The African Continental Free Trade Area (AfCFTA) is believed to have the capacity to significantly boost intra-regional trade and break Africa’s longstanding dependence on foreign countries as export destinations and sources of imports and investment. With the official launch on January 1 this year, many trade blocs are beginning to realign their preferences in a bid to improve market access. FEMI ADEKOYA writes on how major trading partners like the United States and Europe are reviewing their trade programmes to align with the AfCFTA.
The AfCFTA holds the ace for African countries to improve intra-African trade and replace activities that were hitherto dominated by third-party countries to Africans. Despite this potential, there are challenges about the ability of African countries to remove red tapes and encourage trade.
Indeed, the recent African Trade Report by Afreximbank showed that despite ranking the third contributor to intra-African trade, Nigeria’s share of trade remains low considering its status as the biggest economy on the continent. This is even as raw commodities dominate items exported from the continent.
The report showed that though the outlook for 2021 is positive and Africa’s trade is expected to rebound strongly as global economic activity picks up and demand for African exports increases, informal cross-border trade (ICBT) remains dominant.
The report by Afreximbank notes that ICBT, which is a key component of intra-African trade, is wide-spread in its composition and estimates that in Eastern African ICBT is very high and could be worth as much as 80 per cent of the value of formal trade in some countries.
South Africa was the biggest contributor to Intra-African trade, accounting for 23 per cent of total trade, in 2019. The biggest jump came from DR Congo, which became the second intra-African trading nation, accounting for 10.4 per cent of total intra-African trade and Nigeria was third with seven per cent. Despite declining by 4.7 per cent, Nigeria’s share of intra-African trade remained constant at about seven per cent and Nigeria emerged as the third-largest intra-African trade country.
While the AfCFTA provides a vehicle for systematically dismantling trade-distorting tariffs across the continent, non-tariff barriers (such as inefficient, dilapidated or non-existent road, rail or port infrastructure and automated border systems and procedures, as well as strict phytosanitary and other administrative requirements) are often considered to be more harmful than tariffs and the leading contributor to the high cost of intra-regional trade.
This has reinforced the need for trade partners like the United States and Europe to offer opportunities that aid trade. Experts note that how the European Union responds to and interacts with the new trade area to its south will be key to determining the success of the AfCFTA.
Until now, the European Union’s Economic Partnership Agreement (EPA) remains a stumbling block for trade with Africa as a bloc. With the integration, the EU is exploring new ways to woo major stakeholders like Nigeria.
Recently, French President Emmanuel Macron inaugurated the France-Nigeria Business Council.
The Council is a private sector initiative to enhance business relations between the two countries with Abdul Samad Rabiu, Founder/ Chairman of Nigeria’s BUA Group, as its inaugural President.
The newly-inaugurated council also has Gilbert Chagoury of Chagoury Group, Mike Adenuga of Globacom and Conoil, Aliko Dangote of Dangote Industries, Tony Elumelu, Chairman UBA & Heirs Holdings, and Herbert Wigwe, CEO, Access Bank as the Nigerian members of the council.
The largest French companies, including Dassault and Total Energies, are also members of the council.
Speaking at the inaugural meeting of the council in Paris on the sidelines of the Business France Summit in Versailles, France, Abdul Samad Rabiu thanked President Macron for his vision in creating the French Nigeria Business Council.
He said the move has led to a reset in the business relationship between Nigeria and France and had created a viable platform for business from both countries to partner and improve business ties
According to Abdul Samad Rabiu, “Nigeria is blessed with numerous potentials for French companies to do business across different areas, notably solid minerals, and mining, manufacturing, agriculture, associated equipment, power, food processing and even in the business of associated equipment or infrastructure for the value chains of these sectors.
“Where French businesses have formerly been risk-averse or unable to do business with Africa’s largest economy, they can now be assured of a platform through which they can penetrate and mutually grow the market.
“Where Nigerian companies had not seen French companies or the French market as a viable destination due to a lack of information, they can now be sure of a platform to facilitate this”.
On its part, the United States of America has unveiled an initiative called ‘Prosper Africa’ through which it aims to substantially increase two-way trade and investment with Nigeria and other African countries.
Prosper Africa aims to reverse the United States’ eroding ground in African markets by providing technical assistance for U.S. and African companies to double two-way trade and investment. It includes a special focus on transparent markets and private enterprise as the foundations of economic growth and job creation.
Hitherto, the African Growth and Opportunity Act (AGOA), a United States Trade Act extended till 2025, enhances market access to the U.S. for qualifying Sub-Saharan African (SSA) countries.
The President and CEO Corporate Council on Africa, Florie Liser, had earlier explained to The Guardian that the initiative seeks to enhance bilateral ties between the United States and many African countries, adding that it aims to promote prosperity, security, and stability in US-Africa relations.
Considering how China’s success in doing business on the continent has been driven by its high and diverse financial flows, U.S. officials see Prosper Africa as an innovative method of engaging with African leaders and entrepreneurs through a coordinated effort among U.S. agencies—with less reference to China.
“With things that are developing here in Africa; a regional market that has over 1.2 billion people, free trade area, growth of the labour market through young people, essentially, you cannot ignore the African market and opportunities. Nigeria has the largest economy in Africa. You can’t talk about growing your business globally without Africa and you cannot talk about business in Africa without Nigeria.
“U.S. companies have been coming to Africa to invest and looking for partners for a long time like GE. What they are looking for is the right environment that will facilitate and promote their investment into the country and provide them with the certainty, rule of law, and they will be able to get their resources at some point”, she added.
On the performance of many African countries to AGOA, Liser said: “A number of African countries really haven’t taken full advantage of the opportunity of AGOA and Nigeria is one of them. You export oil and more value-added agricultural products to the U.S. Nigeria could do more with leather products like footwear, apparel, considering the country has had a textile industry here for a long time. You have not taken advantage of AGOA shipping these products.
“There are lots of opportunities, there are five and half years left. So, with the zero oil policy that has been put in place and efforts of the government to improve the ease of doing business up to 16 points on the World Bank doing business score, this is a good time to attract investment in Nigeria in the non-oil sectors”, she said.
Executive Vice President for Programs, Creative Associates International, Earl Gast, noted that the private sector is exploring how to make the initiative work in Nigeria, being a major player in the continent.
With the African Continental Free Trade Area (AfCFTA) coming on board, Gast noted that having a larger market created under the trade deal will be of interest to US investors seeking to expand their frontiers in African markets.