The Continental Free Trade Agreement: Is no deal the right deal for Nigeria?

On 22 March 2018 in Kigali, Rwanda, Heads of State of forty-four African countries, gathered to sign the African Continental Free Trade Agreement (“AfCFTA” or “the Agreement”), the landmark agreement which amongst others aims to liberalize trade across Africa.

The Nigerian President was among eleven Heads of States who did not sign the agreement, citing the need to consult widely before committing the country to an agreement with significant ramifications on its economy.

It would be recalled that Nigeria also passed up the opportunity to sign the Economic Partnership Agreement (“EPA”) between the European Union (“EU”) and the Economic Community of West African States (“ECOWAS”), also citing the need to consult widely.

The growing pattern of avoiding free trade agreements (“FTAs”) on the basis that wider consultation is needed is worrying for a country that aims to increase the welfare of its people and diversify from an oil centric economy.

If Nigeria’s reason for avoiding FTAs is the harm they would do if cheaper imports are allowed into its market, what about the harm such avoidance would do to consumers who earn the minimum wage and would be better off with cheaper imports or export manufacturers who need newer markets for survival or growth?

Based on examples from developed nations, FTAs are critical for economic growth and Nigeria should be seeking bilateral or multilateral FTAs that are strategic to its economic growth. Should Nigeria have signed the AfCFTA? Yes, if in the present form they are consistent with a clear and robust long term trade strategy! But shouldn’t they already be if we were from the outset, party to negotiating the Agreement?

What are the popular arguments against Nigeria’s participation in the AfCFTA (or FTAs) and what is my view on these arguments?

The uneven competition argument

Opponents of the AfCFTA have argued that gaping infrastructural deficits (i.e., perennial electricity shortage, high cost of capital, poor logistics landscape etc.) and uncertain business landscape, make it impracticable for Nigerian manufacturers to compete on even terms with their counterparts in other jurisdictions. They specifically argue that open borders would lead to the collapse or relocation of local manufacturers. Whilst this argument is valid, it may not tell the whole story.

Open borders would lead to the availability of cheaper inputs for local manufacturers who would otherwise pay import duties and taxes on these inputs. Cheaper inputs mean cheaper production costs and cheaper production costs potentially allows local manufacturers compete better with their foreign counterparts.

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