AfCFTA, EPAs and Brexit: Africa needs holistic integration

I was a key speaker at this year’s Global Trade Review (GTR) Africa Trade and Infrastructure Finance Conference held in London on October 30. The organisers invited me to talk about the potential implications for Africa of the African Continental Free Trade Area (AfCFTA), the Economic Partnership Agreements (EPAs) and Brexit, Britain’s impending exit from the EU, all of which they described as a “landmark moment”.

They were right. AfCFTA, the EPAs and Brexit are significant developments that have huge implications for Africa. They will determine the extent to which Africa can achieve greater economic growth and prosperity and increase the welfare of its people. To achieve these, Africa must be a great trading continent and a great destination for foreign investment and capital. But that requires it to integrate internally and with other markets globally.

So, my message at the GTR Africa conference was that Africa must integrate internally, by making AfCFTA work, and externally, by engaging constructively with Europe on the EPAs and with a post-Brexit open Britain. Africa must, of course, not ignore America, China, India, Japan and other major trading nations! In other words, Africa must integrate holistically!

In a world of interconnected yet sovereign nations, free trade agreements (FTAs)are the guaranteed means of securing market access for a country’s exports, gaining access to cheap, valuable imports, and attracting foreign investment and capital. But FTAs are also powerful tools for incentivising domestic policy and institutional reforms and for signalling to the outside world that a country is open for business. When a country enters into meaningful FTAs it necessarily undertakes pro-market reforms, which assure foreign investors of its business-friendliness.

But Africa is reluctant to undergo radical policy and institutional transformation needed to make it business and investment friendly and, so, has failed to integrate internally, let alone externally, through deep and comprehensive FTAs. Indeed, Africa isthe only continent that has failed to participate in meaningful FTAs. As a result, it is, perversely, signalling to the rest of the world that it is not a good place to do business.

This was evident from the views of participants at the GTR Africa conference. The chairman of the conference, Edward George, Head of Group Research and UK Representative Office of Ecobank, conducted a live poll, asking the nearly 300 participants: “Using one word, what’s your perception of doing business in Africa?” Well, the words most used were “challenging” and “difficult”, followed by “opportunity”. So, in the minds of foreign business people, Africa is full of opportunities, but doing business in the continent is “challenging” and “difficult”. But the challenge and difficulty are also experienced by Africans themselves, which is why intra-Africa trade is very low, at around 11% of total African trade, compared with 62% in Europe, 50% in North America and 30% in Southeast Asia.

I argued that AfCFTA was necessary to address the high trade costs that limit intra-Africa trade, push trade into predominantly informal channels and stop Africa from developing regional value chains, let alone participate in global ones. The high tariffs, at an average of 8.7%, and the even more problematic non-tariff barriers, including poor infrastructure, crippling regulations and “thick” borders, with cumbersome customs and logistics bottlenecks, make intra-Africa, andindeed extra-Africa, trade extremely difficult.

Yet if AfCFTA works, according to the United Nations Conference on Trade and Development (UNCTAD), it would add $17.6bn (2.8%) to Africa’s trade with the rest of the world, while intra-Africa trade would rise by $34.6bn (52%), with a further $85bn added if trade facilitation is addressed. Overall, intra-Africa trade could rise from 10.2% to 22% by 2022. That’s without adding other advantages, such as the pull for FDI and a bigger bargaining power that come with having a market with a population of 1.2bn and a combined GDP of $3.4 trillion.

But where is the will to make AfCFTA work? Although 49 of the 55 African countries have now signed the agreement, only 10 have, so far, ratified it. Yet 22 ratifications are required to bring AfCFTA into effect. The agreement is expected to enter into force by January 2019, but achievingthe remaining 12 ratifications before then may be a tall order.The truth is thatlack of political will and resistance to deep liberalisation, as showed by the persistent delay in submitting market access offers, remain the bane of the AfCFTA project.

Of course, as we know,Nigeria is still navel-gazing, talking to itself aboutwhether or not to sign the agreement. Someoneasked me, sarcastically, at the conference: “Your president said he was too lazy to read the AfCFTA agreement, has he now read it?” Former President Olusegun Obasanjoalso took a dig at the president, saying recently that Buhari’s “hands are too weak to sign” the AfCFTA agreement. Well, there has recently been some movement, although, in reality, it looks like a false dawn!

On 22 October, President Buhari inaugurated the “Committee on the Impact and Readiness Assessment for the AfCFTA”. This followed a seven-month nationwide “sensitisation and consultation”exercise. According to the president, the committee must address the issues raised during the sensitisation exercise and “develop short, medium and long-term measures to resolve the issues”. It must report in 12 weeks, i.e. in early January. But what are the issues that must be resolved before Nigeria can sign the AfCFTA agreement?

Strangely, they are virtually all the problems that have long afflicted businesses in Nigeria. They include: cost of finance, insufficient energy, poor transport logistics infrastructure, low productive capacity, multiple taxation, smuggling and insecurity. But the government had also commissioned an independent study, conducted by the Africa International Trade and Commerce Research, which showed that “78% of businesses believe that AfCFTA will make a positive impact on local businesses”. So, why should the supply-side problems, which indeed exist, stop Nigeria from joining the AfCFTA, despite its recognised benefits? In any case, isn’t AfCFTA intended to incentivise domestic reforms to tackle such supply-side problems?

As I said earlier, genuine membership of an FTA usually triggers domestic policy and institutional reforms. No serious country ever waits until it has addressed its domestic institutional problems before signing FTAs, rather, liberal-inclined countries either reform unilaterally or use FTAs to launch and lock in domestic reforms. When Estonia, a former Communist country, embarked on far-reaching domestic reforms in the 1990s, it did so because it was committed to trade and economic liberalisation and then used bilateral free trade agreements and WTO and EU accessions to fast-track and lock in those reforms.49 out 55 African countries, including South Africa, have signed the AfCFTA agreement, and 13 of the 15 ECOWAS members have done so. Surely, Nigeria is simply parading, unashamedly, its protectionist credentials by kicking the signing of the agreement into the long grass with rather convenient excuses.

But, let’s face it, whether or not Nigeria signs AfCFTA, whether or not the agreement enters into force, it would still face huge implementation challenges, as I argued previously in this column, and it won’t be, as envisaged by its promoters, the harbinger of a single market for Africa. I wanted to test this proposition at the conference, so I asked the organisers to put the following question to the participants: “Is AfCFTA a credible forerunner of a single market for Africa?”. With everyone using a Sli.do voting app on their mobile phone, the answers came instantly. 53% said no; 47% said yes. This was more positive than I had expected, but it shows that international businesses have positive expectations about AfCFTA. But can African politicians and policymakers meet those expectations?Well, the jury is out, considering the poor integration in the regional economic communities (RECs), where, for example, ECOWAS, a supposed customs union, have5.60% average tariffs, with only 10% of its total tariff lines fully liberalised.

As I said, my talk also covered the EPAs and Brexit, but there is no space to discuss them in detail here. Essentially, on the EPAs, my argument was that they giveguaranteed access for 100% of African products to EU markets while protecting Africa’s “sensitive” products from EU exports. Furthermore, given the EU’s commitments on the development component of the EPAs, the agreements could help Africa address its “3C challenges” of competitiveness of supply capacity, conformity with international standards and connectivity with international markets. But the EPAs have divided Africa. Of the five African EPA regions, only the SADC EPA group, with its 6 members, has signed the agreement. Kenya is disappointed that Tanzania is refusing to sign the East African Community’s EPA. And, in ECOWAS, 13 of the 15 members have signed the agreement, with Nigeria holding out to the frustration of Ghana!

Finally, Brexit. The starting point is that Africa will lose a supportive voice in Brussels without Britain at the EU table. But an open Britain, with an independent trade policy, could benefit Africa, particularly with respect agricultural exports. So, Brexit could give Africa the best of both worlds: a guaranteed access to the EU market, if Africa signs the EPAs, and an increased trade with the UK, if Africa engages with Britain.

I left the conference with the message I started with: Africa must integrate internally and externally. “Integrate, integrate, integrate – therein lies Africa’s future”, I concluded. Pleasingly, it was well-received!

Olu Fasan