Nigeria’s delay in signing the African Continental Free Trade Area (AfCFTA) agreement hurt her chance to host the body’s headquarters. By losing the opportunity to Ghana, some experts fear, Africa’s most populous and largest economy may be holding the short end of the stick in a deal that holds the key to maximising her economic potential. They also note that without addressing the country’s decrepit infrastructure, lack of value addition and insecurity, among others, the envisaged benefits of AfCFTA may elude Nigeria. Assistant Editor CHIKODI OKEREOCHA reports.
The Director-General, Nigerian Office for Trade Negotiations (NOTN), Ambassador Chiedu Osakwe, is upbeat. To him, the signing of the African Continental Free Trade Area (AfCFTA) agreement by President Muhammadu Buhari was a reaffirmation of Nigeria’s leadership on African trade integration. An obviously excited Osakwe added that the president’s signature was a bold step forward for Nigeria African trade integration and Nigeria’s leadership in the African Union (AU).
Recall that 16 months after foot-dragging on the signing of the hotly-debated AfCFTA agreement, Buhari finally signed the free trade deal on Sunday, July 7. This was at the 12th Extra-ordinary Summit of AU Heads of State and Government in Niamey, Niger Republic. The agreement, which has put Osakwe and indeed, other proponents of the trade libralisation deal in a joyous and expectant mood, was expected to create a continental trade bloc of 1.2 billion people, with a combined Gross Domestic Product (GDP) of about $3.3 trillion.
It was also envisaged that AfCFTA – the largest since the creation of the World Trade Organisation (WTO) in 1994 – will boost intra-African trade by about 60 per cent by 2022. It hoped to achieve this by committing AU’s 55-member states to liberalising services and trade and removing tariffs on 90 per cent of goods. Aside its inherent capacity to promote economic growth and development, reduce poverty in the partnering countries, it was also expected to help increase domestic and foreign investment.
So, with the signing of the trade liberalisation deal by Buhari, Osakwe, who is Nigeria’s Chief Trade Negotiator, was emphatic that the Federal Government has reaffirmed Nigeria’s leadership on African trade integration. Listen to the acclaimed international trade policy expert: “The President has demonstrated a remarkable leadership commitment to due process of the rule of law for trade integration, openness to trade and investment in a period in the global economy characterised by protectionism.”
However, Osakwe’s hope that Nigeria would ride on the back of the trade treaty to reaffirm her leadership on African trade integration may have come under serious doubts, even before its implementation goes full stream. The Nation learnt, for instance, that Nigeria’s sloppy economic diplomacy, as well as its fragile economy may have put her in a disadvantaged position where she may not reap the full benefits of the free trade deal. Her economic powerhouse and leadership position in Africa has also come under threat.
Indication to this emerged penultimate week, when, in what will perhaps go down as one of Nigeria’s low points in international economic diplomacy, she lost the chance to host the headquarters of the AfCFTA to Ghana. The thinking of critical stakeholders is that given Nigeria’s vantage position as Africa’s most populous and largest economy with a GDP of $405 billion, hosting the headquarters of the AfCFTA would have been a walk over, if she had bided. But because Nigeria could not muster the political will to sign the treaty early enough, it could not bid to host the AfCFTA secretariat.
This gave Ghana, which bided, the leeway to be selected as the host of the AfCFTA secretariat. The West African nation, according to a review committee, was awarded the right based on regional balance formula. Ghana edged out six other countries that submitted bids to host the secretariat. They include Egypt, Eswatini, Ethiopia, Kenya, Madagascar and Senegal.
Perhaps, as confirmation of Ghana’s strategic positioning to host the secretariat, Senegal President Macky Sall was said to have yielded his own nation’s bid in order to support Ghana’s. Egypt and Ethiopia also showed solidarity with Ghana over the selection. According to the AU, the secretariat’s primary mandate will be the implementation of the agreement, which has been ratified by 25 countries.
An economic expert, Dr. Patricia Auta, expressed regrets that Nigeria’s delay to sign the AfCFTA agreement cost her chance to host the headquarters of the AfCFTA. She said Nigeria would have contested and probably won the bid to host the secretariat because of the role it played from the beginning of the AfCFTA. “If we had signed on time and contested, there is no way we wouldn’t have won,’’ Auta said.
The expert added that it was sad that a heavyweight like Nigeria remained conspicuously on the sidelines for long at a time of increased momentum towards continental integration. “This state of affairs contrasts sharply with Nigeria’s prior activist roles on African matters in years gone by. In the past, Nigeria used its political, economic and diplomatic power….to seize the mantle of leadership that changed the course of African history, she lamented.
It is easy to see why Auta and indeed, other concerned experts and stakeholders are agonising over Nigeria’s loss. For one, the positive economic spin-offs from being home to AfCFTA are too obvious and numerous for Nigeria to miss. For instance, hosting the secretariat will boost job creation, as the secretariat will come with full complement of staff, ranging from economists to translators, administrators, technicians and a range of service providers.
The hospitality sector will also receive significant boost. With Ghana having the opportunity of hosting various regional and continental meetings and other events associated with the AfCFTA, various operators in the country’s hospitality sector are set to enjoy economic prosperity. The boosts that will come the way of the hospitality sector – and more broadly, the services sector – will also generate increased international exposure for Ghana.
Push for regional trade hub
Encouraged by her selection as host for AfCFTA Secretariat, Ghana has moved to leverage the opportunity to become Africa’s new commercial capital, a regional trade hub and an economic epicentre. The West African country is also positioning itself as the new gateway to the continent. And these are aspirations that challenge Nigeria’s dominance of the continent’s economic and investment landscape.
Ghana Vice President Dr. Mahamudu Bawumi put this challenge in perspective when he told a group of Canadian investors: “By next decade, if you are not in Ghana, you are not in Africa.” Addressing a group of investors at the Canada-Ghana Economic Summit organised by the Canada-Africa Strategic Investment Group Inc. in Vancouver, Canada on Monday, July 22, 2019, he said Ghana is the best investment destination in Africa for both local and foreign investors.
According to Dr Bawumia, not only do Ghana’s political stability and security, as well as benign legal and regulatory environment offer the best investment climate, the large domestic market and macroeconomic stability of Ghana puts it high as a favourable investment destination of choice in the African continent.
The vice president pointed out that Ghana’s large domestic market and the coming into force of the AfCFTA suggest that the country’s domestic market is no longer confined to West Africa alone. “The multiplier effects of hosting AfCFTA provides an even greater opportunity for businesses to rapidly launch into the rest of Africa from Ghana”, he noted.
He added that recent economic developments in Ghana also presented huge opportunities for diverse investment types and called on Canadian investors to direct their attention to Ghana. He said apart from the supportive legal/regulatory environment in Ghana, the country ranked 48th (out of 126 countries) on the World Justice Project’s 2019 Rule of Law Index.
Yet, there are other noteworthy global comparisons that present positive judgements on Ghana’s investment potential. For instance, Ghana has been ranked ahead of countries such as South Africa in the 2019 A.T. Kearney Global Services Location Index (GSLI), a measure of the attractiveness of a location for offshore services.
The country also maintained a consistent position as the second highest ranked country (out of 20) in the Absa/Barclays Africa Group Financial Markets Index for two years running. It also ranked as the fourth highest (out of 25) African countries in Ernst & Young Africa’s Attractiveness Survey (2017), ahead of Cote d’Ivoire, Mauritius, Rwanda and wait for this, Nigeria.
Lack of infrastructure, fragile economy is sore point
As if Ghana’s consistent push to become Africa’s preferred trade and investment hub is not enough to get the Nigerian authorities worried, Nigeria’s fragile economy caused partly by lack of supportive infrastructure particularly power supply, little or no capacity for value addition and insecurity, among others, are clearly grey areas that could stand in her way of maximising AfCFTA potential.
For instance, the Director-General of the Nigeria Employers’ Consultative Association (NECA), Mr. Timothy Olawale, is one of those who believe that given the fragile nature of Nigeria’s economy, the country may not derive much benefit, if any, from AfCFTA. He observed, for instance, that with the economy lacking in key infrastructure, it was too fragile to withstand competition from other countries.
Although Olawale described AfCFTA as laudable, with lots of inherent benefits including its capability to engender capital inflow into the country, he, however, said Nigeria signed on to the deal from a disadvantaged environment with regards to issues of infrastructure, among which is power and the issue of road network – that is, transportation for goods and services and accessibility to the different business environments.
The DG, who spoke with reporters after the leadership of NECA met with Buhari at the Presidential Villa, Abuja, recently, warned that rather than benefit from AfCFTA, the deal would turn Nigeria into a dumping ground for all manner of goods, unless stakeholders and government put all hands on deck to address issues around the fragile nature of the economy.
Hear him: “Before we start talking about benefits derivable from it (AfCFTA), we must also talk of the likely damage it can do to an economy that is fragile like ours, which behoves on us as stakeholders and government to put all hands on deck to address those issues.
“Those issues border on those variables that will ensure the competitiveness of Nigerian businesses and industry. We don’t want a situation where our businesses are not competitive due to the disadvantaged environment they operate.
“What we are saying is that if all these issues are not addressed properly, to make our business competitive, definitely we are going to be at the receiving end, to the extent that our nation will become a dumping ground. Some of the factories that are even struggling presently may end up folding up.
“Of course, we know the history of the textile sector and that can be repeated in any other sector and we don’t want us to get to that extent. That is why we are saying government should put mechanisms in place to address these issues, so that we can be competitive and take our rightful place by maximising the benefits of the AfCFTA.”
Recall that as part of efforts to make businesses competitive, President Buhari’s administration set up the Presidential Enabling Business Environment Council to make the country a progressively easier place to start and grow business. Olawale, however, accused some government agencies of frustrating the ease of doing business in Nigeria through their contradictory regulations.
Power crisis is spanner in the works
Power Generation Companies (GENCOs) have also expressed fears that until Nigeria’s power problems are adequately addressed, the country may not benefit much from the recently signed AfCFTA.
The electricity firms under the aegis of Association of Power Generation Companies (APGC) said despite signing the AfCFTA agreement, the benefits it poses to Nigeria may not be fully reaped until the problems of the power sector are fully addressed.
According to APGC, “Goods and services offered by Nigeria may not be comparatively/competitively priced, when compared to other nations with better power supply. Thus, the cumulative result of a significant boost in trade and, therefore, the economy, may not be realised.”
The association added: “For instance, steel mills consume a huge amount of power to convert pig iron blocks to liquefied iron, mixed with ingredients such as carbon, alloys and chemicals to change into a different type of steel, alloy, bars, rods, H-beams, sheet metals, etc.”
It also said in the mining industry, changing the mineral deposit and ores from the mines to concentrate metal blocks also required a huge amount of power. Hospitals also need uninterrupted electricity supply 24 hours a day for many health care functions and operation of patients, and universities require constant electricity to undertake high level research and development works.
The power firms, however, noted that AfCFTA was a welcome development and an indication that the Buhari administration was ready for business. They said the government, through the signing of the agreement, had shown commitment to addressing the challenges that might hamper this laudable move, including hurdles faced by the power generating companies.
Heartache over lack of value addition
A public policy analyst and development expert, Mr Jide Ojo, did not mince words when he said if Nigeria must take advantage of AfCFTA, she must incentivise the private sector for value addition. “We cannot continue to export raw materials and get peanuts in return,” he said.
Continuing, Ojo said: “We may just be signing on to something that may be like paper tiger; something good on paper alone. Unless we develop capacity for value addition, we may not profit maximally from AfCFTA.”
Ojo echoed the position of the President of the African Development Bank (AfDB), Dr. Akinwumi Adesina, who has consistently maintained that for for Nigeria to fast-track industrialisation and create jobs, she must prioritise value addition.
Listen to Adesina: “The formula for the wealth of nations is clear: rich nations add value to all they produce; poor nations simply export raw materials. Nigeria and Africa need to industrialise and add value to everything they produce – from agriculture, to minerals, to oil, gas and metals. There is need to move from the bottom to the top of the global value chains.”
Both experts are right. At present, virtually all the basic raw materials to feed the industries in Nigeria are available locally. The snag, however, is that they are not available in sufficient quantity and quality. More importantly, most of the available local raw materials are said to be in unusable form, requiring value addition before they can be used by industries.
The value addition, The Nation learnt, is done mostly by Small and Medium scale Enterprises (SMEs) because they are the off-takers, taking the materials from the unusable form to the next intermediate stage. It is the intermediate raw material that industries require for production.
However, because of the low capacity of the SMEs to add value to available local raw materials, coupled with lack of access to capital to set up processing facilities, process technology and techniques, and spare parts, among others, they have not been able to fill this gap.
The consensus is that local raw materials in their natural forms do not have any value and would not attract any market demand hence, there is need to process them to meet internationally accepted quality and standards for use by manufacturers.
What currently obtains is that most of the local raw materials are being exported and later imported back into the country as finished products with the addition of certain additives at great cost. Therefore, experts say there is the need to encourage the local supply of raw materials to halt the huge foreign exchange spent on raw materials importation when they can be sourced locally.
Interestingly, Nigeria’s potential for production of a wide range of raw materials and products has never been in doubt. The country boosts human and natural resource endowments as well as good climatic conditions to support the production of agro-raw materials and products required by industries.
Sadly, however, most of these resources, if not all of them, are exported in their raw form, without any value addition. The country does not process them from primary produce to secondary or intermediate products. Rather than do so, the raw materials are taken to factories in other parts of the world where they are processed and sent back to Nigeria.
The implication is that Nigeria ends up losing money that could have been made from finished products produced locally. More importantly, the country creates jobs for nationals in other parts of the world, while it continues grappling with unsavoury socio-economic consequences of rising unemployment particularly amongst graduates.
To Ojo and indeed, other development experts, therefore, the time to truly transform Nigeria into a primary, productive market and not a secondary market for the dumping of goods has come. This, according to them, means that Nigeria must prioritise the implementation of policies and strategies to boost the capacity of the private sector to add value to raw materials, if Nigeria must benefit optimally from AfCFTA.