Published On: Tue, Dec 3rd, 2019

ACFTA – Pretty on paper but will take time to implement

3 weeks ago, Nigeria the latest signatory to the African Continental Free trade agreement announced closure of its borders between Benin, Cameroon and Niger. This goes against the vision of open and free markets that allow for the movement of people, goods and services as stated in the much hyped continental free trade agreement. The border closure sends alarm bells to the free trade agreement and should be accessed and resolved to avoid counter reaction from other countries. Nigeria has said this move is only temporary and meant to curb smuggling along the borders that disrupts Nigeria’s economy.

Agnes Gitau a partner at GBS Africa spoke to Channels TV saying; It is important to listen to the concerns raised by Nigeria and any other country now, before ACFTA comes into operation in July 2020, if intra Africa trade is to succeed, we must carry every country with us, nobody is left behind.

A report by Brookings education states that  border closures will have particularly negative consequences for traders, especially informal ones, along the Benin-Nigeria border, as the two economies are closely intertwined.[1] Indeed, this informal trade generates substantial income and employment in Benin, and Benin’s government collects substantial revenues on entrepôt trade—goods imported legally and either legally re-exported to Nigeria, or illegally diverted into Nigeria through smuggling.

The informal sector throughout West Africa, and particularly in Benin, represents approximately 50 percent of GDP (70 percent in Benin, in fact) and 90 percent of employment. Unsurprisingly, informal cross-border trade (ICBT) is pervasive and has a long history given the region’s artificial and often porous borders, a long history of regional trade, weak border enforcement, corruption, and, perhaps most importantly, lack of coordination of economic policies among neighboring countries. Notably, ICBT takes several forms, not all of which are illegal: For example, trade in traditional agricultural products and livestock in bordering countries may involve little or no intent to deceive the authorities, as peasants and herders ignore artificial and un-policed borders.

The economic relationship between the two countries, both members of the Economic Community of West African States (ECOWAS), is already asymmetric, with Nigeria exerting much more influence on Benin than vice versa. Given Nigeria’s larger population, economy, and natural resource wealth, Benin has adopted a strategy centered on being “entrepôt state,” i.e., serving as a trading hub, importing goods and re-exporting them legally but most often illegally to Nigeria, thus profiting from distortions in Nigeria’s economy. Benin’s dependence on Nigeria is not apparent from official trade statistics, as Benin’s reported trade with Nigeria accounted for only about 6 percent of Benin’s exports and 2 percent of Benin’s imports in 2015-17.[2] These official statistics are very misleading, however, as they do not reflect the vast informal trade along the border.

Nigeria’s heavy dependence on oil and many dysfunctional economic policies have created an environment for ICBT between it and its neighbors, mainly Benin and Togo, to flourish. The wide gap between the official and black-market rates of the naira; Nigeria’s subsidized fuel prices; import barriers (Table 1); poor trade facilitation (Table 2); and Benin’s poor business climate have incentivized local traders to turn to the informal cross-border trade.

Source: Brooklyn Edu and Agencies.

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ACFTA – Pretty on paper but will take time to implement
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