Africa’s Free Trade On Track, More Efforts Needed
It’s the second year of business on Africa’s biggest trading platform – the African Continental Free Trade Area (AfCFTA) - and it isn’t going to be business as usual in the continent’s single biggest trading bloc.
Expectations are high and a new push by African ministers may have just provided the AfCFTA with the much-need impetus. It’s also expected to top the agenda at the African Union Heads of State and Government Summit in Addis Ababa, Ethiopia, early this year.
Critically, the new year provides an opportunity to reflect on the journey so far, and also look ahead.
So far eight countries—Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania and Tunisia—are already participating in the AfCFTA’s Guided Trade Initiative (GTI), representing five regions across the continent.
The Guided Trade Initiative (GTI) was launched in Accra, Ghana on 7 October and seeks to allow commercially meaningful trading, and to test the operational, institutional, legal and trade policy environment under the AfCFTA.
“The products earmarked to trade under this initiative include ceramic tiles, batteries, tea, coffee, processed meat products, corn starch, sugar, pasta, glucose syrup, dried fruits, and sisal fiber, among others, in line with the AfCFTA focus on value chain development,” says Secretary-General of the AfCFTA Secretariat, Wamkele Mene.
Overall, the projected $3 trillion borderless market could be instrumental in reversing current trends in poverty, inequality and growth on the continent, and help place Africa on an inclusive and sustainable growth path, says UNCTAD in its 2021 Economic Development in Africa report.
Last November, African ministers meeting in Niger’s capital, Niamey, called for a speedy adoption of proposals to accelerate economic diversification, value addition, and structural transformation, which are prerequisites for trade.
“The AfCFTA was quick on track as it avoided the challenges where nothing is agreed until everything is agreed,” says Erastus Mwencha, the former Deputy chairperson of the African Union Commission (AUC), who was part of the team that played an instrumental role in the creation of the trading bloc.
“The AfCFTA is on track,” Mr. Mwencha says, but adds: “Having a trade agreement is one thing. Political will is quite another. Yet, that’s what the AfCFTA needs most in this nascent stage.”
He explains that with AfCFTA, work started where there have been breakthroughs as negotiations continue in other areas where progress has been slow.
The AfCFTA is on track. But having a trade agreement is one thing and political will is quite another. Yet, that’s what the AfCFTA needs most in this nascent stage.
The agreement establishing the AfCFTA was adopted on 21 March 2018, with 30 May 2019 marking the date of its entry into force. At the time, 24 countries had deposited their instruments of ratification. As of May 2022 there were 54 signatures of which 43 (80%) had deposited their instruments of ratification.
To move it forward, the operational phase of the AfCFTA was launched during the 12th Extraordinary session of the Assembly of the Union on the AfCFTA in Niamey, Niger, 7 July 2019. Proper trading under the AfCFTA Agreement began on 1st January 2021.
Dubbed a game-changer, experts opine the AfCFTA is appropriately designed to deepen integration, foster trade and investment, enhance the mobility of capital and labour, support industrialization, and the development of a dynamic services sector.
“The AfCFTA is a game changer. With the AfCFTA, we are creating a tariff-free continent that can boost intra-African trade and investment, grow local businesses, rev up industrialization and create jobs for the bulging youth population,” said Mr. Mene during an investment partnership forum in New York last September.
AfCFTA, he said, provides Africa a “renewed opportunity to steer its economic relations away from a reliance on external donors, foreign creditors and excessive commodity dependence, ushering in a new economic era focused on self-reliant cooperation, deeper integration and higher levels of intra-African trade”.
Quite some work lies ahead, though.
Presently, intra Africa trade stands low at just 14.4% of total African exports. UNCTAD forecasts show the AfCFTA could boost intra Africa trade by about 33% and cut the continent’s trade deficit by 51%.
About 34% of households in Africa live below the international poverty line ($1.9 per day), according to UNCTAD. Meanwhile, around 40% of the continent’s total wealth is owned by just a few.
The key question, therefore, as AfCFTA celebrates its 2nd anniversary of commerce remains: How can economic growth through regional integration roll back poverty, cut inequality and foster inclusive development pillars of the AU’s Agenda 2063?
These goals are also in line with the UN’s Sustainable Development Goals (SDGs) of ending extreme poverty (Goal No 1), ensure gender equality (Goal No.5) and reduce inequalities (Goal No. 10).
However, even as the AfCFTA races ahead, progress is markedly slow in some areas.
Benin, Gambia and Seychelles are the only African countries that allow visa free entry to all Africans.
That notwithstanding, the African Development Bank (AfDB) says travel has become more open to African citizens in 2022, with fewer restrictions.
There is now an even split between travel that is visa free, and travel where a visa may be obtained on arrival at the destination country, according to the 2022 Africa Visa Openness Index. The report was released by the AU and the AfDB at the 2022 African Economic Conference (AEC) in Balaclava, Mauritius.
“I think it is a paradox as we know that non-Africans can enter and move across Africa easier than our own fellow Africans,” Lamin Barrow, the head of AfDB in Nigeria, was quoted saying on the sidelines of the conference.
“We are talking about the era of the African continental free trade area. So, all the African countries really should open their borders to Africans,” he said.
Similarly, Africa is home to 12% of the world’s population, yet accounts for less than 1% of the global air service market, according to a 2010 World Bank study on how liberalized air transport would deliver improved air safety, lower fares and increased traffic in Africa.
AfCFTA is a game changer. With the AfCFTA, we are creating a tariff-free continent that can boost intra-African trade and investment, grow local businesses, rev up industrialization and create jobs for the bulging youth population.
Part of the reason for Africa’s under-served status, according to a World Bank study titled “Open Skies for Africa—Implementing the Yamoussoukro Decision” that examines Africa’s progress towards liberalizing air services, is that many African countries restrict their air services markets to protect the share held by state-owned air carriers.
To achieve SDG No.5 on gender equality and empowerment of women, AfCFTA needs stronger support measures targeting women and youth, which in some countries, according to UNCTAD, make up about 70% to 80% of small businesses, and cross-border traders; the largest share of informal traders.
In regional economic blocs such as the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) formal cross-border trade make up to 90% of official trade flows and contribute up to 40% of total trade.
UNCTAD data shows that Africa’s current untapped export potential amounts to $21.9 billion, equivalent to 43% of intra-African exports.
An additional $9.2 billion of export potential can be realized through partial tariff liberalization under the AfCFTA over the next five years, says the UN agency.
To unlock the untapped potential, various intra-African non-tariff barriers, including costly non-tariff measures, infrastructure gaps, and market information gaps, need to be successfully addressed. This requires joint efforts under the AfCFTA.
In addition, long-term cooperation in investment and competition policies will be essential. This will help circumvent market dominance by a few players and push back structural and regulatory barriers to market entry.
Intra-African trade comprises 61% processed and semi-processed goods, suggesting higher potential benefits from greater regional trade for transformative and inclusive growth, studies show.
UNCTAD’s 2021 Review of Maritime Transport shows the AfCFTA has the potential to boost maritime trade in Africa, as it’ll raise demand for different means of transport.
In turn, this will heighten infrastructure investment appetite, which goes hand in hand with ports and sea-going vessels.
Regional integration is critical as it fosters cooperation at international and regional level. It leapfrogs barriers to trade that impede the movement of people, goods, services and expertise.
It can determine the success or failure of the AfCFTA.