Shipping News and Reviews

The lengthy highway to free commerce in Nigeria – and past

Thanks to an agreement under the COVAX Facility, African countries could soon receive larger shares of COVID-19 vaccines from Pfizer-BioNTech and Oxford-AstraZeneca. In doing so, their economies can move further towards growth and recovery after the coronavirus.

This good news comes when the continent reaches another economic milestone: On January 1, the African Continental Free Trade Area (AfCFTA) – the largest free trade area in the world – officially came into effect. The moment was decades in the making; Since the Lagos Action Plan of 1980, the creation of an “African Common Market” has been an important regional goal.

Despite the high achievements, the planned free trade area of ​​Africa still faces many hurdles. Nigeria, for example, just reopened four of its land borders to trade in December 2020, more than a year after they closed, to reduce smuggling, curb the illicit influx of small arms and drugs, and protect local manufacturers. However, Nigeria still bans the entry of up to 26 goods into the country, and the central bank has also denied importers of more than 40 other goods foreign exchange at official market rates. Aside from free trade agreements, experts claim that Nigeria's trade policy has only become more restrictive.

Nigeria is not alone. Intra-African trade is notoriously low and in 2016 only made up around 15 percent of the continent's total trade in goods. In West Africa, trade relations between Gambia and Senegal only officially begin after the construction of the 1.2-mile-long Senegambia bridge. In East Africa, tensions are affecting trade relations between Eritrea and Ethiopia. Inadequate trade-related infrastructure, lack of financial access, restrictive customs procedures and widespread political uncertainty play a role. Added to this is the protectionism of some African countries who want to reduce their dependence on imports and promote local production, as is the case in Nigeria, among others.

Because of these trade barriers, Andrew Alli, former President and CEO of Africa Finance Corporation, said he did not expect real free trade in Africa anytime soon: “I think unfortunately it will take a long time. These trade barriers will fall and the trade breaks will be reduced. But you have to start somewhere, and the AfCFTA provides a framework and a timetable for this. "

Nigeria has one of the most competitive markets for bitter substances in the world, and bitter substances are as cheap there – sometimes as cheap as water. However, when the government closed all land borders in the country to trade in August 2019, Kasapreko Company Ltd., a Ghanaian company that began selling bitter substances on a commercial scale, was one of the most famous importers of bitter substances in the Nigerian market in Nigeria – was badly affected. "In September we lost $ 1 million to the shutdown," a spokesman for the company that makes Alomo Bitters told a Ghanaian news site. The spokesman, Francis Holly Adzah, continued, "We managed to get three trucks of products into the Nigerian market just before the border was closed."

However, some companies welcomed the development. "If you do not enforce tariffs and limits, you are punishing local manufacturers and industries," said John Coumantaros, chairman of Flour Mills of Nigeria, in an interview with the Africa Report in January 2020. "When the border closes, the neighbors are only asked to to adhere to the rules agreed by them, "he concluded. The Rice Farmers Association of Nigeria also welcomed the border closure, saying, "We will be forced to eat what we produce."

Allegedly, the border closure argument was based on a simple choice: protect local industry or allow free trade.

Regardless of which side someone was on, this recent border closure was far from the first time Nigeria had restricted access to its markets. From February 1984 to 1986, Nigeria closed the border with Benin. The alleged reason was to curb the smuggling of petroleum products out of the country. In 1996, after political differences with the then Beninese President Nicéphore Soglo, the country closed the crossings to Benin again. The subsequent fuel shortage in Benin contributed to Soglo losing the presidency in the 1996 elections. And even in 2003, the Nigerian-Benin border was closed for a week after tensions over Benin officials harboring a suspected Nigerian criminal in Cotonou.

Not only the neighbor Benin has felt Nigeria's anger in trade. In 2003, Nigerian President Olusegun Obasanjo imposed an import ban on around 100 Ghanaian goods, including textiles, starch and plastics, to replace imported goods and encourage local industrialization.

Nigeria has also received the trade fine. For example, the Ghana Investment Promotion Center decided in 1994 to increase the investment capital needs of foreign companies (many of which are Nigerians) operating in Ghana to at least $ 300,000, in clear violation of its obligations under the West African Economic Community's trade liberalization program.

Such a problem is not uncommon. "The ruling elites often pursue short-term national interests in order to survive politically instead of implementing regional commitments," explained researchers Carmen Torres and Jeske van Seters in a 2016 paper, pointing out one reason among many why the trade barriers in West Africa as before are high.

Another problem is that informal trade is still ubiquitous and is not exactly reflected in official statistics. While governments may make statements about border closings and import tariff levels, informal trade is not stopping. This reflects a confluence of historical and institutional factors: man-made national borders established by colonial authorities and maintained after independence, porous borders between neighboring nations, a long history of regional trade before the colonial era, kinship groups crossing national borders, weak ones Border patrol skills, corrupt customs officers who benefit from collusion with smugglers and a lack of coordination between countries in the region.

It is these longstanding problems with economic cooperation between African countries that the AfCFTA wants to solve. And if all goes well it should. Despite some criticism, "we need to remember that (the agreement) is part of the African Union in 2063," said Andrew S. Nevin, chief economist at PwC Nigeria, in January. That is, "it's a 50 year vision for Africa and it goes step by step." Trade barriers in Africa, whether political or cultural, are only being removed gradually.

Although some economists assume that the benefits (in terms of market access) that trade agreements provide for larger countries may be proportionally less than those they offer for smaller or medium-sized economies, they still offer all-round benefits. The World Bank confirms that the AfCFTA is a great opportunity for Africa to lift 30 million people out of extreme poverty. The World Bank also notes that it will increase the incomes of 68 million other Africans living on less than $ 5.50 a day. The United Nations Economic Commission for Africa (UNECA) predicts that the AfCFTA will increase intra-African trade by "15 to 25 percent or 50 to 70 billion US dollars" by 2040.

According to UNECA, the agreement is Africa's only path to sustainable development. Alli stated: "People want to invest where they see there is a market for what they are investing in, be it infrastructure, the production of goods for local consumption or other things." If you "have a fragmented market like Africa today, it discourages investment."

The AfCFTA is based on five integral protocols: trade in goods, trade in services, dispute resolution, investment, as well as intellectual property rights and competition policy. The aim of the agreement is to gradually remove 90 percent of the tariffs for goods. Across the continent, these tariffs are currently at an average of 6.1 percent – more than companies pay for exports outside Africa. The removal of non-tariff barriers such as cumbersome customs procedures is just as much a strategic necessity as better cooperation on product standards, trade facilitation and hygiene measures. Meanwhile, the agreement creates a dispute resolution mechanism that is vital to enforcing compliance.

All of this is great on paper. However, it remains to be seen whether the AfCFTA will actually end the arbitrary border closings and trade breaks that have haunted African countries over the years. If so, it could mark a new economic start for the continent. If not, the largely symbolic start date of the AfCFTA on January 1st may not symbolize anything after all.

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