Free Trade on Africa’s Horizon

Nigeria and South Africa made international headlines in March when the two countries — also the continent’s two largest economies — refused to sign on to Africa’s new free trade pact. The African Continental Free Trade Agreement (AfCFTA) is not only expected to boost intra-Africa trade — which is alarmingly low, at just 15 percent — but is also expected to give Africa an edge in international trade deals, according to the African Union.

The pact, if it manages to unite all 55 countries, would include approximately 1.2 billion people and $3.4 trillion in gross domestic product and would be the largest trade agreement in the world outside of the World Trade Organization. Of 55 countries on the continent, 44 joined the agreement at a summit in Rwanda in March.

But for powerhouse economies Nigeria and South Africa, the deal may not be so sweet.

“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,” said Buhari in a statement on Twitter declining the deal.

“Their reluctance to sign up to the AfCFTA is also due to the fact that African countries have vastly different levels of economic development,” states Asmita Parshotam, a researcher under the Economic Diplomacy Programme at the South African Institute of International Affairs, in Africa Portal.

“Many are least developing countries (LDCs) that are heavily reliant on income generated from tariffs to supplement their domestic fiscus. They are concerned about the impact that increasing trade liberalisation could have on their national income. Inadequate infrastructure, an over-reliance on commodities, the rise of non-tariff barriers and a poor manufacturing basis is also a cause for concern for most African countries inhibiting their ability to participate in international trade,” she added.

South Africa’s new president Cyril Ramaphosa was more optimistic, though he also backed out of singing the agreement in March. He did signal South Africa’s intention to join the agreement in the future, but the country has warned, however, that the 18-month time frame to ratify the agreement may be too short.

For Nigeria, a major sticking point of the free trade deals is the impact on its domestic industries and local content. Nigeria has a reputation for creating some of the strongest local content policies in Africa, especially in regard to oil and gas, and is heavily focused on developing its domestic capacity.

To this end, Nigeria has also refused to sign on to the West Africa-EU free trade agreement, which is being negotiated as the United Kingdom prepares to leave the European Union, and would do away with trade restrictions between the Economic Community of West African States and the European Union.  The Economic Partnership Agreement would cover goods and development.

“Our industries cannot compete with the more efficient and highly technologically driven industries in Europe,” said Buhari according to CNN as Nigeria backed away from the agreement in April.

If Nigeria and South Africa don’t sign on to the AfCFTA, its impact will certainly be lessened (Nigeria has an estimated GDP of $1.1 trillion and South Africa has an estimated GDP of $739.4 billion). Even without these two countries, however, it is likely to move forward, according to Parshotam. Only 22 nations need to formally ratify the agreement for it to go into effect. A second phase of negotiations is expected to run until January 2019, and the process should be completed by the end of 2020.

“While the AfCFTA is not a panacea to Africa’s woes, it does represent an opportunity for countries to work together for mutual benefit and growth,” Parshotam said.