Efem Nkam Ubi, Research Fellow, Nigerian Institute of International Affairs
Subjects of Interest
- Economic Development
- Geopolitical Analysis
- International Affairs
- International Trade
Nigeria's abstention from the CFTA Agreement was no mistake 11 May 2018
In January 2012, during the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union (AU) in Addis Ababa, Ethiopia, a decision was adopted to establish the Continental Free Trade Area (CFTA) by an indicative date of 2017. The AU also endorsed the Action Plan on Boosting Intra-Africa Trade (BIAT). The BIAT was designed to provide a comprehensive framework to pursue a developmental regionalism strategy and double intra-Africa trade flows between January 2012 and January 2022, according to the AU.
On March 21, 2018, 44 African leaders signed an agreement to create the CFTA following several years of negotiations. Nigeria and South Africa – Africa's biggest economies – along with eight other African nations did not sign up to the trade bloc. These abstentions effectively diminished the impact of the CFTA, which was intended to bring together 54 African countries with a total population of over 1.2 billion people and a combined gross domestic product (GDP) of more than $3.4 trillion.
Part of the main objectives of the CFTA is to create a single continental market for goods and services, with free movement of persons and investments. The trade bloc is also expected to enhance competitiveness at the industry and enterprise level, continental market access and better reallocation of resources.
Why then did Nigeria, which was at the forefront of the negotiations and establishment of the CFTA, refuse to sign up? According to President Muhammadu Buhari, the country wants to “widen and deepen domestic consultations, to ensure all concerns were addressed, as it would not sign any agreement that would not fairly and equitably represent the interest of Nigeria and indeed, her African brothers and sisters.” Although the president has taken flak for his decision not to sign the trade agreement, he made the right call, in my view, not to commit the country to the CFTA.
As he further explained correctly, "We will not agree to anything that will undermine local manufacturers and entrepreneurs, or that may lead to Nigeria becoming a dumping ground for finished goods." Nigeria seems to have taken a departure from a trend whereby governments of many African countries rush into signing agreements without proper consultations with their citizens.
Despite the much-touted benefits of the free trade area, supporters of the CFTA have failed to demonstrate conclusively how the trade bloc can address Africa's underdevelopment and disappointing experience with industrialisation. This is what informs my counter analyses to the optimistic views on the CFTA. My views are based on three factors, which I discuss henceforth.
My first concern is that a free trade area will never bring about Nigeria's or Africa's development. For instance, over the last decade, Nigeria has seen its trade grow exponentially with the rest of the world, especially with China. While this has enhanced economic growth, it has not translated into development – which entails measurable and qualitative human development indices and not merely statistical economic growth.
Secondly, a critical analysis shows that Nigeria and many African countries are not truly positioned for free trade. This is because industrialisation has not taking root on the continent. The CFTA begs the question of which should come first: Africa's industrialisation or free trade? Sub-Saharan Africa's average share of manufacturing value added goods as a percentage of GDP in 2010 was 10 percent – the same as it had been from the 1970s. Except for Tunisia and Mauritius, which are considered the bright lights of Africa's industrialisation narrative, industrial policies adopted by many African countries over the last few decades have performed very poorly.
United Nations Conference on Trade and Development (UNCTAD) puts intra-Africa trade in 2010 at 10.2 percent of the continent's total trade. Meanwhile, the UN Economic Commission for Africa (UNECA) has estimated the CFTA could increase trade between African countries by 52 percent by 2022, compared with trade levels in 2010. But how much of this trade would comprise of high-end finished goods remains unknown.
90 percent of Nigeria's export is basically crude oil, and the remainder comprise of agricultural commodities, solid minerals and manufactured goods. Indeed, the share of Nigeria's manufactured goods to total exports in 2017 was 1.7 percent. This goes to show that the bulk of the goods in intra-Africa trade under the auspices of the CFTA would be raw materials. Free trade deals are more impactful when countries have made the transition from low-end manufacturing toward more sophisticated and technology-intensive goods.
Thirdly, without the benefit of export manufacturing or export-led industrialisation, the elimination of trade tariffs and import duties will reduce government revenue. According to a research by UNCTAD, the elimination of all tariffs between African countries would cut the annual revenue of African governments by $4.1 billion, although there is the long-run annual welfare gain of $16.1 billion.
Nigeria should, therefore, not sign the CFTA agreement yet. Countries that are not industrialised will definitely be dumping grounds for all sorts of goods, even as their cottage industries will be undermined, and eventually destroyed. The Nigerian government needs to focus on its industrialisation agenda by boosting the supply of its human capital, as well as infrastructure stock, which will ease the movement of goods and people.
Nigeria is no doubt the largest African economy. But it must be able to leverage its potentials by revamping its industrial policies and boosting industrial capacity. This is the only way the country can benefit from free trade agreements in the future.
Efem N. Ubi, PhD, is a Research Fellow and Head, Division of International Economic Relations, at the Nigerian Institute of International Affairs, Lagos.