Free Trade Area: Africa May be Moving Faster than its Shadow

[Photo by Joshua Earle on Unsplash]

On 21 March 2018, at the 10th extraordinary session of the African Union (AU) assembly in Kigali Rwanda, 44 member states adopted the initiative known as the African Continental Free Trade Area (AfCFTA). The draft commits countries to removing tariffs on 90% of goods. When AfCFTA comes into force, supposing all 55 member states enforce it, it will create a single market for goods and services as well as a customs union, free movement of people, and subsequently a single currency.

In 2016, data showed that intra-African trade only accounted for 18% of total exports, compared to the 59% and 69% for intra-Asian and intra-European exports, respectively. Currently, businesses face higher tariffs when they export within the continent, compared to exporting outside of it. The AfCFTA will eliminate tariffs on intra-African trade. United Nations Economic Commission for Africa (UNECA) has predicted that the implementation of the AfCFTA could increase intra-African trade by 52% by 2022. Considering that the Free Trade Area (FTA) brings together a continental market of approximately 1.2 billion people and a Gross Domestic Product of more than $2 trillion, it is striking that it took the continent this long to grasp the opportunity. With the implementation of the FTA, the continent stands to gain a highly dynamic market, with great opportunities for trading enterprises, businesses and consumers across Africa, and a chance to support sustainable development in the region.

The Free Trade Area originates from the 1980 Lagos Plan of Action and the 1991 Abuja treaty where talks about an African economic community were raised. The establishment of a continental Free Trade Area was formerly agreed upon by Heads of State in 2012, while negotiations began in 2015. The AfCFTA follows the format of the European Union (EU) and intends to create a single market where goods, services, capital, and people can move freely.  It has been labelled the largest Free Trade Area since the establishment of the World Trade Organisation (WTO) in 1995.

However, the signing of this treaty does not automatically bring it into force. The victory song should be held off for now. Member states have 120 days to have it ratified by their parliaments. Then 22 ratifications will be required for it to be entered into force. The second phase will be followed by kick-off negotiations, which would cover investment, competition, and intellectual property. Many have argued that the AfCFTA has set-out on a shaky path, as two of the leading economies on the continent did not sign the agreement. Nigeria opted out from attending the meeting a few days before it was held, stating it needed further consultation after the Nigerian Labour Congress warned that it would destroy Nigeria’s economy.  On the other hand, South Africa did sign the Kigali Declaration – showing its intent to later sign the free trade deal, pending the finalisation of some outstanding aspects of the agreement. Nigeria has historically been at the forefront of an African economic community. For this reason, it is assumed that it will soon come around to signing.

The question which looms in everyone’s mind is whether Africa is ready for a single market. The challenges facing the AfCFTA are mostly linked to governance issues and are quite enormous on the continent. There are still thresholds to be reached for each member state before the idea of a single market becomes a reality. First, they have to deal with the onerous task of moving commodities within the continent. Traders face several barriers, like inefficient and corrupt officials demanding taxes outside of tariffs. Second in order to make trading easier, investment would need to be made in infrastructure; from highways to railways, and ports. The bulk of trade on the continent is carried out via ports, hence development should move quickly in that direction, if the advantages are to be maximized. Member states also need to go back to the drawing board when it comes to social policies. A single market would mean more competition both from within and without. National budgets need to ensure that local markets are prepared to face such competition and that there is social welfare for those who would lose their jobs due to industrialisation. These factors are just a tip of the iceberg on governance issues that still need to be tackled before the AfCFTA could be a success.

According to Gerhard Erasmus, Diplomatic achievements are quite remarkable. In a short period, they negotiated the agreement. Hear! Hear!! As the British would say. There is no doubt that there is immense support for a continental economic community, and they seem to be determined to achieve this even in a shorter time frame than the EU. But as an African proverb goes; even the best cooking pot will not produce food. The AfCFTA can only be successful if member states ensure that they have implemented some basic requirements to pave the way for the free flow of goods and services.

The Pan-African spirit of taking decisions unanimously before any initiative moves forward has been the game plan for most agreements within the African Union. African leaders may have to change their game plan if they want to record achievements. It may be wise for Africa to opt for a Multi-speed Africa, a strategy of differentiated integration whereby common objectives are pursued by member states both willing and able to advance. The AfCFTA shouldn’t be for all who sign, but for those who put in the effort to prepare their countries for industrialisation. The AfCFTA is aligned to AU’s Agenda 2063, and the African Peer Review Mechanism (APRM) has been assigned to monitor this agenda. Why not use it! The APRM could be AfCFTA’s silver bullet, if utilised. The mechanism already has four thematic areas (Democratic and Political governance, Economic governance and management, Socio-economic governance, and Corporate governance) which cover every governance aspect, and they could base requirements on these. Subsequently, successes which proceed from preliminary implementation will persuade others to take it seriously and follow suit.

African leaders should learn from past experiences, for instance, cases where agreements were promptly signed, and quickly failed, due to a lack of commitment to taking action. With respect to the AfCFTA, Africa may be moving faster than its shadow, if minimum requirements are not set and met before the FTA is implemented.

For debate on the AfCFTA and other topics follow the African Affairs Forum here.

 

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