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| Ken UKAOHA, Esq. |
Precisely on 21st March 2018, in Kigali - Rwanda, about 44 out of the 55 African Governments signed the framework deal for the African Continental Free Trade Agreement (AfCFTA) at the African Union summit, and since then, many others have also signed and even ratified the agreement.
Participants recognized that the AfCFTA has potentials to handhold Africans, and particularly, the MSMEs constituency out of the poverty bracket. It has been noted that with 1.2 billion inhabitants and a GDP of about 3 trillion USD, the ACFTA has the capacity to increase access to markets that are larger than the colonially imposed national boundaries and demarcations. It is also speculated that the AfCFTA can create up to 20m to 30m jobs needed each year to accommodate the waves of young people entering the labour market, while at the same time boosting intra-African trade from 15% to at least 25% within the next ten years. More so, the AfCFTA would protect the continent from external shocks like changes in commodity prices or exchange rates.
The workshop took note of the fact that the signatures to the AfCFTA have risen from 44 to 52, with only 3 African countries remaining. For the ECOWAS region, 13 of our 15 Member Stateshave so far signed the AfCFTA Agreement and 8 (out of 21 ratifications so far) of our Member States have also ratified the Agreement. Only Nigeria and the Republic of Benin are the onlyMember States of ECOWAS yet to sign the AfCFTA. Participants however were of theunanimous opinion that the fact that Nigeria has not yet signed is for the good reasons.
Participants support the call by ECOWAS for Member States yet to sign and ratify to do so with the assurance of the preservation of theECOWAS acquis, and that the AfCFTA is coherent withregional advancements.
2.0. Technical sessions
The technical sessions dissected the study report into five sections and various presenters took critical look at the various issues, date and policy frameworks at the national, regional and continental levels arising from the report, as follows:
i. Agriculture in the AfCFTA negotiations- setting the stage
ii. Agricultural Import and Export Trends
iii. Impact of AfCFTA Liberalisation on Imports, Output, Employment and Investment
iv. Impact of AfCFTA Liberalisation on Exports: Opportunities and Nigeria's Capabilities
v. Costs, Management and Enhancing Nigeria's Market Access Opportunity Utilisation: Recommendations
There were also discussants to review, query, update or improve on the presentations, as well as interventions, clarifications, debates and constructive inputs by participants.
3.0. Participation
The validation workshop had in attendance over 60 representatives drawn from the various Government Ministries, Departments and Agencies (MDAs), the Private Sector Organizations, Civil Society Organizations, Farmers Associations, Labour Unions, media organizations, and the Academia.
4.0. Key Findings and Observations
The following are the key findings of the study and observations made by participants on the various subjects, particularly relating to both the Defensive and Offensive approaches:
i. Aggregate Import Changes: The study noted that, on aggregate import changes, the post-liberalization tariff line structure under the AfCFTAwill be such that all tariff lines except those that are designated as sensitive will carry zero tariff rates for intra-African trade. This amount to 2.3% of tariff lines for 35% tariff rates and is far less than the 10% exclusion sought by the AfCFTA negotiation modalities. But that 10% threshold includes non-agricultural goods tariff lines.More so, a 3-phase liberalization tariff rates from 5%, 10%, and 20% to zero will likely generate higher surge of agricultural goods imports to the tune of about 178.7%, 197.9% and 116.7% on the average during a 15-year period. The import changes will likely be higher if there were no product exclusion from liberalization.
ii. Sub-sectoral Import Changes:Regarding sub-sectoral import changes, the increases in imports across sub-sectors are of different magnitudes of impacts. Therefore, the impact ranges from 119.6% for live animals and animal products to 247.2% for prepared foodstuffs, beverages,spirits and vinegar, tobacco and tobacco substitutes during the third phase of liberalizing tariff lines with 5% tariff rates. The import surge will also be as high as 322% in vegetable products subsector over 15 years when 10% rates are liberalized. The animal or vegetable fats and oil sector has the highest impact of 106.5% when lines with 20% tariff rates are liberalized.
iii. Agricultural Output,Employment and Investment: The study examined the effects of the tariff cuts phases on Nigeria’s agricultural output, investment and employment of manufacturing products/industries earlier classified by initial tariff levels as 5%, 10% and 20% under two scenarios.The change in domestic outputs for all the three broad sub-sectors is negative and as high as between -14.5 percent and -49.9 percent in two sectors. Significant changes in employment that cut across all the three broad sub-sectors were estimated in the two scenarios ranging from -1.51 percent -5.9 percent. Thus, the implementation of the AfCFTA implies increase in unemployment of farmers, farm workers and other associated workers. The simulations also show reduction in investment in the agricultural sector across all the sub-sectors for all the scenarios, and is as high as -7.61 percent for vegetable products. This is worrisome given that the sector is currently constrained by lack of investment, thus suggesting that implementation of AfCFTA would virtually wipe off the current meager investment in the sector.
iv. Adjustment Costs: The costs of adjustment include how to ensure that workers acquire the required skills in form of capacity building in general and training and retraining in particular. Also, workers that would be disengaged need to be re-engaged in other areas of agricultural value chain for instance. There is need to manage and transform the fixed investments that were rendered obsolete by the liberalization. Other AfCFTA-induced adjustment costs are those related to learning to exports: costs of investment, research and development (R&D), product quality and assurance costs, conformity costs of mandatory sanitary and phyto-sanitary (SPS) standards and technical standards, as well as costs of obtaining information from the export markets.
v. Offensive Dimension: Nigeria has revealed comparative disadvantage in many agricultural goods in African agricultural markets compared to Morocco, Zimbabwe, Zambia, Egypt, Kenya and Cote D’Ivoire. However, the country had better comparative advantage than some non-African countries such as Japan, Korea and Saudi Arabia. This suggests that the export opportunities for the country in this market are limited, when all products are considered. There will arise significant export opportunities for Nigeria’s agricultural products under AfCFTA implementation because other African countries will liberalize their import regime according to the dictates of the AfCFTA rules just like Nigeria. But the feasibility of Nigeria’s optimal utilization of AfCFTA-induced expansion of export market opportunities is in doubt, because its capacity to supply agricultural products to export markets is quite weak.
vi. Causes of potential weak Performance: Many factors cause the poor export performance, including:
a. Inefficient input system and farming model
b. Aging population of farmers
c. Inappropriate seeds, fertilizers, irrigation, crop protection and related support;
d. Inefficient system of food quality standards design and enforcement
e. Limited credit availability and fear of policy reversals,
f. Limited social and physical infrastructure to cope with adjustments induced by trade reforms,
g. Limited transport infrastructure or location characteristics,
h. Reliance on traditional farming techniques,
i. Export market risks,
j. Poor infrastructure (unstable power, bad roads, transport), Dutch disease, export concentration,
k. Failure of export promotion schemes
l. Lack of access roads to farming communities;
m. Production constraints impinging on commercial farming:
cumbersome business registration process,
complex procedures for establishing businesses
high cost of access to inputs
inability to scale up donor assisted agricultural interventions
5.0. Conclusion and Recommendations
At the end of the validation workshop, the following conclusions and recommendations were adopted:
i. Participants recognized and expressed confidence in the objectives of the AfCFTA and its capacity to deliver expanded market opportunities, job creation, strengthening continental regional economic integration, and fostering the development of MSMEs in terms of value addition, while also stemming unguarded influx of imports to Africa.
ii. Participants however noted that the very attractive objectives of the AfCFTA are contingent upon some major/critical factors, namely: (i) the need for massive cuts on customs duties, which is a major source of government revenue especially for a country like Nigeria, (ii) the need for the simplification and or removal of all bureaucratic procedures, tariff and Non-tariff barriers along the border points and corridors, and (iii) the imperative of government’s huge investment in road, rail, air, digital and financial infrastructure. Therefore, the need for effective, adequate, strategic and inclusive preparations for the negotiations through quantitative costs-benefits analysis, empiricaland evidence-based approach to plot the future of the country in the AfCFTA implementation becomes imperative.
iii. Participants therefore commended the Federal Government of Nigeria, and in particular, President Muhammadu Buhari for withholding his signature and insisting on an all-inclusive and consultative process of articulating Nigeria’s position in the AfCFTA, driven by key actors and stakeholders of the Nigerian economy, and for that reason, establishing a Presidential Steering Committee for the Impacts and Readiness of Nigeria in the negotiations. It is important to note that while many have spoken against Nigeria’s delay in signing the AfCFTA, that decision by Mr President on inclusive, thorough and evidence-based process has no doubt been applauded by some countries, even among those that signed early.
iv. Participants also appreciated the Federal Ministry of Industry, Trade and Investment for providing effective platform andtechnical guidance for the country in the negotiations through the Nigerian Office for Trade Negotiations (NOTN), and accommodating even dissent voices in the progressive articulation of the AfCFTA positions.
v. Participants underscored the importance of the Agricultural sector in the AfCFTA, especially given that (i) a major chunk of goods likely to be transacted under the AfCFTA is composed of agricultural commodities, (ii) the agricultural sector, in fact, provides over 60% of the raw materials used by the manufacturing sector to thrive, (iii) the AfCFTA is expected to boost intra-African agricultural trade, and promote agricultural development and food security, and is crucial to the attainment of the objectives of the Continental African Agricultural Development Programme – CAADP, which is Africa’s strategic framework for agriculture and agriculture-led development, and
(iv) Nigeria has currently invested hugely in agriculture, and this is largely responsible for the nation’s escape from recession and the current noticeable economic stability. In this regard therefore, participants were of the opinion that agro-related investments in noble initiatives such as the Anchor Borrowers Scheme, Nigeria Incentive Based Sharing for Agricultural Lending (NIRSAL), Growth Enhancement Support Scheme (GESS), the N-Power Initiative, as well as the Agriculture Promotion Policy (APP - the Green Alternative)and the overall commitment to the successful implementation of Nigeria’s economic development strategy – the Economic Recovery and Growth Plan (ERGP), should be considered while making decision concerning the AfCFTA.
vi. Participants welcomed the defensive and offensive approaches of the study and its well-thought out objectives, which include; for the defensive: (i) the review the existing tariff structure and post AfCFTA liberalization, as well as the differences between the two, (ii) development of criteria for exclusion of the sensitive products, also in terms of tariff lines, (iii) determination of sensitive products by tariff lines that require short- and immediate- run protection from market share erosion due to potential import surges, (iv) analysis of the impact of AfCFTA liberalization on intra-continental imports with or without product exclusion, (v) determinationof the nature and magnitude of the adjustment costs that may be created and what mechanisms should be established to compensate for such costs, and (vi) suggestion of appropriate support and coping mechanisms for dealing with each element of the adjustment costs, including farm shrinking/closure, unemployment, etc. For the offensive: (i)examinationof the existing opportunities for the export of agricultural products (by tariff lines) from Nigeria to African countries, (ii) attempt to determine the extent to which these existing opportunities are being exploited by Nigeria at the moment without the AfCFTA, (iii) examination of how the AfCFTA implementation will expand Nigeria’s export opportunities in the rest of the African countries, and (iv) the evaluation of whether the enhanced market access opportunities to be created by AfCFTA may be fully utilized by Nigeria’s agricultural sector.
vii. Participants highlighted the need to put in place a long-term plan of defraying the implementation costs of trade reform from the public sector side, especially in view of the apparent inefficient institutions which add more to this cost. In addition to this is the imperative of overhauling the inefficient input system and farming model, provision of appropriate seeds, fertilizers, irrigation, crop protection and related support, as well as the need to address the importance of replacement of the aging population of farmers by considering the possibility of institutionalizing the use of workers from neighbouring countries.
viii. Participants noted that for Nigeria to benefit from the AfCFTA, efficient system food quality standards design and enforcement should be established in order to breed export. More so, need to ensure access to technology and know-how is crucial for technical change which is the main driver of export growth, and this is in addition to the active subsidization of research and development and encouragement of foreign direct investment which should therefore command government attention. It is important to mitigate high information barriers and uncertainty in achieving market access, with appropriate export promotion strategies, including tax exemptions, provision of market information, etc. Government should overhaul, enhance and strengthen already established programmes in these areas to fit the cost of liberalization.
ix. To deal with unemployment induced by liberalization, participants called on Government to place strong emphasis on policies that enhance education quality, job market information, re-training opportunities for the upgrading of skills and the acquisition of new skills; to enhance job search through employment services which offer job placement information, interview training, career guidance and counselling. Normally, schemes like unemployment insurance, income support programmes, mandatory saving schemes, minimum wages, and compulsory severance payments should be available to deploy to intended effect of trade liberalization. The Nigerian government needs to evaluate to determine their appropriateness, effectiveness, and affordability for envisaged AfCFTA adjustment costs. Similarly, Government has the responsibility for instituting social safety net in order to help smoothen and alleviate the effect on the labour force and related issues. Social protection expenditures to cushion the negative effects of trade liberalization will be required and need to be upscaled.
x. To ensure the effective implementation of the AfCFTA, participants urged the Government to establish mechanism for developing a national AfCFTA strategy in the form of a standing National Action Committee on AfCFTA Implementation Strategies (NACAIS) with mandates to recommend adjustment costs compensation, technology and know-how access, research and development (R&D) subsidization, export market strategies, AfCFTA rules of origin, skills development, business environmental reforms including AfCFTA Country Business Index, AfCFTA impact monitoring and evaluation, among others. In addition, the need for significant public investment to cooperate in the formulation and enforcement of continental rules of origin (RoO) to forestall trade deflection, institutionalization of contingent protection measures and implementation of the trade facilitation agreement (TFA), was emphasized.
xi. Participants noted that the AfCFTA Agreement may have far reaching implications for the ECOWAS trade objective, including the Common External Tariff (CET) and the ECOWAS Trade Liberalization Scheme (ETLS) and other services regulations, especially if all Member States do not sign and ratify at the same time. Participants called on ECOWAS to ensure that stakeholders in the different Member States are promptly and adequately briefed on the implications of the 3/7 designation for sensitive products and list of exclusions on the ECOWAS trade objective. Participants equally called on ECOWAS to insist on ensuring that all products on 35% CET, numbering about 130 tariff lines will all be excluded from the AfCFTA liberalization. Similarly, given that pharmaceutical products are of special concern for Nigeria, and given the rationale for the nexus between the manufacturing and agricultural sectors in the pharmaceutical sector, it should be considered for exclusion.
xii. Participants called on the Government of Nigeria to focus on countries it has competitive advantage and huge market for its products rather than on countries with narrow range of products where it is likely to face high competition. This is important given the high trade costs and relatively poor performance on Ease of Doing Business characterizing the Country.
xiii. Participants noted that the study which critically analyzed the likely impact of the AfCFTA on Nigeria agricultural sector, has established that imports into Nigeria will substantially increase as a result of AfCFTA, and that this will affect domestic production, employment and investment. Given the high cost of operating environment prevalent in Nigeria (well over and above the continental average), AfCFTA would have overwhelming negative impact on the agriculture sector in differing magnitude. AfCFTA would also have some negative effect on employment, investment and agricultural output arising from heavy import surge. In this regard therefore, given the knowledge of the impact of the AfCFTA on the agricultural sector and the adjustment cost as well as how to approach them, participants noted that the Government of Nigeria can sign the framework agreement committing it to engage in negotiations of the AfCFTA, but embed itself in the process and ensure that the AfCFTA delivers good results for its farmers, especially as it relates to taking benefits of the market access opportunities in the rest of the continent.
xiv. Participants encouraged the Government of Nigeria as well as other private sector organizations to conduct more studies in relevant sectors and fields in order to enhance effective preparation in the AfCFTA negotiations and decision making.
xv. Participants commended NANTS and TrustAfrica for the quality of the study and the technical approach of the validation process.
For: NATIONAL ASSOCIATION OF NIGERIAN TRADERS (NANTS)
Ken UKAOHA, Esq.
Secretariat President
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