Although Nigeria signed and ratified the African Continental Free Trade Agreement (AfCFTA) in 2019, it is pertinent to point out that this is not an end in itself but rather a means to an end. This is because regional free trade agreements like the AfCFTA present an opportunity to trade more with member countries, thereby increasing the productivity, GDP, per capita income and lifting the citizens of the countries that are party to the agreement out of poverty. However, this will only happen if the deal is well implemented.
The signing of bilateral and regional Free Trade Agreements (FTAs) like the AfCFTA among nations has become commonplace today. This kind of agreement aims to remove the tariff and non-tariff barriers that hinder the flow of free trade among them. Apart from the elimination of tariff and non-tariff barriers, other important features that are generating attention in the FTAs signed in recent times include rules relating to the protection of rights to intellectual properties, rules on competition, rules on labour rights protection and environmental protection.
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The FTAs have been described as a viable tool that contributes significantly to the growth of export trade volumes of the nations involved. Studies have shown that the bilateral trade volumes of some nations involved in an FTA experienced 100% growth within 10 years. This has been corroborated by other reports that showed an increase of over 400% in the trade volume of China within a space of 35 years. This explains why the number of both bilateral and regional FTAs signed among nations of the world has been on the increase since the 1990s. According to the World Trade Organisation (WTO), 455 regional FTAs were already in force as of January 2018 and this is up and more than doubled from about 200 in the year 2000.
Despite the huge opportunities made available to businesses in nations around the world by continental, regional and bilateral FTA, it is sad to know that the utilisation of these agreements has remained low, especially among developing and underdeveloped countries. Several surveys have been conducted across the world by numerous researchers in different countries and for different bilateral and regional trade agreements, to ascertain the level of utilisation of the various FTAs and hence the impacts of these agreements on different countries and trading blocs. According to the report of the survey done by Thomson Reuters and KPMG International In 2016 only 23% of the respondents were fully utilising all the FTAs that are available to them. Contrary to this, the report of PricewaterhouseCoopers on the same subject in 2018 showed that in Australia, 78% of the importers used at least one FTA when procuring any item from abroad while 62% of the exporters used at least one FTA to penetrate an export market.
Other researchers, in 2017 reported that China exported 55.87% of the total products available for concession under the FTA between Pakistan and China while Pakistan could only utilise 5%. On the contrary, the utilisation among the member states of the European Union (EU) is reasonably high. The report from the Commission to the European Parliament, the Council showed that the EU utilisation of the FTA between Switzerland and EU in 2018 is about 80%. This report from the EU was corroborated in another study carried out by Ecorys on The Netherlands in 2018 which showed that 83% of the respondents make use of FTAs in their import-export transactions while the remaining 17% do not use any form of FTAs in their international trade transaction.
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Unlike the case in Europe, Australia and some other parts of the world, the situation in Africa is very different because of the very low intra-African trade which consequently leads to a much lower FTA utilisation. For example, in 2015, only 18% of the total exports from Africa were traded with other countries within the continent. This trend is also seen in all the regional FTAs within the continent. According to the report of UNCTAD in 2018, the share of intraregional trade among countries that made up the Southern African Development Community (SADC) was 20.7%. Next to this is the Eastern African Community (EAC) which has an intraregional trade share of just 10.6%. This is very close to that of the Economic Community of West African States (ECOWAS) which equally recorded a very low intra-regional trade share of 10.0%.
The question then is, are some FTAs very successful while others are not? Why have some FTAs failed to deliver the intended value? Why are many of the nations that are part of FTA not able to enjoy the benefits of the agreement? All these questions need to be answered to anticipate this challenge and design the strategies to mitigate them. This will be the focus of the next edition of this article. I hope that the government will adopt some of the recommendations that will be put forward at the end of this series of articles to implement the AfCFTA and create the necessary jobs that will lift out of penury, the tens of millions of Nigeria that are currently living below the poverty line.
