7 July 2019

Africa: AfCFTA Now Live, but Cautious Optimism Advised

Photo: Cissy Makumbi/Daily Monitor
Trucks loaded with goods queue up for clearance at a Uganda-South Sudan border post.

African heads of state and governments are meeting in Niamey, Niger, on July 7 to officially launch the operational phase of the African Continental Free Trade Area (AfCFTA), paving the way for free movement of goods, services, investments and people around the continent.

The continent's large corporations and wealthy individuals are expected to make a major announcement on their commitment to address infrastructural bottlenecks that have weighed down intra-African trade and hindered the exploitation of Africa's full potential.

But this launch comes amid outstanding issues on various key components of the trade agreement, including critical schedules of rules of origin, tariff concessions by the member countries and conclusion of discussions on competition policies expected to deal with crimes such as smuggling and tax evasion.

Intra-Africa trade has historically remained low--at 15 per cent--comparing unfavourably with Europe (68 per cent), North America (37 per cent), and Latin America (20 per cent), due to trade barriers and poor transport and telecommunication connectivity on the continent.

It is estimated that the average tariffs on intra-African trade are about 6.1 per cent, which is higher than those imposed on exports outside the continent.

Big aggregate economy

Albert Muchanga, African Union Commissioner for Trade and Industry, in a recent interview with America and the World in Washington DC said the single market will increase the level of trade among African countries and remove fragmentation by creating a big aggregate economy that can attract large-scale and long-term investments.

The official launch of the AfCFTA comes after 24 countries ratified the grand agreement to create a single market of over 1.2 billion people and open up markets with a combined GDP of $3 trillion, half of which is controlled by the continent's biggest economies, South Africa, Egypt and Nigeria.

Cameroon's parliament last week passed a Bill authorising President Paul Biya to ratify the agreement.

The AfCFTA agreement took effect on May 30 after achieving the minimum ratification by 22 countries.

According to Mr Muchanga, the Extra-Ordinary Summit will provide the way forward on when African business people will actually start trading with each other.

"Heads of state and governments will give guidance on when the actual trading will start. It may be within six months or 12 months," he said.

Outstanding components

But, while there is a lot to celebrate about the coming into effect of the AfCFTA, discussions on various key components remain outstanding. These include an agreement on the critical schedules of rules of origin, tariff concessions and specific commitments in services under Phase I of the negotiations, which were expected to be concluded before the official launch.

Negotiations for protocols under Phase II--Intellectual property rights, investment, and competition policy--are all outstanding and are expected to have been concluded for adoption by January 2021.

The Phase II negotiations are expected to address concerns about smuggling and tax evasion.

The agreement brings together 55 countries but so far, 52 countries have signed.

Nigeria announced last week that it was going to sign it during the launch, after a special government panel formed to study the potential impact of joining AfCFTA recommended that Nigerian President Muhammadu Buhari sign up.

By press time, Benin had also announced it would sign, leaving Eritrea holding out.

World's largest free-trade area

The agreement is expected to progressively eliminate tariffs among AU members, creating the world's largest free-trade area since the formation of the World Trade Organisation.

Aly-Khan Satchu, chief executive of the investment advisory firm Rich Management Ltd, said the full implementation of the trade pact hinges on the political will of the respective countries.

"If we execute a proper free trade agreement--without non-tariff barriers and with free movement of Africans across the continent--then certainly this will be a silver bullet," said Mr Satchu, adding, "The challenge will be around the forces of resistance who have made hay in the pre-AfCFTA era and typically have created a loop through which they finance the politics from windfall profits derived from artificial restrictions. Undoing this is the real challenge."

Other experts say promoting Africa as a single investment destination will not be smooth sailing, largely due to the fragmented nature of its markets.

There are eight regional economic blocs, four of which have Customs Unions. The AfCFTA is expected to leverage on these blocs, and finally create a Customs Union that attracts investors.

Phyllis Wakiaga, chief executive of the Kenya Association of Manufacturers, said the AfCFTA presents a raft of opportunities for intra-Africa trade, with successful implementation increasing spending to $6.7 trillion in 2030.

"The continental agenda for business expansion should be reinforced to allow professional and educational mobility, and upskilling of Africa's workforce. This will ensure that Africa's youth are given the opportunities they deserve. Nevertheless, political goodwill will play a great role," said Ms Wakiaga.

Cabinet Secretary in Kenya's Ministry of East African Community Affairs Adan Mohamed said African countries still have to deal with operational issues, including standards of products to be traded, before they start reaping the benefits of this expanded market.

Africa is expected to increase the level of competitiveness of locally made products through the infusion of technology to increase efficiency, support mass production and ensure that finished goods are standardised.

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