Five years after, no single trade under AfCFTA
Can John Mahama provide the required leadership to move the needle? Will the second term of Ngozi Okonjo Iweala help Africa trade development? Five years after the Africa Continental Free Trade Agreement was reached to establish the largest single trading area in the world, no single trade has taking place yet. It follows that, after five years, its signatories are still negotiating the aspects of tariff concessions, rules of origin, and other issues, according to Visaopeness.org. It is on the back of this that the Africa Business Convention (ABC) (@AB_Convention), focused on the aggregation and scaling of Africa’s business interests, had its weekly conversation on X spaces on the matter. It follows the emergence of John Mahama as the president elect of the 7th December presidential election in Ghana. Mahama was one of the signatories to the John Mahama has been declared the winner of the December 7th presidential election in Ghana. He was President of Ghana from 24 July 2012 to 7 January 2017 and was Vice President of Ghana from January 2009 to July 2021. He was the first head of state of Ghana born after Ghana’s independence. He was elected after the December 2021 election to serve as full time President. He contested re lection for a second term in the 2016 election but lost to the Nana Akufo-Addo. The X spaces had Dr Josh Bamfo (@DJoshBamfo), head, and partner on transfer pricing at Andersen as one of the guest speakers. Other speakers include Dr. Abimbola Agboluaje, the CEO of WNT Capitas and Babajide Benson (@Babajeeday), a faculty at the Lagos Business School (LBS). Bamfo argued that it is in Ghana’s interest for the new President to push towards implementing the AfCFTA. However, as a small economy in the region compared to Nigeria, and South Africa on the continent, the driver of the implementation of the process falls on these economies. According to him, the best that can be expected from John Mahama is persuasion. AfCFTA is designed as a preferential trade arrangement to facilitate faster intra Africa trade growth. The expectation is that AfCFTA will eliminate 97 percent of tariffs om intra Africa trade and clear the way for the share of African exports traded within the continent. However, as the X spaces conversations showed, major challenges remain. The starting point is the lingering structural, political, cultural, and institutional dimensions of the trade challenges on the continent. This has led to a high level of distrust amongst the national governments. Historically, and the pattern remains, African economies trade ties are stronger with the West and East, as they trace their commodities in exchange for largely industrialised goods. For large economies such as Nigeria, the removal of tariffs may mean three things. First, it may the relocation of companies into neighbouring countries for the purpose of taking advantage of the preferential trade agreement that AfCFTA offers. It may also mean significant loss in trade related taxes, which is still a very significant chunk of government revenues. Third, it may mean loss of jobs to neigbouring economies. Another dimension is the attraction of capital. In some of the other global trading blocs, the treatment of the movement of capital is less stringent than the movement of goods and migration. However, the movement of capital will have different implications for the Africa trading bloc. The economies with the best and or cheapest labour market will have advantage over those that do not. This is also likely to favour the small economies in the bloc than the large ones. The X spaces conversation also touched on the recent confirmation of Dr. Ngozi Okonjo Iweala for second term as the Director General of the World Trade Organisation (WTO). As the first African to occupy the sit, many had thought that it will mean faster trade development in Africa. But as the challenges above suggests, trade development in Africa requires more than having an African at the head of the institution. WTO does not vote but facilitates trade between nations. Under NOI leadership, the WTO has developed initiatives to support trade development in Africa. For Africa to shape the international trading environment in its favour, it would have to be united, and that is one way the AfCFTA can help. Given that Mahama started the facilitation of the headquarters and secretariat of the AfCFTA in Ghana, it is expected that he will build on the initiatives in his first term on strong relationships within the ECOWAS region, peacekeeping in the region, and addressing challenges such as political instability, extremism, and economic integration within West Africa. He has previously emphasized the need for Africa to reduce its dependency on external factors and strengthen intra Africa trade and thus expected to place greater focus on the implementation AfCFTA.
Cardoso reiterates commitment to containing inflation after 298th MPC meeting
Olayemi Cardoso, the governor of the Central Bank of Nigeria (CBN) has reiterated the Bank’s commitment to containing inflation in the country. The governor said that the Bank, under his leadership will continue the orthodox approach to rein in inflation. Though inflation was 33.88 percent on October, from 32.7 percent in September, and food inflation at 39.16 percent, exceeding the 21 percent target set by the Bank, Cardoso argued that what we are seeing is a time lag between the policies of the CBN and the impact on prices. According to him, this lag can be between six and nine months. Accordingly, he says the Bank expects there will be reduction in current inflation trajectory from Q1 2025. On the structural dimensions of inflation in the country, the governor says that the Bank is cooperating and working closely with all relevant government departments to deal with them. According to him, the Bank will continue to provide advisory role. In addition, the Bank is doing all it can on foreign exchange markets to minimize distortions to achieve the true value of the naira. The governor made the comments when answering questions during the press briefing that followed the 298th meeting of the Bank’s monetary policy committee (MPC), where the committee increased the Bank’s monetary policy rate (MPR) to 27.50 percent, retains the CRR (Cash Reserve Ratio) of Deposit Money Banks (DMBs) at 50 percent, retains CRR of Merchant Banks at 16 percent, and Liquidity Ratio at 30 percent. This is the sixth time in a row that the Bank is raising its MPR, seeking to contain rising inflation in the country. Fig. 1 Changes in CBN’s Monetary Policy Rates. The governor also alluded to global challenges around inflation. He said he expects the declining inflation in key economies towards the target of 2 percent to happen sometime next year, albeit gradually. Also, the progress that has been made in economies that are seen inflation reductions is on the back of the same approach they have taken in relation to Nigeria’s inflation. “The road of travel is similar, and we expect to reap the benefits. We are not alone in the challenges on inflation and exchange rate and we are on the right path,” he argued. The governor also expressed his delight on the growth of diaspora remittances, rising from previously US $250 million to US $600 million per month. He said this has been on the back on the Bank’s deliberate policies to address bottlenecks. It followed meetings with the International Money Transfer Operators (IMTOs) earlier this year. They have restructured and made it easier for the setting up accounts, following collaborations with the banks and the Nigeria Inter Bank Settlement System (NIBSS). This progress will culminate in banks being able to offer nonresident account programmes starting next month. In line with the progress made on money laundering measures, the governor says the Bank expects Nigeria to exit the grey list of the Financial Action Task Force (FATF), the global money laundering and terrorist financing watchdog. According to him, after meeting lower level of reserves and huge backlog, “the process of getting here has been a long and arduous one, but the policies have started to bear fruit.” Addressing the matter of growing reserves and weakling naira, the governor argued that the reserves are there to defend the country’s economy following any unexpected shocks. More so, the naira has been stable since June 2024. “The CBN will do all it can to ensure stability”, he argued.
Cardoso’s interest rate changes attracted US $8 billion since February 2024
Last week, Nigeria’s foreign reserves crossed the US $40 billion-mark, first time since October 2019. Nigeria’s reserves have seen tremendous growth this year following the rapid and sequential rate rises by the Central Bank Monetary Policy Committee (MPC). Our estimates show that since the MPR started to rise in February 2024 from 18.75 percent to the current 27.25 percent, the Bank has attracted about US $8 billion in foreign portfolio flows. The performance is even more remarkable given that the new leadership of the Central Bank under Olayemi Cardoso inherited a doubtful exchange rate level of about US $33 billion and has paid off an estimated US $7 billion in outstanding backlogs. Fig. 1 The Monetary Policy Rates’ steep rise since February 2024 The Nigerian economy has relied on increases in MPR to attract foreign portfolio flows given that the government has not been able to ramp up oil production in the short term. Ramping up oil production from the current trajectory of 1.4 million bpd is the country’s best route to medium- and long-term economic stability, growth, and jobs. The foreign direct investment element also takes time to respond and particularly responds to economic stability as well. As fig. 2. shows, while our imports are relatively stable, the value of our exports have falling dramatically since 2010. In 2020, Nigeria produced 2.8 million bpd while we currently half of that today. While it is also a reflection of the price of oil, the main reason for the decline in the value of exports is the decline in the volume of oil exports. It is not surprising that the supply of foreign exchange mirrors the value of oil exports. See fig. 3. Fig.2. Nigeria’s total exports and imports in US dollars since 2011. The recent presentation by Olu Arowolo Verheijen, the special adviser to the President on Energy, buttresses the point that attracting FDI takes time. She said, “we have unlocked over US $1 billion in investments across oil and gas value chain, and by the middle of 2025 we expect to see final investment decisions (FID) on two new projects, including a multibillion-dollar Deepwater exploration project.” Fig. 3 The dynamics of oil prices and the supply of US $ Challenges remain though. The central bank cannot continue to rely on the rise in interest rate and other monetary policy measures for containing inflation and attracting foreign exchange. Indeed, the reason it has not been very successful is the poor coordination and collaboration from the fiscal side. As reported in the statements by the members of the monetary policy committee, fiscal deficits and debts are currently higher than planned for the year. It means that despite increases in the revenues, the federal government has not been able to contain its expenditures to planned levels.
Businesses expect the Naira to firm up in six months – CBN Survey
Responders to the Central Bank of Nigeria (CBN) Business Expectation Survey for October 2024 expect that the Naira will continue to depreciate in the coming months but appreciate in six months. The naira exchange rate to the US dollar hovered between N1650 to N1700 in the period. The latest naira volatility started in June 2023. Since then, the naira’s official rate has dropped in value from $1 = N450 to its current level of nearly $1= N1650. The rapid decline in the value of the Naira over the past year has caused significant challenges to businesses and industries. The chart below shows how the Naira has evolved against the dollar over the last 10 years. When the parallel rates widened greatly from the official rate and then government policy needed to stabilize the currency. While the naira volatility had been significant, the CBN, under the leadership of Olayemi Cardoso has been able to achieve convergence. Be elimination the gap between the official and street rates, the CBN has improved the confidence in the currency, eliminated distortions, and plugged arbitrage and corruption holes previously rife in the market. Figure 1 Naira Exchange Rate to the US Dollar Jan 2014 to July 2024. The survey also shows that businesses in the services sector are the most optimistic while businesses in the manufacturing sector have negative expectations, followed agriculture and construction. The survey also show that optimism was higher ahead for the next six months, in line with the expectations that the Naira will firm up then. The confidence Index on the macroeconomy was 21.8 for the next six months, 14.5 for the next three months, 4.8 for the next month, and 1.4 for the current month (October), reflecting a stronger economic outlook for the second quarter of next year. Not surprising, agriculture sector indicates highest expansion plans for November given it is harvest season, while the optimism for October is attributed to agriculture and service sectors. Notwithstanding the stronger outlook for the second quarter of next year and optimism by some sectors in the coming months, the survey shows that the top six business constraints are high interest rates, insecurity, high multiple taxes, inadequate power supply, unfavourable climate changes, and financial problems.