By Henri Kouam, Bin Joachem & Dr. Vera Kum (Download pdf version)
Nkafu Open Trade Initiative: Policy Brief 1
Analysis of Cameroon – Nigeria Trade and Prospects for the African Continental Free Trade Area
Free trade between Cameroon and Nigeria is about reducing barriers to cross-border trade between the two countries by allowing traders on both sides of the spectrum to explore a larger market and private sector producers to expand their business.
This policy brief examines the nature of Cameroon and Nigeria’s trade whilst illustrating the benefits of free trade on living standards, employment, and income inequality. It recommends that Cameroon and Nigeria cooperate on trade facilitation measures to increase the benefits of the African Continental Free Trade Area.
Cameroon and Nigeria share a 1700 km border and have a strong trading relationship. (World Bank, 2013). Their relationship has been cordial despite differences stemming from the Bakassi peninsular between 2006 – 2007 (Britannica, 2021). However, a settlement was reached with the help of international mediators.
Even so, both countries are affected by higher levels of poverty, a ballooning youth population, and similar export structures. Free trade is all about reducing barriers to cross-border trade between two or more countries by permitting traders on both sides of the spectrum to explore the larger market and allowing producers in the private sector to augment the scope of their activities (UNCTAD, 2016).
Nigeria, an emerging market economy, has a population of 200 million and is Cameroon’s second-largest trading partner (13.8%) after China. Looking at economic ties, a report from the presidency of Cameroon in 2015 states that Nigeria is the second exporter to Cameroon (13.8%) at 1,039, 064 tons worth CFAF 452.018 billion), after China (14.2%), and ahead of France (12.2%), India (5%) and the USA (3.9%). It also found that Cameroon exports 65,388 tons worth CFAF 39,531 billion and ranks 14th amongst Nigeria’s top exporters (Business Today, 2017). Some of the products that Nigeria sells to Cameroon include automobile spare parts, building materials, cosmetics, household appliances, plastic buckets, and petroleum products such as fuel and lubricants.
Conversely, Cameroon’s exports to Nigeria consist mostly of food products, livestock, vegetable oil, and soap (Ibid). Most of Cameroon-Nigeria trade has been taking place at an informal level through the north, far north, southwest, and to a lesser extent around the Adamawa regions. The AfCFTA will provide the foundations for effective Cameroon–Nigeria trade and enable policymakers to align trade procedures and legislation in other to facilitate economic development.
While the security crisis and COVID-19 pandemic have had a negative impact on trade flows between both countries, but free trade will slowly eradicate tariff and non-tariff barriers. Against this backdrop, this policy brief examines the benefits of Cameroon – Nigeria trade. Cognizant of the AfCFTA, it provides a number of recommendations that will boost and facilitate trade between Cameroon and Nigeria.
Benefits and Opportunities of the Cameroon-Nigeria Free Trade
Over the years, Cameroon and Nigeria have developed strong trading ties, but tariff and non-tariff barriers persist. In order to champion free trade between both countries, the next sections discuss the benefits of free trade on living standards, incomes, and employment.
Free Trade Will Boost Standards of Living
A 2013 World Bank report reveals that Cameroon exports rice, soap, and agricultural products such as eru (African Ngetum), which contributes about USD 62 million annually to Cameroon’s GDP. Conversely, Nigeria earns around USD 176 million per year from the export of cosmetics, plastics, footwear, and other general merchandise. According to Limao (2016), free trade encourages competition between firms, which lowers the prices of goods. The lower prices of goods and services that result from free trade and competition tend to boost standards of living.
Free Trade can Raise Incomes and Reduce Inequality
Free trade between Cameroon and Nigeria has boosted prosperity and can support economic development in both countries. The World Bank, 2013, finds that while free trade can boost productivity and incomes, it can equally increase inequality as highly skilled employees earn more than their less-skilled counterparts (Helpman, 2016). However, retraining low-wage workers can support inclusive economic development (Marta, 2012), especially in the case of Cameroon and Nigeria, where trade is largely driven by primary products.
Free Trade can Boost Employment
Labor markets in Cameroon and Nigeria are characterized by high levels of unemployment. With an unemployment rate of 3.62% in Cameroon (IMF, 2020) and 27% in Nigeria (NBS, 2020), widespread informality and inflexible formal markets mitigate the benefits of free trade.
An increase in trade openness will boost output over the long run while supporting economic development over the medium term. This will create formal jobs across the agriculture, manufacturing, and services sector, while some low-skilled jobs may be destroyed. However, Dollar (2005) finds that while jobs are destroyed in some industries, new jobs are created in other sectors, especially across the service sector.
Pavcnik (2017) shows that frictions that prevent workers from moving from one firm to another or from one location to another are key to understanding the effect on unemployment. Current international evidence suggests that trade frictions reduce the positive impact of trade on local labor markets. Even so, free trade will create employment in the formal sector, supported by greater competition, lower tariff barriers, and the need to operationalize the AfCFTA.
Cameroon deposited its instrument of ratification on December 20 (UNECA, 2020), and the less challenging part of the agreement will be the lowering of tariffs. The implementation of the agreement will meet a range of challenges ranging from the socio-political backdrop, legislative inertia, and excessive border procedures. For trade between Cameroon and Nigeria to flourish in the AfCFTA context, we propose the following:
Cameroon and Nigeria should identify what product and service will see a mutual reduction in tariffs. This will prevent either country from imposing unilateral non-tariff measures in retaliation for a decision taken by the other. As such, Cameroon could use a model similar to that of the Société Nationale d’Investissement (SNI) by explicitly choosing priority industries and sectors which it seeks to include and exclude from the AfCFTA. For example, while the cement sector could be included, some agro-processed foods such as bottled wine, yogurt, and other consumer products could be temporarily excluded from the agreement to support domestic firms.
Partnerships between governments and the private sector are essential for the effective and successful implementation of the AfCFTA. These include trade finance, trade information, and logistical services to ensure wide-ranging distributional effects for businesses and individuals at different levels of the income ladder.
By harmonizing the existing regulatory framework, applied procedures, operational practices, trade facilitation will support bilateral trade and ensure that broad-based benefits are shared by Cameroon and Nigeria. For example, the “Made in Cameroon” policy should explicitly describe the industries and companies it seeks to protect from zero tariffs, ensuring effective negotiations for eradicating non-tariff barriers and other punitive unilateral measures.
The Cameroon-Nigeria trade has been negatively impacted by tariff and non-tariff barriers. This brief finds that free trade will have a positive impact on standards of living, incomes, and employment. The AfCFTA creates a unique opportunity for Cameroon and Nigeria to synchronize trade facilitation measures and boost two-way trade flows.
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