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A New Dawn – The Establishment of the African Continental Free Trade Area

Fasken
Reading Time 5 minute read
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“The Africa we want” is beginning to be heard echoing across the African continent; this is off the back of the early stages of the establishment of the African Continental Free Trade Area (AfCFTA), which is an integral part of the African Union’s (AU) 2063 agenda. 1

The AfCFTA is a free trade area agreement that spans across Africa. It was conceptualised at the eighteenth Ordinary Session of the Assembly of Heads of State and Government of the AU in 2012 with the hope of commencing the free trade area by 2017. As it stands fifty-two out of fifty-five AU member states have signed the agreement and twenty-two ratifications are required to enable the AfCFTA to come into effect. In April 2019 Gambia became the 22nd country to ratify the agreement. The Agreement will come into effect 30 days after the 22 Member States have deposited their ratifications with the Chairperson of the AU.

This article seeks to shed light on the efforts and progress of completing the AfCFTA by discussing the objectives and possible effects of the free trade area and scrutinising how African countries can develop and align their policies with those of the free trade area.

The objectives and expected effects of AfCFTA

The AfCFTA’s primary objective is to create a single continental market for goods and services with free movement of business persons and investments. It aims to promote and attain:

  • sustainable and inclusive socio economic development;
  • gender equity;
  • structural transformation

Another of the aims is to lower costs of imported raw materials to increase the competitiveness of downstream producers and promote the generation of regional value chains.

It further seeks to:

  • resolve the challenges of multiple and overlapping memberships with other regional bodies,
  • expedite the regional and continental integration processes, and
  • enhance competitiveness at the industry and enterprise level through exploiting opportunities for scale production, continental market access and better reallocation of resources.

The AfCFTA may provide African leaders greater negotiating power to eliminate barriers to exporting.

The seven priority actions which have been identified are:

  • trade policy, 
  • trade facilitation, 
  • productive capacity,
  • trade-related infrastructure, 
  • trade finance, 
  • trade information, and 
  • factor market integration.

 

In addition, the agreement will allow for more open travel for AU members. The number of African countries which offer visa-free travel to citizens to other African countries is already steadily increasing.

The agreement will cover a market of 1.2 billion people and a gross domestic product of 2.5 trillion USD across all fifty-five AU member states.2 Although estimates from the Economic Commission for Africa suggest that the AfCFTA has the potential to boost intra-African trade by 52.3%, the less economically advanced African countries may struggle to replace revenue lost from import tariffs and fees.3 The economic gains expected from the AfCFTA agreement are calculated at an aggregate level however the fears of significant tariff revenue losses and an uneven distribution of costs and benefits are among the main obstacles to the continent’s integration.

The stronger economies such as South Africa and Egypt are less likely to experience these struggles.4 Other hindrances are that some countries may experience the unintended costs of adjusting to a competitive environment including potential job losses, even though the agreement has the potential to increase employment.

Supporters of the AfCFTA agreement suggest that large African economies such as South Africa, Ghana and Egypt are likely to be the drivers of the free trade area and that the more developed countries in Africa will find a sizeable continental market for their manufactured products.

Implementation of Policies

Governments will need to consider key policies to drive industrial development, particularly relating to human capital. Furthermore governments will be required to support local businesses to alleviate the challenges of the free trade area. In doing so, policymakers must bring down the cost of doing business and be mindful of barriers ranging from cost of financing, access to roads and ports and bureaucratic restrictions to issues such as corruption and dispute settlements.

These policies should focus on developing skills and building capacity for entrepreneurship and self-employment. This may include business training at an early age and skills upgrading.5 Such policies could go hand-in-hand with promoting science, technology, engineering, entrepreneurship, mathematics as well as vocational and on-the-job training. Policymakers will be required to address those barriers that may come into conflict with the principles of the free trade area. A key example is to make provision for the unrestricted migration of highly skilled workers across the continent.

AfCTA strives to put Africa more on par with the rest of the world. The various interested parties should, through debate and persuasion, negotiate and compel each national government to amend and develop legislation that will align with the vision of AfCTA. The agreement is ambitious in dismantling barriers, reducing costs to intra-African trade, improving productivity and competitiveness - reluctance to amend national legislation might hinder the successful implementation of the free trade area.

Ratification and Entry into Force


Article 13 of the AfCFTA states that once the agreement is in effect, a secretariat is to be established to set up and manage the free trade area. This secretariat will have an independent legal personality and be autonomous of the AU Commission. The Council of Ministers of Trade will determine the roles and responsibilities of the secretariat.

Once in full force and effect this agreement will constitute the largest free trade area globally, since the implementation of the World Trade Organisation (WTO), it will be a step towards the AU’s framework for structural transformation and development.6

Only three AU members, most notably Nigeria, have reserved their signature for a later date and have cited economic protection as their reason for not signing. They suggest that the agreement will expose industries and small businesses to external pressures and competition which could lead to closures and job losses.7

As the world witnesses the United States President Donald Trump’s attempt at making ‘America Great Again’ by building a wall and British Prime Minister Theresa May’s attempt to exit the European Union, a relationship that has existed for over forty years, will we see Africa make a success of redefining intra-continental relationships?

1AU Agenda 2063 https://au.int/en/agenda2063/about.//13 February 2019.  
2Questions and Answers on the African Continental Free Trade Area, Complied by the African trade Policy Centre of the UN Economic Commission for Africa in association with the African Union Commission.
3M Saygili, R Peters, C Knebel United Nations Conference on Trade and Development UNCTAD Research Paper No. 15 – Challenges and Opportunities of Tariff Reductions (February 2018). 
4Moody's Investors Service: African free trade deal could improve region's credit profiles, but obstacles will limit benefits (20 March 2018).
5https://www.cnbcafrica.com/news/east-africa/2018/03/26/africas-free-trade-area-offers-much-promise/ 26 March 2018.
6https://www.un.org/africarenewal/magazine/august-november-2018/africa-set-massive-free-trade-area
7Olanrewaju Eweniyi 49 African Countries Signed The Free Trade Pact, except Nigeria//http://www.konbini.com/ng/lifestyle/49-african-countries-signed-free-trade-pact-nigeria-not/2018

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