AfCFTA: Creating One African Market

The new African Continental Free Trade Area (AfCFTA) will create ‘interesting times’ for us, as we begin the difficult process of Brexing. This developing situation raises many questions that we’d like experts to answer. Such as: 

Is Britain exiting a free trade block just as the party is getting started?
How soon is the AfCFTA likely to emerge?
Is it likely to have a long gestation period? How easy will it be to blow away tariffs and non-trade barriers?
How time consuming will the integration of regional economic communities prove?
When are we likely to see progress?
Is Britain likely to be better off in the EU or out when deals are being struck with AfCFTA?

In March 2018, 44 African heads of state and government officials met in Kigali, Rwanda, to sign the framework for an African Union. If it achieves unity between all

54 African countries it could create the world’s largest free trade area since the WTO was formed.

The African Continental Free Trade Area (AfCFTA) will cover 1.2 billion people with a gross domestic product (GDP) of $2.5 trillion.

AfCFTA aims to progressively eliminate tariffs on intra-African trade and boost intra-African trade by 53.2 percent.  It claims it could double this trade if non-tariff barriers, such as customs procedures and excessive paperwork, are also reduced through a “non-tariff barrier mechanism”.

Similarly, AfCFTA aims to impose technical and sanitary standards, transit facilitation and Customs cooperation.

How?

The AfCFTA needs the ratification of at least half (22) of all the countries concerned. This will come into effect 30 days after ratification by the parliaments of the 22 countries concerned. Each country has 120 days to ratify, from the date they signed the framework.

The African Union agreed in January 2012 to develop the AfCFTA. It took eight rounds of negotiations, beginning in 2015 and lasting until December 2017, to reach agreement.

AfCFTA creates a customs union and a single continental market for goods and services. There is free movement of capital and business travelers, but not people.

It’s main achievement could be to integrate the various regional economic communities (RECs) that exist across the continent. Many African countries belong to multiple RECs, which tends to limit the efficiency and effectiveness of these organizations. Ultimately, the aim is continental integration and unification.

Most RECs underperform thanks to a low level of compliance by member states, which has delayed successful integration. Only the East African Community and the Economic Community of West African States have neared subregional economic integration.

What will AfCFTA do for African nations?

One of its central goals is to boost African economies by harmonizing trade liberalization across subregions and at the continental level. As a part of the AfCFTA, countries have committed to remove tariffs on 90 percent of goods. According to the U.N. Economic Commission on Africa, intra-African trade is likely to increase by 52.3 percent under the AfCFTA and will double upon the further removal of non-tariff barriers.

By promoting intra-African trade, the AfCFTA will also foster a more competitive manufacturing sector and promote economic diversification. The removal of tariffs will create a continental market that allows companies to benefit from the economies of scale.

This could stimulate each country’s industrial development. Some analysts predict that by 2030, Africa may emerge as a $2.5 trillion potential market for household consumption and $4.2 trillion for business-to-business consumption.

Who stands to gain the most? African nations with large manufacturing bases, such as South Africa, Kenya and Egypt, would receive the most rapid benefits.

What’s stopping them?

Only 44 countries have signed the AfCFTA’s establishing framework to date and just 30 signed the Free Movement Protocol. The latter is essential for the free movement of people, right of residence and right of establishment.

Nigeria, with one of the largest economies in Africa, is the most significant non-signatory to AfCFTA. President Muhammadu Buhari cliamed he needs more time to consult with unions and businesses to assess the risks an open market would pose to his country’s manufacturing and small-business sector.

The prospect of a continent-wide market eventually may persuade Buhari to overcome his caution and commit Nigeria to AfCFTA.

Another challenge is diversity. The AfCFTA brings together national and regional actors with trade interests that will diverge at times. The challenge will be to maintain universal benefits and compliance.

The diversity of African economies, in their size and the nature of their industrial maturity, adds to the complexity. There are other compatibility problems, such as the existence of numerous bilateral trade agreements that countries already have with the rest of the world. There are also overlapping REC memberships and varying degrees of openness.

The Next Steps

Some countries say the time frame may be too short, especially given the need for debate and negotiations within each signatory nation. One of the most important, South Africa, is yet to sign but considering it.

Countries and RECs still have to complete negotiations on competition, dispute-resolution mechanisms, intellectual property rights and investments, among other issues. They should also agree on regulatory frameworks for service-trade liberalisation (to facilitate market access), submit tariff concessions schedules for trade in goods (specifying the timeline and nature of products that will be liberalised) and make progress in signing of the free-movement protocol.

The final critical steps for the African Union will be to persuade the remaining countries to join, to create a secretariat to coordinate the implementation and to provide enough resources to ensure the AfCFTA’s success.

Any answers?

Toby Forbes, Head of International Sales, from Adare SEC:

“In terms of improving trade dealings with Africa, I’d like to see easier access to import tariffs for taxes and duties, more transparency with import taxes and duties and better trade deals – especially for Commonwealth countries.”