22 March 2018

Africa: The Mechanics of Free Trade Area

While African countries are gunning to launch the continent's biggest initiative, Continental Free Trade Area (CFTA), on March 21, 2018 in Kigali at an extra-ordinary Summit of the African Union, the novelty and potential benefit of the project is obvious.

But, many have pointed out that in order for one of the flagship programs under the African Union's Agenda 2063 to work, the leaders of the continent must ensure that it is more than a redundant initiative.

Being the second largest continent on the planet, and approximately three times the size of the States and China, establishing the African Continental Free Trade Area (CFTA) with 55 African Union (AU) members presents enormous economic potential.

Presenting a cumulative gross domestic product of US$2.5 trillion (S$3.29 trillion), building a Continental Free Trade Area (CFTA) is one of the AU's flagship projects.

However, despite this enormous potential and the recent rising trend, inter-African trade is still at a disappointing rate. While trade among African countries has expanded from 10 percent in 2000 to about 16 percent in 2014, according to African Economic outlook 2017 report, reflecting the continent's recent economic upturns, however, still, intra-African trade remains low.

What the continent must do is build up on the upward trajectory, and further boost inter-African trade whilst integrating with itself faster than the rest of the world.

For Africa to achieve transformative progress, solutions must come from African sources. African Growth Initiative, a think-tank, outlines how inter-African trade can help the continent accelerate its economic growth and transformation. One is to the fact that the continent's industries becoming more competitive by creating economies of scale and wedding out producers that are less productive in the marketplace.

The Think-tank also explains that inter-continent trade can help establish and strengthen product value and facilitate the transfer of technology and knowledge via spillover effects. And it can incentivize and spur infrastructure development and attract foreign direct investment. Also, such intercontinental trade endeavor is likely to strengthen the continent's appeal as a global trading partner.

Many analysts are saying that in addition to the aforementioned benefits, the CFTA promises enormous benefits and welfare gains by doubling intra-Africa trade, but it will all depend on how good the deal finally agreed is and how soon it kicks in.

On a Piece he wrote on Uganda's Daily Monitor, Francis Mangeni (PhD), Director of Trade, Customs and Monetary Affairs with the Common Market for Eastern and Southern Africa (COMESA), stated that while Africa launches CFTA, the most important priority must be to ensure good content and quality.

Once it is initiated, what is required is to go beyond the framework of rules and disciplines that have been agreed in the Protocol, and identify the services sectors in which to create an African integrated services market and in which to attract investment, he wrote.

This would be followed by sector regulatory frameworks and trade and investment terms and conditions, and creating awareness about these trade and investment opportunities.

Although according to the AU, African leaders are expected to sign an agreement that will launch the AfCFTA at the heads of state and government summit, there have been some let downs already.

It has been reported by Media outlets that Nigeria has already pulled out after President Muhammadu Buhari canceled plans to attend the Kigali launch, "and called for more consultations after business leaders objected to joining the world's biggest free trade area in terms of countries."

No matter the outcome of the initiative in the next few days, what is clear is that one way or the other setting up a continental free trade area plays pivotal role in achieving an integrated, peaceful and prosperous Africa by 2063.

Given that trade is widely accepted as an important engine for economic growth and development, and past experience shows us that many countries have been able to lift their people from poverty through trade, the opportunities that come from establishing continental trade area far outweighs the challenges that comes with it.

The potential is obvious. So through such endeavor and initiative, and with the right policies and political will, a great deal could be done to boost African integration.

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