The Lengthy Street to Free Commerce in Nigeria—and Past
Sometime soon, thanks to a deal struck under the COVAX Facility, African nations may start receiving larger shares of the Pfizer-BioNTech and Oxford-AstraZeneca COVID-19 vaccines. As they do, their economies can move further toward post-coronavirus growth and recovery.
This good news comes as the continent hits another economic milestone: On Jan. 1, the African Continental Free Trade Area (AfCFTA)—the world’s largest free trade area—officially went into force. The moment was decades in the making; since the Lagos Plan of Action of 1980, creating an “African Common Market” has been a major regional goal.
Despite the lofty achievement, though, Africa’s envisaged free trade area still faces many hurdles. Nigeria, for instance, just reopened four of its land borders to trade in December 2020, more than a year after closing them to try to reduce smuggling, dampen the illegal inflow of small arms and drugs, and protect local manufacturers. But Nigeria still prohibits up to 26 goods from being imported into the country, and its Central Bank has also denied foreign exchange at official market rates to importers of more than 40 other goods. In other words, free trade agreement aside, experts maintain that Nigeria’s trade policies have only grown more restrictive.
Nigeria isn’t alone. Intra-African trade is notoriously low, amounting to only around 15 percent of the continent’s total goods trade as of 2016. In West Africa, trade relations between Gambia and Senegal are just beginning to officially open up after the construction of the 1.2-mile Senegambia Bridge. In East Africa, meanwhile, tensions still mar trade relations between Eritrea and Ethiopia. Inadequate trade-related infrastructure, lack of financial access, restrictive customs procedures, and extensive political uncertainty all play a role. And add to that protectionism among some African countries seeking to decrease their dependence on imports and promote local manufacturing, as is the case with Nigeria, among others.
As a result of these trade barriers, Andrew Alli, a former president and CEO of the Africa Finance Corporation, said he doesn’t expect true free trade in Africa anytime soon: “I think it’s going to take a long time, unfortunately, for these trade barriers to fall and for trade frictions to reduce. But you’ve got to start somewhere, and the AfCFTA provides a framework and a road map for that to happen.”
Nigeria has one of the most competitive markets for bitters in the world, and bitters there are as cheap—sometimes as cheap as water. However, when the government shut down all of the country’s land borders to trade in August 2019, one of the most prominent importers of bitters to the Nigerian market—Kasapreko Company Ltd., a Ghanaian company that began the sale of bitters on a commercial scale in Nigeria—was sorely affected. “In September, we lost $1 million to the closure,” a spokesperson for the company, which makes Alomo Bitters, told a Ghanaian news site. The spokesperson, Francis Holly Adzah, continued: “We managed to send in three trucks of products to the Nigerian market moments before the border was closed.”
However, some businesses welcomed the development. “If you don’t enforce tariffs and borders, you’re penalizing local manufacturers and industry,” John Coumantaros, the chairperson of the Flour Mills of Nigeria, said in a January 2020 interview with the Africa Report. “The border closure is ‘just asking the neighbors to play by the rules they agreed to,’” he concluded. The Rice Farmers Association of Nigeria likewise welcomed the border closure, saying “we will be compelled to eat what we produce.”
Ostensibly, the argument about the border closure came down to a simple choice: protect local industries or allow free trade.
Whichever side anyone was on, this most recent border closure was far from the first time Nigeria had restricted access to its markets. From February 1984 to 1986, Nigeria shut down the border with Benin. The purported reason was to to curb the smuggling of petroleum products out of the country. In 1996, the country again closed crossings to Benin following political differences with then-Beninese President Nicéphore Soglo. The gasoline shortages in Benin that followed contributed to Soglo’s loss of the presidency in the 1996 elections. And even in 2003, the Nigerian-Benin border was shut for a week following tensions over Beninese officials harboring a suspected Nigerian criminal in Cotonou.
It isn’t only next-door neighbor Benin that has felt Nigeria’s trade wrath. In 2003, Nigerian President Olusegun Obasanjo imposed an import ban on around 100 Ghanaian items, including textiles, starch, and plastics, in an effort to substitute imported goods and promote local industrialization.
Nigeria has been on the receiving end of trade punishment as well. In 1994, for example, the Ghana Investment Promotion Centre decided to increase the investment capital requirement of foreign-based businesses (many of them Nigerian) operating in Ghana to at least $300,000, a clear violation of its commitments under the Economic Community of West African States’ trade liberalization scheme.
Such tit-for-tat isn’t unusual. “Ruling elites often pursue short-term national interests seeking political survival, rather than implementing regional commitments,” explained the researchers Carmen Torres and Jeske van Seters in a 2016 paper, pointing to one reason among many why trade barriers remain high in West Africa.
Another issue is that informal trade remains pervasive and is not accurately reflected in official statistics. Although governments may make pronouncements on border closures and import tariff levels, informal trade doesn’t stop. That reflects a confluence of historical and institutional factors: artificial national borders established by colonial authorities and maintained after independence, porous borders between nearby nations, a long history of regional trade predating the colonial era, kinship groups that transcend national borders, weak border enforcement capabilities, corrupt customs officials who profit from collusion with smugglers, and a lack of coordination among the region’s countries.
It is these long-standing frictions to economic cooperation among African countries that the AfCFTA seeks to solve. And, if all goes well, it should. Despite some criticism, “we have to remember that [the agreement] is part of African Union 2063,” Andrew S. Nevin, chief economist at PwC Nigeria, said in January. That is, “it’s a 50-year vision for Africa, and it’s step by step by step.” Trade barriers in Africa, whether political or cultural, will only be removed gradually.
Although some economists posit that the benefits (in terms of market access) that trade agreements provide to larger countries could be proportionally lower than those they give to smaller or midsize economies, they still provide benefits all around. The World Bank confirms that the AfCFTA is a major opportunity for Africa to lift 30 million people out of extreme poverty. The World Bank also notes that it will raise the income of 68 million other Africans who live on less than $5.50 per day. Meanwhile, the United Nations Economic Commission for Africa (UNECA) predicts that the AfCFTA will raise intra-African trade by “15 to 25 percent, or $50 billion to $70 billion, by 2040.”
In fact, UNECA argues, the agreement is Africa’s only path to sustainable development. Alli explained that “people are looking to invest in where they see there’s a market for what they are investing in, whether that is in infrastructure, manufacturing goods for local consumption, or other things.” If you have “a fragmented market like Africa is today, it discourages investment.”
The AfCFTA is anchored on five integral protocols: trade in goods, trade in services, dispute settlement, investment, and intellectual property rights and competition policy. The goal of the agreement is to progressively eliminate 90 percent of the tariffs on goods. Around the continent, such tariffs currently stand at an average of 6.1 percent—more than businesses pay to export outside Africa. Elimination of nontariff barriers like burdensome customs procedures are also strategic imperatives, as is better cooperation on product standards, trade facilitation, and sanitary measures. Meanwhile, the agreement establishes a mechanism for the settlement of disputes, key to enforcing compliance.
All of this is great on paper. But it is yet to be seen whether the AfCFTA will actually end arbitrary border closures and trade frictions that have dogged African countries over the years. If it does, it could mean a new economic dawn for the continent. If not, the largely symbolic Jan. 1 start date of the AfCFTA may not symbolize anything after all.