African heads of state have gathered in Kigali, Rwanda, to sign a free trade agreement that would result in the largest free trade area in terms of participating countries since the formation of the World Trade Organization.
Leaders are poised to approve the African Continental Free Trade Area, a deal that will unite the 55 member countries of the African Union in tariff-free trade.
The agreement is touted by the African Union as encompassing a market of 1.2 billion people, and a gross domestic product of $2.5 trillion. It is hoped that it will encourage Africa’s trade to diversify away from its traditional commodity exports outside of the continent, the volatile prices of which have hurt the economies of many countries.
“Less than 20 percent of Africa’s trade is internal,” Rwandan President Paul Kagame, also currently chairperson of the African Union, said in a speech Tuesday. “Increasing intra-African trade, however, does not mean doing less business with the rest of the world.”
But, the deal has its critics. It was announced over the weekend that Nigerian President Muhammadu Buhari would not be attending the summit, despite his federal cabinet last week approving the deal. “This is to allow more time for input from Nigerian stakeholders,” said an official statement from the foreign ministry.
The agreement is opposed by the Nigeria Labour Congress, an umbrella organization for trade unions in the country.
“Given the size of its economy, population, and given its political clout, Nigeria’s stance towards the African Continental Free Trade Area is key,” Imad Mesdoua, senior consultant for Africa at Control Risks, a global risk consultancy with offices in Lagos, told us via email. Nigeria is the continent’s most populous nation and considered by some metrics to be sub-Saharan Africa’s largest economy.
“There is a general sentiment among (labor unions and industry bodies) that Nigeria’s export capacity in non-oil sectors isn’t sufficiently robust yet to expose itself to external competition,” Mesdoua said.
The president of Uganda, Yoweri Museveni, also called off his visit at the last minute, although it remains unclear as to why.
Africa’s population is expected to reach 2.5 billion by 2050, according to the African Union. By this time it will account for 26 percent of the world’s working age population. Talks for the African Continental Free Trade Area began in June 2015.
Should the agreement be signed, second phase talks are expected to begin later this year. These will focus on investment, competition and intellectual property rights.
According to a study published by the United Nations last month, the deal will lead to long-term welfare gains of approximately $16.1 billion, after a calculated $4.1 billion in tariff revenue losses. But, the report did warn that benefits and costs might not be distributed evenly across the African continent.
In principle, a free trade area across Africa “makes perfect economic sense,” Ben Payton, head of Africa at risk consultancy Verisk Maplecroft, told us via email.
But, he added: “The biggest risk is that African countries would be unable to effectively enforce external customs controls. For example, this would mean cheap Chinese goods that are imported into Ghana could eventually cross various African borders without further controls and make it into Nigeria. This problem already exists, but a free trade area would potentially make it worse.”
The World Trade Organization was formed in 1995 and comprises of 164 members.