Monday, July 22, 2019

AfCFTA Implementation Strategies-Part-3: The Challenges Of Regional Trade Agreement-2



This is the third in the series of Articles on AfCFTA implementation strategies and it will continue from where I stopped in part two. This edition will be focused on challenges and factors that have hindered many countries from enjoying the benefits of other FTAs around the world despite the great benefits that such agreement has to offer the member countries. All the challenges to be highlighted in this article are to empower the AfCTA’s Implementation committee with the necessary information and insights that will guide the formulation of the implementation strategies by the committee members.

The inability to maximally utilize the FTAs especially among various countries has been attributed to different factors based on different surveys done by several researchers across the world. It is also interesting to note that, there seems to be a convergence on the major challenges hindering the utilization of FTAs by some of the reports. The most prominent of these factors, in several research works done across the world is the issue of information. This has emerged as a major limiting factor that hinders utilization of FTAs and this include access to information about the FTA, understanding the information contained in the FTA and cost of acquiring the knowledge to understand the information about the FTA.

According to the 2018 report of Ecorys, 11% of the respondent said that one of the barriers to utilising the FTA is the fact that the information contained in the FTA is hard to understand while 21% stated that limited information is available about the FTAs. Other researchers stated that the compliance process constitutes a major reason why many companies do not utilise the FTAs and they went further to state that compliance process starts with acquisition of information which comes at a cost and this is regularly incurred either when an existing FTA is reviewed or when a new one has just entered into operation.

In another report titled Maximizing the Utilisation of ASEAN-Led Free Trade Agreements, It was reported that lack of technical expertise on how to use the FTA and inadequate information on the opportunities in the foreign market were major limitations to the full utilisation of the FTAs. The lack of technical expertise has been manifested through understanding the issue relating to the Rule of Origin (RoO). The rule of origin guides the procedure for determining that a product originated from a designated free trade area. It is designed to ensure that product from countries outside the free trade area do not find their way into the trading bloc.

This RoO has been described as another factor that militates against the utilisation of FTAs in different parts of the world. This can be seen in inadequate understanding of product requirements, difficulty in complying with RoO with respect to the administrative requirement, and existing products which are already being exported but do not comply with the RoO. All these factors relating to RoO were pointed out by 32% of the respondent in the survey done by Ecorys in 2018 and this was corroborated by another report done by the PricewaterhouseCoopers also in 2018 among Australian exporters. It was stated in this report that delay in processing and the cost relating to obtaining the Certificate of Origin (CoO) to validate the compliance of a product with the RoO was a major factor that hindered trading partners from utilising FTAs.

Coming home to the West African region, the ECOWAS Trade Liberalization Scheme (ETLS) was a free trade agreement launched in 1990. The objective was to remove both tariff and non-tariff barriers to the trade transactions in the region. Despite the huge opportunities that this FTA presents to the member states in ECOWAS, the rate of utilisation has been very low with no appreciable improvement in the last 5years. The fourth quarter report of the National Bureau of Statistics (NBS) in 2018 showed that the total Nigerian export to the ECOWAS countries have remained plateaued and under 10% in the last four years. Despite this low export from Nigeria, the report of UNCTAD in 2018 showed that Nigeria has the largest share of the export into the region with a contribution of 44.6% in the year 2015.

The fact that Nigeria is the largest exporter into the region despite its low export volume to ECOWAS countries when compared to its shipments to the rest of Africa and the world showed the abysmally low the total intra-regional exports of all ECOWAS members states. This has been underscored in the 2018 report of Africa Export-Import Bank which stated that the total shipment of all the ECOWAS member states into the region in 2017 was 10.6%.

As I conclude this third article, I will like to state that the reason for taking a lot of time to highlight these challenges is to enable the implementation committee to be able to have a holistic view of the challenges that have plagued many FTAs around the world in the past in order to be able to design a well thought out strategies to make the AfCFTA work for Nigeria.

While the current edition of these series of articles on AfCFTA implementation strategies dwelled more on the challenges of FTAs outside Africa, the next edition which will be the fourth edition in the series will dwell more on the challenges that have bedeviled the FTA of ECOWAS. From the fifth edition, I will commence the proposed solution to tackling these challenges and I am hoping that the government will adopt some of the recommendations that will be prescribed in order to make the implementation of the AfCFTA create the necessary jobs that will lift out of penury, the tens of millions of Nigeria that are currently living below the poverty line.

Bamidele Ayemibo
bayemibo@3timpex.com

Monday, July 15, 2019

AfCFTA Implementation Strategies-Part-2: The Challenges of Regional Trade Agreement-1

It is great to know that Nigeria has finally signed the African Continental Free Trade Agreement (AfCFTA), however, it is also very important to point out that this is not an end in itself but rather a means to an end. This is because, regional free trade agreement like the AfCFTA presents an opportunity to do more trade with member countries and thereby increasing productivity, GDP, per capita income, wealth and lifting many people in the countries involve out of poverty. However, this will only happen if the agreement is well implemented. 

The signing of bilateral and regional Free Trade Agreements (FTAs) among nations has become a common place in today’s world. The aim of this kind of agreement is to remove the tariff and non-tariff barriers that hinders the free flow of 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 has include rules relating to the protection of rights to intellectual properties, rules on competition, rules on labour rights protection and on environmental protection. 

The FTAs have been described as viable tool that contributes significantly to the growth of export trade volumes of nations involve. Studies have shown that the bilateral trade volumes of some nations involve in an FTA experienced 100% growth within a period of 10years. This has been corroborated by other reports that showed an increase of over 400% in the trade volume of China within a space of 35years. This probably explains the reason why the number of both bilateral and regional FTAs signed among nations of the world has been on the increase since 1990s. According to World Trade Organisation (WTO), 319 regional FTAs were already in force as at January 2012. Another report showed that the number FTAs in force as of January 2013 have increase to 354. 

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 agreement has remained low especially among the developing and under developed 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 utilization 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 respondent 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 use 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 EU was corroborated in another study carried out by Ecorys on The Netherlands in 2018 which showed that 83% of the respondent 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. 

Unlike the case in Europe, Australia and some other part 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 utilization. According to the United Nations Conference on Trade and Development (UNCTAD) report, in 2015, only 18% of the total export 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 this report, the share of intra-regional trade among countries that made up Southern African Development Community (SADC) was 20.7% and this is the highest among all the regional FTAs on the continent. The next to this is Eastern African Community (EAC) which has intra-regional trade share of just 10.6%. This is very close to that of Economic Community of West African States (ECOWAS) which equally recorded a very low intra-regional trade share of 10.0%. 

The question then is, while are some FTA very successful while the others are not? This will be the focus of the part 3, which is the next edition of these series of articles on the AfCFTA Implementation Strategies. It is my hope that the government will adopt some of the recommendations that will be put forward at the end of these series of articles in order to make the implementation of the AfCFTA create the necessary jobs that will lift out of penury, the tens of millions of Nigeria that are currently living below the poverty line.

Bamidele Ayemibo
bayemibo@3timpex.com

Thursday, July 11, 2019

AfCFTA Implementation Strategies-Part-1: The Committee

It is interesting to know that Nigeria has finally signed the African Continental Free Trade Agreement (AfCFTA) at the last summit of the African Union in Niger. This was an historic event for Nigeria because of the much-awaited desire for Nigeria to sign the AfCFTA. President Buhari initially planned to sign this free trade agreement during the launching at Kigali, Rwanda in March 21, 2018 but he later changed his mind because of some concerns raised by Manufacturers Association of Nigeria (MAN) and other organized private sector on the likely negative impact of this agreement on Nigeria.
Now that Nigeria has signed, the question we need to ask is how does Nigeria enjoy the benefit of this agreement? What does the country needs to do to ensure that it is well implemented for the benefit of Nigerian populace? How do we ensure that it does not become one of those agreements that Nigeria has signed in the past which are of no value to the citizen?
I will attempt to answer these questions in my next series of articles on AfCFTA Implementation Strategies. This edition is introductory, and it is focused on the composition Inauguration of AfCFTA’s implementation committee. The Inauguration of implementation committee becomes extremely important because of the inability to fully enjoy the benefits of such agreement in the past. Even though, Nigeria is a major beneficiary of ECOWAS Trade Liberalization Scheme (ETLS), I think this actually happened by default because many businesses are not aware of it because there is no regular, active and deliberate effort to maximize the utilisation of the agreement. In a recent survey conducted by 3T Impex Trade Academy, it was observed that majority of SME manufacturers in Nigeria, and particularly in Lagos do not know about the ETLS, not to talk of how to go about registering their product for it. The few that know about it have a lot of issues on why they will not use it and this will be highlighted in the subsequent editions of this article. However, the major issue that came out of the survey was the lack of sensitization on the details of the programme (ETLS), the processes involve and the profits to the businesses in West Africa.
In other to ensure that the Nigerian businesses enjoy in full the benefits of the AfCFTA and also that the prediction of those that are against the signing AfCFTA does  not come to pass, there is a need to begin to actively and intentionally put in place programs and policies that will ensure proper implementation of the agreement. I am of the opinion that the proposed implementation committee should include people from both public and private sector. Public sector should include but not limited to the likes of Nigeria Export promotion Council (NEPC), Nigeria Custom Service (NCS), Standards Organization of Nigeria (SON), National Agency for Food and Drug Administration and Control (NAFDAC), Ministry of Foreign Affairs, Ministry of Trade and Investment, Presidential Enabling Business Environment Council (PEBEC), Small and Medium Scale Enterprise Development Agency of Nigeria (SMEDAN) and the Nigeria Office of Trade Negotiation (NOTN). On the other hand, the private sector should include but not limited to the representatives from National Association of Chamber of Commerce Industry Mines and Agriculture (NACCIMA), Bankers Committee, National Association of Small and Medium Scale Enterprise (NASME), Nigerian Association of Small Scale Industrialist (NASSI) and Manufacturer Association of Nigeria (MAN).
In the subsequent series of this article, I will be sharing some thoughts on the challenges and factors that have hindered the implementation of these  type of agreements in other parts of the world including the ETLS and several things that this committee needs to begin to do in order to be able to ensure that Nigeria fully benefits from this agreement. The strategies to be deployed in overcoming the challenges of implementing free trade agreement in general and AfCFTA in particular is summarised in the Six-Pillar Model of Implementation of Free Trade Agreement. These pillars include Communication, Coordination, Collaboration, Capacity, Commitment and Cooperation.
The need to properly implement the AfCFTA is becoming highly imperative. From the 2019 first quarter report of the foreign trade statistics released by the National Bureau of Statistics, there is an increase in the non-oil export volume which contributed about 13.3% of the total export volume from Nigeria. The major sector contributing to this increase is the manufacturing sector which constitute 77.3% of non-oil export and 10.19% of the total export in the first quarter. This is a step in the right direction because majority of what Nigeria will have to export to Africa will be manufactured goods.
The implication of this is that, our manufacturers will now have more markets since they will be exporting duty free and therefore selling at a price that is most likely going to be cheaper than the ones from other continents of the world. This will consequently increase production and invariably increase the propensity of the manufacturers to hire more staff and thereby creating jobs and consequently reducing poverty in the African soil.
Bamidele Ayemibo/bayemibo@3timpex.com


Wednesday, July 3, 2019

Ecowas Single Currency- A Solution To Remitance Problem in W/Africa

The ECOWAS Head of State and Government last week, adopted ECO as the name of the single currency to be used for business and trading in West Africa starting from January 2020. This is a step in the right direction when viewed from the perspective on international trade. This is because, one of the major factors contributing to the low trade volume in the region is the issue of remittance and payment of the proceeds of the export done which has to be in foreign currencies like the US Dollar.
With this new development, eight of the ECOWAS countries which include Benin, Burkina Faso, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal, and Togo who currently jointly use the CFA franc will now switch to ECO while the other seven countries which include Nigeria, Liberia, Mauritania, Gambia, Guinea, Sierra Leone and Ghana will be changing their various different currencies to ECO. The different currencies used in the region has been a hinderance to trade because whenever trade is being done, the sellers tend to find it difficult to source dollar to make the necessary payment. This has strongly reduced the progress of the trade in west Africa and has led to increase in informal trade within the region which has also motivated the rise in the number of informal currency exchange who will collect CFA from an importer in Togo and pay NGN to an exporter in Nigeria.
The decision of the west African government to adopt a single currency for trade in west Africa will surely contribute to the reduction of informal trade and increase the possibility of capturing most of the trade transactions being done in the region. It will also increase the business opportunities among countries in the region via likely renewed interest of trading companies to do business within the region as a result of the ease of remittance. This likely increase in demand from the region could therefore lead to increase in the volume of production of businesses in the region and hence increase job opportunities, increased profitability and of course increase in wealth and Gross Domestic Products of countries in the region.
There is no doubt that adopting a single currency will contribute to the growth and development of the region if it is well implemented. A case in point is that of the European union who adopted euro as a single currency, and this has contributed significantly to the growth of trade among the member countries in the region. With a population of about 500 million, the EU is contributing about 30% of world trade and more than 60% of these trade take among the EU member countries.
Even though, the introduction of single currency comes with great benefits, several economists have expressed concern about the lack of integration policies among member countries in the region. According to them, a single currency will only work if all the countries involved are economically aligned and this is currently not the case in the ECOWAS region. This is why the implementation of this economic policy is very germane for the region to enjoy the benefits
Finally, the decision of the Nigerian president to sign the AfCFTA and the adoption of ECO as a single currency in west Africa are strong indications that ECOWAS and indeed Africa are in the right direction to begin to grow their trade volume from the abysmal low level of less than 3% and begin to favorably compete with other trade blocs around the world.
Bamidele Ayemibo/bayemibo@3timpex.com

Thursday, June 27, 2019

Improving Export Trade Data in Nigeria Through CBN TRMS


The Central Bank of Nigeria (CBN) governor Godwin Emefiele recently announced that the CBN is almost set to launch a Trade Monitoring System (TRMS) in October 2019. This is an automated system that is designed to reduce the length of time required to process export documents from about one week to just one day. This is a system designed by the government to improve the processes involve in shipping goods and services out of Nigeria. This is a much-awaited initiative and innovation of the Central Bank which has been delayed for so long. Many people in the sector has been clamoring for the need to automate export processes in Nigeria in order to ensure that the timeline required for processing of documentation is significantly reduced. 

Another value of the TRMS is the fact that it will likely correct the discrepancies seen in the export data reported by different agencies of government in the country. For example, the export data from the Pre-Shipment Inspection Agent (Cobalt) is different from the export data from CBN, the data from CBN is different from the data obtained from the National Bureau of Statistics (NBS). This distortion in the data is results from the uncoordinated way in which the data is being collected without any thorough monitoring. That is why the launching of the TRMS is extremely important.

It is also important for CBN to understand that the reason why some export data cannot be captured in Nigeria and put this into consideration in the development of the TRMS. This is because some foreigners are sent into Nigeria to export as a foreign representative of manufacturing companies. Another category use export to clean illicit funds via trade-based money laundering while the last category deliberately hides their export from the eyes of government to avoid the payment of tax. The individuals, who are foreigners should be of interest to CBN because, they come into Nigeria to buy commodities and ship them out to their companies who use these raw materials. Since they are not planning to set up any business in Nigeria, they partner with a Nigerian to be able to operate an account to receive dollar and convert it to Naira to be able to buy the raw materials.

It is also interesting to know that no products would leave the shore of Nigeria, especially containerized items, without passing through Nigerian Customs Service. The question we should begin to ask is, whether the NCS is aiding the exportation of products out of Nigeria without documentation. The TRMS will be able to help answer that question if eventually NCS will have to see that the NXP for any transaction is registered on the TRMS before they will approve such a transaction for loading on the ship for exportation out of Nigeria.

When CBN issued the policy that NXP number must be stated on the Bill of Lading, it was as if that will be the solution to ensuring that every export out of Nigeria is documented. But alas! The exported circumvented this. What has happened was that exporters just simply concoct their own NXP number and they give it to the shipping line to put it on their Bill of Lading in line with the CBN regulation. If the shipping line is made to insist that they get the actual NXP document from NCS to extract the NXP number on the document themselves, this would have curb this menace of undocumented export but the CBN regulation was not thought through and therefore did not envisage these sharp practices and make hence no provision was made to prevent it.

However, with TRMS, it will be necessary for the shipping line to have access to the portal to be able to check the detail of the transaction themselves after NCS approval in order to pick the NXP number directly and insert it on the Bill of Lading. This means that after custom have approved the goods for shipment, the shipping line should be able to spot this transaction on the TRMS to obtain the NXP number from the application and put it on the Bill of Lading. If this becomes the case in the export clearance process in Nigeria, it will significantly prevent the export of products out of Nigeria without documentation. So, at the end of the day, data obtained from outside the country from bodies like World Trade Organization, World Top Export etc can be similar to that which NBS and CBN are releasing to the public. It is not enough for CBN to launch the TRMS, it has to ensure that all the agencies involved in the clearance of goods for export in Nigeria are carried along in order to get their commitment to support the implementation of the TRMS in order to make it a success.

Finally, I will like to commend the effort of the management of the CBN for eventually actualizing the dream we have all have regarding the automation of the export business documentation and processes in Nigeria.