Our President Should Sign AfCFTA Free Trade after Strengthening “Rule of Origin” Clause

The Manufacturers Association of Nigeria (MAN) has suggested to President Buhari not to sign the agreement establishing the African Continental Free Trade Area (AfCFTA).  The major concern is that with Nigeria’s largely subpar infrastructural capacities [mainly electricity], most Nigerian factories could relocate to other African countries to produce items they sell in Nigeria. The implication would be massive manufacturing unemployment in the land.  Also, the risk of dumping goods in Nigeria is also high.

Trade activism is a hot thing now. President Trump is hitting China with tariffs on some products. He had taken U.S. out of the Trans-Pacific Partnership on concerns the pact would accelerate U.S. trade deficits. U.S. commands about 25% of the gross world product [total of all GDPs]. Nigeria would command 25% of the $2 trillion AfCFTA . Technically, someone has to lose for another to win. MAN’s Nigeria thinks it has most to lose. Accordingly, MAN is asking government to hold the pen.

The Manufacturers Association of Nigeria (MAN) on Wednesday strongly supported the move by the Federal Government on its refusal to sign the agreement establishing the African Continental Free Trade Area (AfCFTA).

The Manufacturers Association frowned at the contents of the agreement, noting that it will lead to gross unemployment in the country as most manufacturing companies in the country will be made to die a quicker death.

The Association President, Dr. Frank Jacobs said his association would not support Federal Government’s adoption and ratification of the agreement establishing the African Continental Free Trade Area (AfCFTA) until issues of market access and enforcement of rules of origin are addressed.

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The AfCTA is expected to create a trade bloc of 1.2 billion people with a combined gross domestic product (GDP) of more than $2 trillion. The agreement commits countries to removing tariffs on 90% of goods and to liberalize services.

The challenge here is huge: Europe has a pact with Morocco and if we have AfCFTA, European firms can operate from Morocco to flood Nigerian markets. Many local firms have no chance.

If ECOWAS has a free trade agreement with EU via Morocco, any small manufacturing will have in West Africa will collapse to zero. (Some EU companies can setup shops in Morocco targeting ECOWAS markets with zero tariff.)  In short, we will have massive economic dislocation as jobs will be lost. This is not protectionism: we trade with EU but it is not presently based on free trade agreement. The implication is that  EU products are a bit expensive today because those products are subjected to tariffs under WTO. If you offer EU free trade, via the backdoor of Morocco, their products would become cheaper and  many factories in West Africa will collapse.

Yet, MAN’s position is fascinating because it has not seen digital jobs as part of its manufacturing base. As I noted in a piece in Harvard Business Review, Nigerian digital companies would struggle to compete in the age of digital ICT utilities like Google and Facebook. MAN has not fought for them even though digital product production should be part of the manufacturing base. Of course, there is nothing MAN can do since it cannot constrain the unbounded internet in the distribution of services from America to Nigerians.

The position of MAN should be considered but it would hurt Nigeria if the country isolates itself in the era when Africa is looking for ways to integrate. As I noted in an African Union Congress lead paper, prior convergence of regional integration must happen first before the continental level integration. If we do not have such a strategy, we would open countries to trade shocks which would result to welfare loses. As MAN noted, no one consulted them because this was not started at the regional level, but at the continental level making it harder for stakeholders to model the impacts. With that kind of change, chaos arises in mainly heterogeneous markets.

The following countries have not signed also: “Burundi, Sierra Leone, Eritrea and Guinea Bissau also failed to sign the agreement. Others who did not sign include Botswana, Lesotho, Namibia, Zambia and Benin”.

Yet, President Buhari has to find a way to resolve the issues with MAN and ensure Nigeria is right there. We would benefit more by being part of this trade area. Nigerians are very entrepreneurial and we have more capacities to take business territories in Africa than Africans taking in Nigeria. If we have functioning electricity, there is no reason why Nigerian factories cannot compete in Africa. If the back-door trade agreements from Europe, China, and so on are shut down, allowing only African countries to compete, Nigeria should SIGN.

All Together

Nigeria should SIGN but must make sure the “rule of origin” clause is strong. We cannot afford goods produced outside Africa to be repackaged in a treaty member state and then shipped to Nigeria at a low tariff that is exclusive to member states.

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