Tuesday 02 Jul 2019

AfCFTA – A Game Changer for Stimulating Intra-African Trade

On 29 April 2019, with the ratification by Sierra Leone and the Sahrawi Arab Democratic Republic, the Agreement Establishing the African Continental Free Trade Agreement (AfCFTA) reached the 22-country threshold. According to Article 23 of the Agreement, it comes into force 30 days after the 22nd instrument of ratification is deposited with the Chairperson of the African Union Commission (AUC). As a result on 30 May 2019, the Agreement came into force. On paper, Africa now has a new free trade zone.
At present, 24 countries have deposited their instruments of AfCFTA ratification with the AUC Chairperson. They are Ghana, Kenya, Rwanda, Niger, Chad, Congo Republic, Djibouti, Guinea, eSwatini (formerly called Swaziland), Mali, Mauritania, Namibia, South Africa, Uganda, Côte d’Ivoire, Senegal, Togo, Egypt, Ethiopia, The Gambia, Sierra Leone, Saharawi Arab Democratic Republic, Zimbabwe, and Burkina Faso. A few others including Zambia have started the ratification process.
The objectives of AfCFTA include expanding intra-African trade through better harmonization and coordination of trade liberalization and facilitation regimes and instruments across Regional Economic Communities (RECs) and across Africa in general resolving the challenges of multiple and overlapping memberships of RECs and expediting regional and continental integration.
In practical terms, AfCFTA seeks to create a single continental market for goods and services as well as a customs union with free movement of capital and business travelers. It is meant to create a tariff-free continent that can grow local businesses, boost intra-African trade, accelerate industrialization and create jobs. The parties to AfCFTA must commit to removing tariffs on at least 90% of the goods they produce.
The African Union Commissioner for Trade and Industry, Albert Muchanga heralded the coming into force of AfCFTA as a historic milestone and celebrated the triumph of a bold, pragmatic & continent-wide commitment to economic integration. The benefits for Africa will be immense. According to the UN Economic Commission for Africa (UNECA), if all 55 African countries join a free trade area, it will be the world’s largest by the number of countries, covering more than 1.2 billion people and a combined GDP of $2.5 trillion. It will be the world’s largest free trade area since the establishment of the World Trade Organization (WTO) in 1994.
Economists believe that tariff-free access to a huge and unified market will encourage manufacturers and service providers to leverage economies of scale; an increase in demand will instigate an increase in production, which in turn will lower unit costs. Consumers will pay less for products and services as businesses expand operations and hire additional employees.
UNECA notes that “with average tariffs of 6.1 percent, businesses currently face higher tariffs when they export within Africa than when they export outside the continent. AfCFTA will progressively eliminate tariffs on intra-African trade, making it easier for African businesses to trade within the continent and cater to and benefit from the growing African market.” UNECA’s head Cameroonian, Vera Songwe, notes in an interview in Africa Renewal that “(W)e look to gain more industrial and value-added jobs in Africa because of intra-African trade”.
The types of exports that would gain most are those that are labour intensive, like manufacturing and agro-processing, rather than the capital-intensive fuels and minerals, which Africa tends to export.” She emphasized that the youth will mostly benefit from such job creation. Besides, African women, who account for 70% of informal cross-border trading, will benefit from simplified trading regimes and reduced import duties, which will provide much-needed help to small-scale traders.
Songwe projects that through the sole removal of tariffs on goods, intra-African trade will increase by between 15 percent (or $50 billion) and 25 percent (or $70 billion), depending on liberalization efforts, in 2040, compared to a situation with no AfCFTA in place. She points out that alternatively the share of intra-African trade would increase by nearly 40 percent to over 50 percent, depending on the ambition of the liberalization, between the start of the implementation of the reform (2020) and 2040. She further points out that AfCFTA complements very well other continental initiatives, including the Protocol on Free Movement of Persons, Right to Residence and Right to Establishment, and the Single African Air Transport Market (SAATM).
AfCFTA also aligns very well with AU Agenda 2063 the Africa we want, the African Union’s 50-year strategic framework for the socio-economic transformation of the continent and “is a concrete manifestation of the pan-African drive for unity, self-determination, freedom, progress and collective prosperity pursued under Pan-Africanism and African Renaissance.” As Landry Signé, David M. Rubenstein Fellow - Global Economy and Development at the Africa Growth Initiative puts it “The AfCFTA and Agenda 2063 hope to reverse Africa’s premature deindustrialization and tap into the vast number of manufacturing opportunities that persist, including in software, auto components, industrial and business machinery, chemicals, agro-processing, and clothing and footwear subsectors, among others.”
Well implemented, the true beneficiaries of AfCFTA will be the numerous traders who ply across borders to purchase goods in other countries and who are regularly ripped off by corrupt customs and security officers. Also, 1.6 million African small and medium-sized enterprises (SMEs) are already trading globally — and Africa is one of the fastest growing cross-border markets in the world. This is likely to increase further when AfCFTA is fully implemented.
For AfCFTA to benefit the continent it must be fully and well implemented. There are many hurdles ahead. Nigeria, Africa’s largest economy by GDP is yet to ratify the agreement. Africa Renewal reports that Nigerian unions have warned that free trade may open a floodgate for cheap imported goods that could weaken Nigeria’s nascent industrial base and that the Nigeria Labour Congress, an umbrella workers’ union, described AfCFTA as a “radioactive neoliberal policy initiative” that could lead to “unbridled foreign interference never before witnessed in the history of the country.” However, Benedict Okey Oramah, president of Africa Export Import Bank, predicts Nigeria will ratify the agreement as early as July and former Nigerian president Olusegun Obasanjo expressed the view that the agreement is “where our [economic] salvation lies.”
There are major concerns about implementation. Former Ghanaian President John Mahama tweeted that while we celebrate the AfCFTA, we need to remind our leaders that, we cannot trade freely and connect our continent if we cannot travel freely into each other’s countries. Also crucial is the need to address issues such as national ICT maturity, including limited information technology infrastructure, inconsistent electricity delivery, great disparities in accessing the internet and mobile services, lack of appropriate legislation and excessive data costs. “In an era marked by intense competition, globalization, and the increased importance of knowledge as an economic driver. Poor infrastructure and a lack of diversity between the various economies could throw up barriers to this envisioned integration.”
There are still many outstanding issues to be resolved, including arbitration measures, certifying the origins of goods, tackling corruption and improving infrastructure. Uganda’s Minister of Trade, Industry and Cooperatives and Chairperson of the African Union Ministers of Trade, Amelia Anne Kyambadde, emphasized that with the entry into force of the AfCFTA, the focus is now on how Africa can strategize to take advantage of the huge market opportunities and Africa’s demographic dividend to boost intra Africa trade. “We still have outstanding work on product rules of origin, finalization of tariff offers, trade in service market schedules and trade remedies, but I think this is an opportunity for us to transform Africa for the benefit of future generations”, she noted. She further highlighted five key priority areas which member states should focus on such as boosting of intra-Africa trade; Infrastructure interconnectivity and trade facilitating logistics; industrialisation and development of regional value chains; employment; and beneficiation of minerals and natural resources.
The tools to support its implementation will be launched at the AfCFTA Extraordinary Summit in Niger in July. These include the Pan-African Payments and Settlements Platform; Online Mechanism for Monitoring, Reporting and Elimination of Non-Tariff Barriers within the AfCFTA; the password-protected online portal for tariff concessions and Dashboard of the African Union Trade Observatory.
They will also adopt the agreed Rules of Origin for the AfCFTA. If AfCFTA is to fulfill its potential in diversifying and transforming African economies in an inclusive manner, African countries must develop effective policies and strategies for exports, and identify new opportunities for diversification, industrialization, and value chain development. Furthermore, it must ensure that the smaller and less developed economies in the continent are not left behind and must build its infrastructure, improve and educate its customs and immigration officers about the significance of AfCFTA, address corruption and curtail the red-tape.
We must put Africa first and appreciate the benefits of trading amongst ourselves rather remain nostalgic about buying at Harrods or Les Galeries LaFayette or buying substandard goods from China. As African Development Bank President Akinwumi Adesina said at the Bank’s 2019 Annual Meetings on the theme ‘Regional Integration for Africa’s Economic Prosperity”, “If we get integration right, Africa can develop with dignity and confidence.”