Sierra Leone and the African Continental Free Trade Area
By Ebunoluwa Finda Tengbe
Meanwhile, whilst the leaders of 44 African countries congregated in Kigali, Rwanda to leave an indelible and ‘giant footprint in the sand’ of Africa’s trade liberalization and free movement, it appears the Government of Sierra Leone, including the former President, Ernest Bai Koroma, its Trade & Industry and Foreign Ministries (GoSL), was overly preoccupied with the March 2018 electoral process. This obviously has left the country behind as the Assembly of Head of States of the African Union, in the Extra-ordinary Summit held in Kigali, signed the African Continental Free Trade Area (AfCFTA) and the Protocol on the Free Movement of People (see AU AfCFTA 2018 Summit). The question is whether the ‘no-show’ by the GoSL was a deliberate policy choice like Nigeria and South Africa who are still considering the impact of the African single market established by AfCFTA and free movement on their economies.
Is the ‘No-Show’ a Deliberate Policy Choice?
As an exception to the rules of the world trading order, AfCFTA creates a preferential market amongst Member States to apply reduced tariffs or none at all with respect to goods and services originating and traded amongst themselve. It also includes the elimination of non-tariff barriers, implementation of trade facilitation measures and non-discrimination between originating goods and services. It also provides for intellectual property rights, investments as well as competition policies (see AfCFTA Q&A ). For the ‘Big Guns’ in the continent, it is not unthinkable to reason that they must carefully weigh the costs and benefits of opening their markets to foreign, albeit intra-Africa, competition all at once. The Continent’s larger economies, including Nigeria must contend with the possible influx of cheap labour and dumping of goods, occurrences which may respectively challenge its struggling labour market and local industries propping its economy. South Africa, the Continent’s second largest economy, also did not immediately sign the single market agreement on the basis that the legalities have to be examined (see BBC Africa).
For smaller economies, like Sierra Leone, the main worry is on the loss of revenue, in the form of lost custom duties and other import levies. Presently, an estimated 24.004% of public revenue in Sierra Leone is sourced from customs and other import duties, taxes on exports and international trade (see Trading Economics, Sierra Leone). Any reduction will certainly make an impression on the overburdened donor-driven budget, especially in light of incidental expenses for the implementation of the agreement. Since Sierra Leone’s economy is commodity driven and the main market, based on present offtake agreements, is outside Africa, the potential revenue loss may be minimized. Further, the lifting of custom duties and levies will impact positively on the cost of goods largely imported from other African states for domestic use. As an impetus to sign the free trade area agreement, Sierra Leone may want to take advantage of its location in the coast of West Africa, its natural harbor and positioned itself as the shipping access point to the AfCFTA west zone. Accordingly, it appears Sierra Leone seem to have a lot more to gain than lose from signing AfCFTA.
What is in AfCFTA and What’s to Lose?
The AfCFTA agreement was signed by 44 countries (BBC Africa), and this is after 2 years of negotiations and 6 years since its conception in Addis Ababa in the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union. This signing comes a year after its indicative date (AU AfCFTA). The AfCFTA proposes to establish a single market for goods and services, which would entail free movement of business people, investors and their investments across the African Continent. It hopes to expand on intra-African trade, whilst building on the existing Regional Economic Blocks as well as further harmonizing and coordinating additional trade liberalization and facilitation. It comes with promises of comprehensive trade policies, larger market access, effective productivity with competition, exploitation of comparative advantages and access to finance. This would also serve as the foundation for the continent’s aspiration of forming a customs union (AU AfCFTA).
From the practical lens, the implementation of AfCFTA is faced with challenges such as the incidental cost of trade facilitation measures. These measures include much needed infrastructural development, such as roads networks, power supply, capacity building involving automation and re-training, not forgetting information dissemination and education on the agreement itself. For Sierra Leone, this would translate to expanding on existing infrastructural projects on an already overburdened national budget. Regardless, such projects align with pre-existing national development programs, policies and sub-regional commitments, for example, the West African Power Pool (WAPP) with respect to power supply; thus, creating room for economies of scale in the implementation.
Incidentally, the loss of revenue is one of the biggest challenges to the implementation of AfCFTA. The probable apprehension of Member States governments who stand to lose revenue due to the progressive reduction of tariffs as required by the agreement is evident. Member States also have to contend with pressure from domestic businesses who will become exposed to external competitors and the ensuing impact includes the probability of crowding out of infant industries. Save for its mining sector, the few industries that operate in Sierra Leone have to contend with the possible loss of market share to more efficient firms, although the envisaged competitive market will benefit consumers.
As a roadblock, participating countries have to consider private individuals and labour unions with concerns centered on job security, given the possibilities of outsourcing and free movement allowing for cheap labour and ‘higher wage seeking’ migration. Sierra Leone already faces a 70% youth unemployment or underemployment problem, and has a 59% illiteracy rate (UNDP, About Sierra Leone). This could translate to tougher labour competition internally with the free movement of people and may suffer the ‘brain drain’ with the loss of ‘skilled labour’ to well playing countries. Governments must also be mindful of and make provision for the surrounding exigencies of economic development relating to human rights, such as international labour standards and public health concerns and environmental protection.
Notwithstanding the legitimacy of the practical concerns, the Member States have demonstrated the political will to bring this ambitious dream to life. They are further reassured by findings of preliminary surveys conducted and developed into plan of action for Boosting Intra-African Trade (BIAT). It highlights an indicative list of programmes and activities to be implemented, short to long term, at the national, regional and continental levels in order to ensure signatory countries can capitalize on the benefits of the agreement. It addresses issues surrounding trade policy, trade facilitation, productive capacity, trade-related infrastructure, trade finance, trade information and factor market integration. So, discounting externalities like the present reality of corruption and lack of good governance, this Agreement presents a platform for proffering ‘African led solutions to African Problems’.
AfCFTA’s aim is to birth opportunities for economic diversification, skilled and labour-intensive job creation, growth opportunities for SMEs and value-chain addition. All these could be achieved without the cloud of subsidies, high tariffs, tariff escalations and other non-tariff barriers that adversely affect and ultimately hamper intra-Africa trade. These prospects and more, all marry into the Abuja Treaty, and the ultimate goal of economic growth and development (see AU Agenda 2063). Ultimately, it falls on the participating countries, including Sierra Leone, to utilise their comparative advantage, to specialize and maximize gains.
What are We Waiting For?
In the absence of clear political leadership, it appears Sierra Leone is paralysed neck-down, with respect to AfCFTA, and may not enjoy first mover’s advantage. With the AfCFTA Agreement, Africa sends a clear message of knowing what it wants. Free trade has been trumpeted as key to the economic development of countries (Meyer, 2017). It has catalyzed the transformation economies of Southeast Asia into the ‘Asian Tigers’, and until recent years solidified the powers of the Western bloc in international relations. With the African Continent taking up the challenge of re-inventing south-south trade relations, ‘what does Sierra Leone want’?
African Continental Free Trade Area Questions & Answers Compiled by the African Trade Policy Centre (ATPC) of the Economic Commission for Africa (ECA) in association with the African Union Commission. Article XXIV of the General Agreement on Tariffs and Trade provides an exception to the MFN principle through the creation of Free-trade Areas by States who see to further liberalise trade amongst themselves, beyond the provisions of the existing multilateral agreement.
Treaty Establishing the African Economic Community 1991, Art 1 The objectives of the Community shall be: (a) To promote economic, social and cultural development and the integration of African economies in order to increase economic self-reliance and promote an endogenous and self-sustained development; (b) To establish, on a continental scale, a framework for the development, mobilisation and utilisation of the human and material resources of Africa in order to achieve a self-reliant development; (c) To promote co-operation in all fields of human endeavour in order to raise the standard of living of African peoples, and maintain and enhance economic stability, foster close and peaceful relations among Member States and contribute to the progress, development and the economic integration of the Continent; and (d) To coordinate and harmonize policies among existing and future economic communities
Timothy Meyer ‘Saving the Political Consensus in Favor of Free Trade’ 70 V and. L. Rev. 985 (2017) 993
Ebunoluwa Finda Tengbe is a Legal Practitioner with the Firm of Cole, Kanu and Partners. Her area of expertise is the field of International Trade and Investment Law in Africa, in which she obtained a Masters Degree (with Distinction) from the University of Pretoria, South Africa.