Last update: 7 July 2019
In this blog, I am sharing 7 takeaways from the African Union Extraordinary Summit on the African Continental Free Trade Area, held in Niger on the 7th July 2019, but also some possible pitfalls that may obstruct or delay the implementation of the AfCFTA in Africa.
The idea of the an Africa Free trade area was first raised by Dr. Kwame Nkrumah, the then President of Ghana, during his famous speech at the creation of the Organization of African Unity (OAU) on the 25th May 1963 in Addis Ababa, as part of his proposed business plan for African integration. In 2013, the African Union launched Agenda 2063 with 14 flagship projects including the establishment of an African Continental Free Trade Area (AfCFTA). Adopted in Kigali, Rwanda in March 2018, the negotiated framework has entered into force on the 30th May 2019 and officially launched during a special Summit of Heads of State of the African Union in Niamey, Niger this 7th July 2019. As of today, 54 out of the 55 African Union Member States have signed the Treaty and 27 of them have ratified it, the latest being Nigeria and Benin at the launch ceremony of the operationalization phase of the Treaty. Eritrea is now the only African country that has not signed the Treaty. The launch of the AfCFTA is probably the most important concrete step in the African integration project since the setting up of the OAU and its replacement of the AU.
7 Key Takeaways from the AU Summit:
- Trading under the AfCFTA will commence on the 1st July 2020
- Ghana has been chosen to host the continental Secretariat of the AfCFTA
- 7th July will be officially celebrated as the Day of African Integration in commemoration of the historic operationalization launch of the AfCFTA
- The following 5 operational instruments of the AfCFTA have been negotiated, adopted and launched together with the AfCFTA operationalization phase: A/The Portals of The Rules of Origin, B/The Online Negotiating Portal , C/The Monitoring and Elimination of Non-Tariff Barriers, D/The Pan-African Payment and Settlement System (PAPSS) and E/ The African Trade Observatory Dashboard.
- The 2nd phase of the negotiations should end in December 2020 and the documents will be submitted to the AU Assembly for adoption. Phase 2 issues are investment, competition policy, and intellectual property rights. These will provide important complement to the Phase 1 issues of trade in goods and services.
- AfCFTA aims to progressively reduce and eliminate customs duties and non-tariff barriers on goods. The goal is for 90% of products to have a zero duty across the continent. 6 countries have been allowed for 85% only for the first 15 years.
- Afreximbank committed to support the AfCFTA with 25 Billion USD mostly for the establishment of the online payment platform which will result in 5 Billion USD savings in transaction costs annually.
About the African Continental Free Trade Area
The Treaty establishing the African Continental Free Trade Area aims to 1/ Create a single continental market for goods and services, with free movement of business persons and investments, therefore, pave the way for accelerating the establishment of a continental customs union, 2/ Expand intra-Africa trade through better harmonization and coordination of trade liberalization, facilitation regimes and instruments across the continent, 3/ Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes , 4/Enhance competitiveness at the industry and enterprise level through exploiting opportunities for scale production, continental market access and better reallocation of resources in Africa.
The African Continental Free Trade Area then provides an opportunity to promote policies and resources that could create conditions for harnessing Africa demographic dividend in the context of creating space for jobs, especially for the youth and economic diversification. This requires attention to expediting domestic capital formation and using capital market strategies to drive the creation and expansion of small and medium enterprises involving youth ownership.
If genuinely implemented, the AfCFTA will provide a framework to ease the cost of doing business within Africa. It will aggregate the very fragmented African market but will the continent quickly address non-tariff barriers, such as infrastructure backlogs, border corruption, heavy bureaucracy, poor communication means etc? Above all do we have enough to trade among ourselves with this ambitious trade agreement while our economies are mostly alike and largely dominated by the exportation of raw material? To take full advantage of the AfCFTA African leaders should deliberately and aggressively invest in industrialization without waiting. An initial focus should be on agriculture and agro-industry development.
If fully ratified, the AfCFTA will open the largest free trade zone in the world with a combined GDP of around $3 Trillion and more than 1.2 billion consumers. AfCFTA is expected to boost intra-Africa trade, which is less than 17% (70% in Europe, 50% in Asia). The UN Economic Commission for Africa (UNECA) has estimated that intra-Africa trade would likely increase to 52.3 % by 2020 due to the AfCFTA.
Pitfalls that may threaten the implementation of the AfCFTA
The implementation of the AfCFTA is not going to be as easy as it looks in a continent currently fragmented in several economic/trade zones with a poor business infrastructure and with the existing numerous trade agreements with outside partners. The following issues are some of the gray areas that may delay the implementation of the AfCFTA beyond the July 2020 target date:
- The treaty on free movement of people adopted even before the AfCFTA treaty is not attracting ratification from member states. As of end of June 2019 only 3 countries have ratified it. How can we trade without being able to move freely within the continent?
- Will poorer countries with insufficient natural resources and landlocked benefit from the AfCFTA the same as mineral-rich countries that are in an advanced stage of industrialization? For example about 50% of Africa’s cumulative GDP is contributed by Egypt, Nigeria and South Africa only. Without a compensation mechanism for poorer and disadvantaged countries, will the argument of benefits from free trade be convincing for all? There is a need for comprehensive policy-preferential treatment for the most at-risk economies. As we move, Member sates should then build an efficient and participatory institutional architecture to avoid leaving some economies behind.
- How will the 90% tariff line rule fairly apply if – as it is the case in some countries – a single product (oil, coffee, cocoa for example) represents more than 70% of all the country’s exportation?
- What will happen to the existing specific and competitive bilateral and multilateral trade agreements between African countries and current outside partners such as the European Union?
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