inclusion. Its seamless implementation heightens the potential of lifting 30 million Africans out of crippling poverty whilst boosting the incomes of nearly 68 million others living below $5.50; raising Africa’s income by $450 by 2035 (a net increase of 7%) and adding $76 billion to the global economy. The World Bank estimates that AfCFTA could increase Africa’s exports by $560 billion in the manufacturing sector, and boost wages for skilled and unskilled workers, activating 10.5% gains for women and slightly lower gains at 9.9% for men.

These are fine prognostications which should, however, be grounded in practical socio-economic realities. What is the level of intra-African trade within Regional Economic Communities like the Economic Community of African States (ECOWAS) for a start? To what extent have trade barriers been removed and/or significantly reduced across the continent? Will decrepit infrastructure facilitate the economic transformation envisaged in AfCFTA? How likely are AfCFTA’s aspirational economic gains to be realised over the next lustrum, decade and vicennial? Swathes of the continent are ravaged by ethnic strife, religious wars and terrorism; how damaging are these harsh realities to the optimism evinced in AfCFTA? Are there effective mitigation strategies in place? How about the perennial power deficit impeding productivity?

Some contextual analysis is instructive here. In 2020, Nigeria exported $357.75m in products (mostly crude petroleum and aircraft supplies) and services to Ghana. In the same year, the latter exported $57.2m (including cocoa products, tools and paint) to Nigeria, resulting in a net trade balance of $300.55m to Nigeria. South Africa, in the same period, exported $495m, mostly agro-products and delivery trucks to Nigeria. Likewise, Nigeria exported $12.17b comprising crude petroleum, petroleum gas and scrap vehicles to South Africa resulting in balance of trade gains worth $11.67b to Nigeria. Up north, Egypt exported $136m mostly textiles and non-aqueous paint to Nigeria in the same year whilst the latter exported $4.2m to the land of the Pharaohs. The corollary is that intra-African trade volumes encompassing just 4 African countries, Egypt, Ghana, Nigeria, and South Africa, were in the region of $13.22b in 2020 alone. Now, that’s huge given by any objective definition.

Nevertheless, and significant as those numbers are, they pale in comparison to trade volumes between China and Nigeria. China exported $17.4b to Nigeria in 2020 mostly telephones and woven fabrics. Nigeria, in turn, exported $2.54b to China, the bulk of which included crude petroleum (the country’s main foreign exchange earner!), petroleum gas and raw copper. The Chinese gained a whopping $14.86b in balance of trade payments in that year alone – more than the combined volume of trade in the same period between the quartet of Egypt, Ghana, Nigeria and South Africa.

Over the British Isles in 2020, UK exported $1.42b (mostly refined petroleum products, wheat and light pure cotton materials) to Nigeria, whilst the latter exported crude oil and petroleum gases worth $1.29b to UK. This resulted in net gains of $0.13b to the UK.Trade volumes between Nigeria and the European Union (EU) in 2021 hit circa €28.7b. EU exports to Nigeria (including refined petroleum products, aircraft supplies, machinery) were approximately €11.2b and Nigeria’s exports (including crude petroleum, cocoa and precious stones) were in the region of €17.5b. This represents €6.4b in balance of trade gains to Nigeria and the EU accounts for a fifth, 20.9% of Nigeria’s global trade.

Across the Atlantic, the USA exported $3.887b to Nigeria in 2021, mostly civilian aircraft, jet fuel, lubricating oils, machinery, vehicles, wheat, and plastics. Correspondingly, Nigeria exported $3.441b to the USA in crude petroleum, cocoa, cashew nuts and feeds; yielding a trade surplus of approximately $0.446b to USA. The trade surplus accruing to the USA is counterbalanced by the reality that Nigeria and the USA have a bilateral Trade and Investment Framework Agreement (TIFA), which affords both nations opportunities to dialogue on strategies to improve and enhance trade relations. Plus, Nigeria is eligible for preferential trade benefits under the terms of the US African Growth Opportunity Act (AGOA) and Nigeria receives development assistance from America via USAID.

So what? Patently and notwithstanding the trade volumes between the continent and the rest of the world, there are substantive opportunities to catalyse intra-African trade under the auspices of AfCFTA and other regional economic partnerships. For one, combined African gross domestic product is circa $3.4 trillion with an internal market, in demographic terms, of 1.3 billion people.

The policy recommendations herein are for African countries to, themselves, eliminate the significant impediments to growth and productivity to actualise the noble aspirations of the AfCFTA. Nigeria for example, according to the US Department for Trade and Commerce, has been largely responsible for the decades-long delay in developing the ECOWAS Common External Tariff. Nigeria, in turn, would contend that it must strike a delicate balance between safeguarding her national interests and not becoming a dumping ground for imports, which can suppress domestic economic activity.

Those contentions notwithstanding, the first recommendation is for African countries to address the conflating pandemic of ethno-religious wars, insecurity and strife besieging swathes of the continent. Striking examples are Nigeria, which is grappling with Boko Haram, ISWAP and other terrorist groups and non-state actors, which has resulted in the loss of almost 10,400 lives in the period January 1 to December 31, 2021 according to HumAngle, DRC, Libya and Somalia spring equally depressing statistics. Kinetic and non-kinetic mechanisms should be employed in this context.

Second, there must be legal and regulatory certainty for enterprise, local and foreign investors to thrive. Third, collaboratively and proactively working to ease trade barriers is non-negotiable in order not to undermine AfCFTA’s noble aspirations of sustainability, wealth creation and poverty reduction. Fourth, institutions like the African Development Bank and local development financial institutions can play a more critical role by innovatively facilitating access capital to SMEs (key drivers of growth) in regional member countries and locally.

Fifth, the trade imbalance between China and Nigeria for example is strikingly disproportionate (China has $14.86b balance of trade gains!) as illustrated above. There is case for the African Union seeking greater market access opportunities for African goods and services to help reverse the current inequitable trend. Naturally, this implies greater efficiency, innovation and productivity in Africa. Addressing the inconsistent power generation and distributional gaps would help too.

None of these however will be accomplished in one fell swoop, but they will certainly constitute major steps in the necessary advance towards sufficiency, poverty alleviation, reducing overreliance on international aid, boosting job creation and, further afield, potentially stemming often suicidal Britain/EU bound African migrant flows. This of course assumes, highly effective and visionary leadership, good governance, transparency and an unending commitment to the rule of law by all those in office in the continent. And to paraphrase Calvin Coolidge, the business of Africa, should be business!

Ojumu is Principal Partner at Balliol Myers LP, a firm of legal practitioners in Lagos, Nigeria.


Published By :- The Guardian Nigeria

Published On :- 22 June 2022