April 1, 2022/CSL Research

Based on a Business Day report, prolonged documentation and protectionist policies are among the major challenges hampering the implementation of the African Continental Free Trade Agreement (AfCFTA) in Nigeria. One year after AfCFTA was operationalized, not a single trade has been done. Some news reports note that there are tensions between the free-market vision of the AfCFTA and the national economic development priorities of the participating countries and these are causing the delays. Reports say this is not unique to the AfCFTA, but is particularly acute here because relatively few specifics were included in the framework agreement.

The AfCFTA trade deal, which was operationalized on 1 January 2021, creates a borderless market for African products. The agreement requires immediate removal of tariffs on 90% of goods while an additional 10% of goods classified as “sensitive goods” would be negotiated at a later date. As of January 2022, 41 countries of the African Union’s 54 member states (excluding Eritrea) have deposited their instruments of AfCFTA ratification.

Specifically for Nigeria, the agreement is expected to open up the African market for key manufacturing companies in the country to support export sales whilst also raising the prospects of attracting foreign direct investment across the manufacturing value chain. In our view, African countries with the requisite infrastructure needed for large scale manufacturing activities will be better placed to attract foreign capital from multinational companies who are seeking to establish manufacturing hubs in Africa to take advantage of economies of scale as well as the benefit associated with the absence of regional taxes made possible by AfCFTA.

However, despite implementing the trade agreement, which originally should allow for the elimination of tariffs for the movement of most goods among member countries, countries such as the Benin Republic imposed a transit duty of an average of N9m per truck on Nigeria-bound cargoes passing through the country by road. Also, there is still no clear-cut direction on rules of origin policy, which, if not in place, will continue to make countries lack the will. Beyond that, attention should also be on the non-tariff measures such as crossborder transaction documents, possible roadblocks, etc which are all factors that can drag implementation. With all these trade barriers, we believe 2022 maybe another quiet year in terms of effective implementation of the trade agreement. Although, we see that the secretariat of the AfCFTA and the African Export-Import Bank (AFREXIM) already signed an agreement of US$10bn to assist member countries that will suffer tariff revenue loss as a result of the trade agreement. Also, the AFREXIM put in place the Pan-African Payment & Settlement System (PAPSS) in collaboration with the AfCFTA secretariat to facilitate crossborder payments in local currencies between African market