The African Continental Free Trade Area Agreement (AfCFTA) – One year After – A Fresh Air of Optimism in 2022?

On the 1st of January 2021, continental trade between African countries significantly changed with the official commencement of the African Continental Free Trade Area Agreement (AfCFTA).

The AfCTA was an initiative that had been in the pipeline since 2012, with five years of negotiations and other logistic planning, which finally crystallised on March 21, 2018, after 44 African countries signed the pact at an AU extraordinary summit in Kigali, Rwanda. Shortly after, 10 more countries, including Nigeria, added their signatures, and the operational phase of the AfCFTA was marked to kick off by mid-2020. However, the covid-19 pandemic threw a cog in these projections, leading to a delay in starting operations until 1 January 2021, when the AfCFTA officially kicked off.

African countries have not been able to scale up their economic activities due to a variety of reasons exacerbated by the conflicts in the 7 different regional trading blocs currently in operation, hence the need for a deeply integrated and outwardly united front from which to achieve the cohesion needed to boost the scale of economic activity in Africa. This considered, the AfCFTA is aimed at creating the world’s largest free trade area; one that integrates 1.3 billion people across 54 countries.

As at December 2021, 41 out of 54 signatory countries have ratified the treaty, making the AfCFTA the fastest instrument in the African Union to be ratified. The ratification is significant as it signals the increasing interest of the State parties. The fact that the top 4 economic powers and richest countries on the continent, Nigeria, South Africa, Egypt, Algeria have ratified the trade agreement is clearly also significant.

The year 2021 also saw the roll-out of the pilot phase of the Pan-African Settlement System (PAPSS), a combined initiative of African Export-Import Bank (AFREXIM) and the AfCFTA, which was formerly launched in Ghana on 13 Jan 2022. The PAPSS serves as the continent-wide platform for the processing, clearing and settling of intra-African trades and commerce payments. The system was developed by the AFREXIM and promises to reduce the cost and time of payments, lower the level of banking liquidity required to make payments, and improve central bank oversight of payments.

The full implementation of PAPSS is expected to save the continent more than US$5 Billion in payment transaction costs each year.

Given the interests generated by the AfCFTA and the potentials it holds for established businesses, start-ups and SMEs, it is expected that 2022 will provide another opportunity for the State Parties to make significant progress.

According to the UN Conference on Trade and Development – UNCTAD’s Economic Development in Africa Report 2021, the total untapped export potential of intra-African trade is around $21.9 billion, equivalent to 43 per cent of intra-African exports (yearly average for 2015–2019), with an additional $9.2 billion projected through partial tariff liberalization under the AfCFTA over the next five years. This statistic highlights the ultra-low level of intra-African trade when compared with that of countries in other continents, and in particular reflects Africa’s unenviable position as an exporter of raw materials to the rest of the world.

 

Optimism v Action

After the optimism that greeted the official launch of the AfCTA, one year after the launch, trade restrictions between African countries still abound. Although the pandemic may have had some effect on the AfCFTA’s integration goals, the reluctance of African leaders to open up borders and liberalising trade remains a major impediment.

AfCFTA had projected that the phase II negotiations consisting of the underlisted would be finalised and ratified by the end of 2021, namely:

  1. Trade in goods and services,
  2. Intellectual property rights
  3. Investment and competition policy, and
  4. E-commerce

The AfCFTA projections above have not been fulfilled and there are still many loopholes in negotiations that were not finalised in 2021 among member countries. There is still a feeling of uncertainty concerning where countries stand on the agreement— an uncertainty that has affected the AfCFTA’s implementation.

The abovementioned phase II negotiations and the general framework for trade in services appears to have taken a back seat pending the conclusion of the negotiations on rules of origin.

The following are the three key challenges:

  1. With African countries favouring protectionist policies in their African trade outlook, there is some unwillingness by State parties to ratify all the articles of the agreement exemplified by the prolonged negotiations on phase I consisting of rules of origin. Many African countries are still holding out on ratifying some of the phases of the AfCFTA. These countries, who make most of their revenue from exports to non-African countries, are yet to be convinced of the benefits that the AfCFTA to their economies.
  2. A lack of a manual of information for African businesses about the AfCTA regarding the ways to take advantage of it, and a substantial percentage of African businesses are still unaware of its terms (particularly the tariff arrangements). Until businesses are aware, the costs of trading under AfCFTA will remain high.
  3. A lack of customs infrastructure and policy to be able to complement the AfCFTA’s customs and tariff obligations (only three countries in the AfCFTA so far have the infrastructural and systemic customs capabilities on par with AfCFTA benchmarks), as well as a lack of capacity in the AfCFTA’s Secretariat to push the integration agenda, given its launch in the middle of the pandemic.

 

Private Sector Initiatives

Reports suggest that the AfCFTA enjoys wide acceptance and heightened interest amongst the young African entrepreneurs and SMEs who are ready to explore the potentials that a larger African market presents.

Private sector start-ups have notwithstanding the delays of States parties sought to integrate African trade with start-ups offering services for company formation and compliance across Africa’s 54 countries and others offering a single digital infrastructure for businesses to start, scale and operate in every African country efficiently.

More traditional companies namely, two of Africa’s major logistics companies, Ethiopian Airlines Group and A-E Trade Group, signed a MoU to establish the East African smart logistics and fulfilment hub, committed to the establishment of a business relationship to provide end-to-end logistics solutions across Africa. Also, some AfCFTA-focused organisations like the AfCFTA Young Entrepreneurs Foundation (AfYEF) – have been formed. This and many other intra-African private partnerships and agreements show that the private sector has been more enthusiastic about the AfCFTA than African governments so far.

 

Expectations in 2022

The priorities for the implementation of the AfCFTA regime is for the finalisation of negotiations such that the following are agreed upon:

  1. Member States should ensure the attainment of at least 90% attainment of the Rules of Origin. The Rules if properly crafted remain the building blocks for the industrialization of Africa through increase in local production and cross-border value chains. There are over 6000 tariff lines under the HS Code system and the AfCFTA ambition is to liberalize over 90% of them. The AfCFTA Rules of Origin would require that only made in Africa goods will benefit from the tariff concession. However, measures must be put in place to prevent its abuse as non-compliance will turn the member countries into dumping grounds and lead to significant job losses and displacements of workers in key sectors such as agriculture and manufacturing.
  2. Addressing non-tariff barriers in order to harmonised customs interconnectivity system and transit procedures across the major trade corridors in Africa.  For example, the Abidjan to Lagos trade route/corridor deserves special attention in view of its significance to the ECOWAS region. The non-tariff barriers inhibiting intra-trades across the Regional Economic Communities (RECs) should also be addressed.
  3. Providing access to private businesses and individuals of general information about AfCTA particularly about progress in Phases 1 & 2 negotiations.

Review of Government Policy- Anti- Corruption and Financial Cases: Curbing inordinate delays and lawyers’ dilatoriness

President Muhammadu Buhari in his electioneering campaigns promised to stamp out graft in Nigeria and to this end, will set up special courts to speed up the trial of corruption cases. The President then sought the co-operation of the Judiciary in his administration’s fight against corruption and financial crimes in Nigeria.To redeem the battered image of the judiciary before the Nigerian public, the Chief Justice of Nigeria (CJN), Justice Walter Onnoghen, GCON in his speech at the Special Session of the Supreme Court of Nigeria to mark the commencement of the 2017/2018 Legal Year, emphasised the need to avoid all forms of dilatoriness by lawyers in prosecution of corruption and financial crimes cases and/or determination by the Court.

Consequently, on 27 September 2017, the CJN directed the Heads of Courts in Nigeria to set up Special Courts to speedily hear and determine corruption and financial crimes cases and forward the comprehensive list to the Nigerian Judicial Council. The Heads of Courts are to designate one or two courts in their jurisdiction as Special Courts for the hearing and speedy determination of corruption and financial crimes cases and pegged the number of legal appearances for each party to five.

The CJN also announced major reforms in the criminal justice system to effectively monitor and enforce the new policy. The National Judicial Council (NJC) approved the setting up of an Anti-Corruption Cases Trial Monitoring Committee with the mandate to among other things ensure that “both Trial and Appellate Courts handling corruption and financial crime cases key into and abide by the renewed efforts at ridding our Country of the canker worm.” The CJN also directed all heads of courts to clamp down on lawyers who deploy delay tactics in criminal matters before them.

The Committee is made up of 16 members and chaired by Hon. Justice Suleiman Galadima, CFR, a retired justice of the Supreme Court. Other members of the Committee include:

1. Hon. Justice Kashim Zannah (OFR), Chief Judge, Borno State
2. Hon. Justice P.O. Nnadi, Chief Judge, Imo State
3. Hon. Justice Marshal Umukoro, Chief Judge Delta State
4. Hon. Justice M. L. Abimbola, Chief Judge, Oyo State
5. Mr. A.B Mahmoud OON, SAN, President, Nigerian Bar Association,
6. Chief Wole Olanipekun OFR SAN, Former NBA President
7. Mr. Olisa Agbakoba OON SAN, Former NBA President
8. Mr. J.B Daudu SAN, Former NBA President
9. Mr. Augustine Alegeh SAN, Former NBA President
10. Dr. Garba Tetengi SAN, Member, NJC
11. Mrs. R.I Inga, Member, NJC
12. Mrs. Hajara Yusuf Representative, Ministry of Justice
13. Alhaji Kabiru Alkali Mohammed, mni Representative, Institute of Chartered Accountants of Nigeria (ICAN).
14 Olanrewaju Suraju Representative, Non-Governmental Organisations
15 Ahmed Gambo Saleh, Esq., Secretary, NJC – Secretary.

The Terms of Reference of the Committee include:

i). To monitor and regularly evaluate the progress and activities of courts designated to try corruption a financial/economic crime cases;
ii). Advise on Practice Directions for approval by the Chief Justice of Nigeria to be applicable in all such courts across the country with a view to eliminating procedural and administrative bottlenecks militating against speedy disposal of such cases;
iii). Advise on the trainings, re-trainings and other refresher programmes for Judges and staff of the designated courts aimed at enhancing their capacities to function effectively;
iv) Come up with an effective feedback mechanism from Heads of Courts to the Council on the activities and progress of cases before designated courts;

We hope that this Committee will swing into action and bring to bear the necessary expeditiousness, such that corruption and financial crimes cases and indeed all cases in court will be heard and determined expeditiously. This will in no small measure redeem the tarnished image and independence of some of our courts.

Federal Government & States Over Sovereign Wealth Fund

The decision of the Federal Government of Nigeria to establish a National Sovereign Wealth Fund (NSWF) has been greeted with divergent commentaries from various quarters especially from State governments as well as financial and social commentators.

Already a bill for the establishment of the Nigerian National Sovereign Wealth Fund has been sent to the Legislative arm of government as an executive sponsored bill while a seed capital of one billion US Dollars ($1 billion) has been proposed and set aside for the commencement of the Fund.

SOVEREIGN WEALTH FUND

A Sovereign Wealth Fund (SWF) is an investment fund owned by a sovereign state/nation with the mandate to invest in financial assets such as stocks, bonds, precious metals, property and other financial instruments. However, the objectives might include providing liquidity stabilization funds as well as the funding of vital economic infrastructure projects within the sovereign state. The structure and scope of investments in a sovereign wealth fund generally depend on the circumstances of each nation as well as the enabling law however Sovereign wealth funds usually have long-term investment focus. The need for the SWF is that countries through the SWF diversify their revenue streams by devoting a portion of its reserves to an SWF that invests in the types of assets which act as shields against systemic risk, and in the case of Nigeria, against oil related risk.

SOURCE OF FUNDING AND LEGAL ISSUES ARISING (The Nigerian Story)

In view of the seed capital of one billion US Dollars ($1 billion) from the ‘Excess Crude Account, Governors of the 36 States of the Federation commenced an action against the Federal Government before the Supreme Court (Nigeria’s Apex court) over plans to transfer $1 billion from the “Excess Crude Account” to a new a new account to be known as the “Sovereign Wealth Fund.

A seven-man panel of the court, headed by the Chief Justice of Nigeria, CJN, Justice Dahiru Musdapher, has now assumed jurisdiction of the legal dispute following a breakdown of an out-of-court mediation between the parties. Earlier on, the Federal Government had approached the court (at the commencement of the suit) praying that the parties be allowed to explore amicable resolution of the case through negotiation.

The plaintiffs in their consolidated suit, had sought preservative orders of the court restraining the Federal Government from making any withdrawals howsoever from the account styled the “Excess Crude Account” (or any account replacing same by any name howsoever) pending the hearing and determination of a substantive suit. They further urged the court to order that all sums standing to the credit of the said “Excess Crude Account”, (or any account replacing same by any name howsoever) be paid into court or be otherwise secured as the court may deem fit pending the hearing and determination of the substantive suit.

It appears that the substance of the disagreement is not with the setting up of the fund, but with the funding from the ‘excess crude account’ which invariably will deplete their monthly allocations from the Federation accounts.
At the last sitting of the court, the case could not progress as the court was indisposed. It remains to be seen what the outcome will ultimately be.