01 Feb AFRICA CONTINENTAL FREE TRADE AREA: CHALLENGES AND OPPORTUNITIES OF TARIFF REDUCTIONS IN NIGERIA
The African Continental Free Trade Area (AfCFTA) is a free trade area founded in 2018. AfCFTA was signed by Nigeria on the 7th of July 2019 and commenced trade on 1 January 2021 after a sixth-month delay as a result of the impact of Covid-19. It was created by the African Continental Free Trade Agreement among 54 of the 55 African Union nations. AfCFTA is an ambitious trade pact that forms the world’s largest free trade area by connecting almost 1.3bn people across 54 African countries.
The Agreement aims to create a single market for goods and services in order to deepen the economic integration of Africa.
Although trade has commenced, negotiations are still ongoing on several issues. Such negotiations have been divided into three phases:
Phase 1: Negotiations of trade in goods and services which led to the ratification of legal instruments (the AfCFTA Agreement itself and protocols on trade-in service and goods and settlement of disputes) that came into force on 30 May 2019, permitting the launch of trading. These negotiations are underway to eliminate tariffs on 90% of goods over a five-year period (10 years for Least Developed Countries (LDCs). The remaining 10% of tariff lines are divided into two categories – 7% of tariff lines may be designated “sensitive products”. Tariffs on these goods will be eliminated over a 10-year period (13 years for LDCs). The remaining 3% of tariff lines can be excluded from liberalization, but the value of these goods cannot exceed 10% of total intra-African imports.
Phase 2: Negotiations on the intellectual property rights, sustainable investment, and competition policy in view; and
Phase 3: Negotiations on e-commerce, which is yet to commence.
The primary objective behind the AfCFTA is the elimination or reduction of tariff and non-tariff barriers amongst the 54 Countries that agreed to be members of the bloc by providing a single market for goods and services, facilitated by uninterrupted movement of persons. These key objectives are to be achieved through successive rounds of negotiations that are to be done in phases already mentioned above.
In specific terms, the Agreement also seeks to (i) lay the foundation for the establishment of a Continental Customs Union; (ii) promote and attain sustainable and inclusive socio-economic development, gender equality, and structural transformation of the State Parties; (iii) enhance the competitiveness of the economies of State Parties within the continent and global market; (iv) cooperation on investment, intellectual property rights and competition policy; (v) promote industrial development through diversification and regional value chain development, agricultural development and food security, and resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes. In order to actualize these noble objectives, Article 4 of the Agreement Mandates State Parties to:
- Progressively eliminate tariffs and non-tariff barriers to trade in goods;
- Progressively liberalize trade in services;
- Cooperate on investment, intellectual property rights, and competition policy;
- Cooperate in all trade-related areas;
- Cooperate on customs matters and the implementation of trade facilitation measures;
- Establish a mechanism for the settlement of disputes concerning their rights and obligations; and
- Establish and maintain an institutional framework for the implementation and administration of the AfCFTA.
IMPLICATION OF AfCFTA IN NIGERIA
Nigeria, whose intra-African trade is currently limited, stands to benefit from increased access to cheaper goods and services from other African countries under the AfCFTA. A tariff reduction adopted by a one-member state has implications on its partners, suppliers, and competitors as it spreads via trade networks and supply chains to the world.
In the long run, size, efficiency, welfare improvements for the citizens, employment expansion, and intra-African trade growth are some benefits to be gained from the AfCFTA. Agriculture and food, as well as industrial items, are the greatest favorable influence. Being a member of the AfCFTA would improve local competitiveness resulting in better quality and lower prices of goods for the citizens.
According to various studies, the AfCFTA has the potential to lift Nigerians out of poverty while simultaneously increasing manufacturing output. However, in order to get the full benefits of AfCFTA, Nigeria must implement targeted industrial/ structural reforms such as, upgrading its customs infrastructure, reducing transportation costs, and promoting digital marketing and e-commerce.
AfCFTA intends to increase economic integration across the globe, by bringing a new era of development in Africa, this has unfortunately taken a slow pace due to several factors such as the covid-19 virus pandemic which disrupted the globe.
However, businesses and traders in Nigeria and Africa at large are opened with several opportunities (i.e. Existence of trading between African countries and globally, leading to a wider market at affordable prices and increase in government revenue, etc.) to scale up and expand their markets.
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