Africa is trading - just not within the continent. The African Union wants to change this and launch the world's largest free trade area. The plan has potential, but some member states are keeping the AU in suspense.
The largest free trade area in the world -- this is what the African Union (AU) has been dreaming of since 2012. The African Free Trade Agreement (AfCFTA), the result of years of negotiations, is intended to pave the way for this. Since March 2018, 49 states have signed the agreement for a pan-African free trade area, but at least 22 states must ratify the treaty in order for it to be implemented. So far, only 17 states have done so.
The longterm goal of the AfCFTA agreement is to drastically increase intra-African trade which has been weak so far. Cross-border trade should become simpler and cheaper, and small and medium-sized enterprises in particular are set to benefit.
It is immensely important that the agreement comes into force, says Albert Muchanga, AU Commissioner for Trade and Industry. "When you create a larger market, you create opportunities for large investments. Right now, members of the African diaspora are coming to us to start the process of investment," Muchanga told DW, adding: "This will increase employment opportunities for our children."
Nigeria still hesitating
With a gross national product of 3.4 trillion US dollars, Africa comes last in the world community in economic terms. This is what the AU wants to tackle with the help of AfCFTA. If the agreement brings together all 55 AU member states, it could create a market of more than 1.2 billion people. If measured by the number of participating countries, AfCFTA is set to be the world's largest free trade area since the creation of the World Trade Organization.
The UN Economic Commission for Africa (UNECA) estimates that AfCFTA has the potential to increase intra-African trade by half, through abolishing import tariffs. A decisive step was taken in 2014, when the East African Community (EAC), the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) decided to remove trade barriers between them.
Not every country shares the enthusiasm for the plan. To date, only nine countries have deposited their instrument of ratification for AfCFTA with the African Union: Ghana, Kenya, Rwanda, Niger, Chad, Guinea, eSwatini (formerly Swaziland), Uganda and Ivory Coast. South Africa, Sierra Leone, Mali, Namibia, Senegal, Congo, Togo and Mauritania have received parliament's assent for ratification, bringing the total number of ratifications, deposited and pending, to 17.
Africa's largest economy, Nigeria, is still dragging its feet. The government fears the agreement could harm Nigerian entrepreneurs and enable cheap foreign products to flood the Nigerian market unhindered.
No danger from abroad
Jamie Macleod, trade policy expert at the African Trade Policy Center at the UN Economic Commission for Africa (ECA) in Addis Ababa, sees no danger in this. "Nigerian commentators were concerned with the threat of imports from third countries like China entering their markets, disguised as imports from other African countries. And that should be addressed at the rules of origin in the agreement, and if they identify products like that, those would be excluded," he said. He pointed out that the agreement contains provisions that would come into force in such cases. "If there's a threat of a surge of imports that can be damaging to domestic industry, they can seek recourse to the trade remedy provisions which would allow them to increase the tariff on this product." But to remain realistic: Africa only accounts for three percent of world trade. Macleod therefore does not believe that there is enough production capacity to harm markets like Nigeria with products coming from other African countries.
Muchanga is convinced that many African states will still hand in their ratification letters. "I am very confident that, when we have that assembly in the second week of February, we should have all the signatures remaining so that we have the minimum amount required. We are on course." Muchanga did not reveal which countries have promised their ratification "in order not to put pressure on them."
A process with obstacles
Macleod, too, is optimistic that countries such as the economic giant Nigeria will yield. "I believe that political obstacles are holding them back in Nigeria - elections are due [on February 16] and they did not want to make the AfCFTA an electoral issue." President Muhammadu Buhari "decided that they hadn't had sufficient domestic consultations and he wants to go through that first before signing. But the signs we've heard from Nigeria are relatively positive. It's my opinion that they will come on board."
The real challenges will not come until shortly before Africa's free trade area is established, Muchanga stressed. "Life is like this: once you have overcome one obstacle, you are facing the next one." That is why, above all, the introduction of the free trade area is a process. "Our biggest challenge now is that many people think we can't do it."
The African states must now prove the opposite. "The strength we show abroad reflects our inner strength. So, as the African economy grows, it will have a greater impact on the world," Muchanga said.
If the African Union manages to persuade enough member states to ratify the agreement at its summit on February 10 and 11, the largest free trade market in the world could be launched in March this year.