PROSPERITY

AfCFTA: Africa’s march towards economic integration

As a whole, the continent will have to take several steps to boost trade

In Summary

• This agreement, which has been ratified by 34 states, is critical for growth and job creation for Africa’s 1.27 billion people.

• The scale of its potential impact makes it vital to understand the main drivers and the best methods to harness its opportunities and overcome its risks and challenges

Africa’s march towards economic integration through AfCFTA
Africa’s march towards economic integration through AfCFTA
Image: OZONE

Africa’s journey of a thousand miles started on Friday, January 1 under the Africa Free Trade Agreement.

This is Africa’s opportunity towards recovery, prosperity and ultimately an opportunity to fulfil the vision of our founding fathers of an integrated continent where everyone has an opportunity to grow, contribute and prosper. And though it won’t be without its challenges, the collective political will for an integrated Africa will be a driving force for its success.

After years of talks — six months behind schedule — Africa’s vision of establishing a single market for goods and services across its 54 countries, allowing the free movement of traders and investments, and creating a continental customs union to streamline trade – and attract long-term investment has begun.

This agreement, which has been ratified by 34 states, is critical for growth and job creation for Africa’s 1.27 billion people.

Trade Law Centre says AfCFTA scope exceeds that of a traditional free trade area, which generally focuses on trade in goods, to include trade in services, investment, intellectual property rights and competition policy, and possibly e-commerce.

The agreement is complemented by other continental initiatives, including the Protocol on Free Movement of Persons, right to residence and right to establishment, and the Single African Air Transport Market.

The scale of AfCFTA’s potential impact makes it vital to understand the main drivers of the agreement and the best methods to harness its opportunities and overcome its risks and challenges. To date 34 countries have deposited their instruments of ratification. They are Ghana, Kenya, Rwanda, Niger, Chad, Eswatini, Guinea, Côte d’Ivoire, Mali, Namibia, South Africa, Congo, Djibouti, Mauritania, Uganda, Senegal, Togo, Egypt, Ethiopia, Gambia, Sahrawi, Sierra Leone, Zimbabwe, Burkina Faso, São Tomé & Príncipe, Equatorial Guinea, Gabon, Mauritius, Central African Republic, Angola, Lesotho, Tunisia, Cameroon and Nigeria.

Parliamentary/Cabinet approval has been obtained by Somalia, Algeria and Zambia; confirmation is pending.

The scale of AfCFTA’s potential impact makes it vital to understand the main drivers of the agreement and the best methods to harness its opportunities and overcome its risks and challenges.

ECONOMIC PROSPECTS UNDER AFCFTA

No country has ever developed without trade as economists have us believe. We, however, must ensure the benefits of trade are shared equally amongst AU members. Some of the benefits are increase of Africa’s cumulative GDP to $3.4 trillion due to improved efficiency, trade facilitation and reducing red tape

Second is the increase in income levels. The UN economic Commission for Africa shows that once the agreement is fully implemented, it will boost wages for skilled workers by 10.3 per cent and by 9.8 per cent for unskilled workers. This will support Africa’s vision of poverty elimination and lift over 30 million Africans out of poverty by 2030

Third is the increase in foreign exchange as Africa’s exports are expected to rise by $560 billion as a result of the continent’s investment in its manufacturing sector.

Fourth, is the large trading market /economies of scale as Africa’s population is expected to rise to 1.27 billion people, creating a market for businesses.

POSSIBLE DISPUTE AREAS

With 54 countries and as evidenced from the existing regional economic trade blocs, there is bound to be disputes. Member states, however, must be willing and prepared to resolve these disputes.

One of the protocols within AfCFTA is the Protocol on Rules and Procedures on the Settlement of Disputes. It establishes a dispute settlement body mandated to resolve disputes.

The possible areas of disputes are on Most Favoured Nations. The MFN Principle requires all member states to be afforded the same treatment. This principle is entrenched in Articles 4 of the Protocols on Trade in Goods and Services

The other area is Non-Tariff Barriers to trade. NTBs hamper trade through the imposition mechanisms other than tariffs as defined by the AfCFTA protocol on goods and services.

NTBs involve restrictive practices by governments, restriction at the point of entry or administrative restrictions. Countries are expected to progressively get rid of NTBs.

There is also the National Treatment principle that mandates member states to treat goods and services as similar to local goods. This is only applicable after entry of the goods and services in the country and not at customs

Fourth are the rules of origin. The origin of a good in based on its economic origin and not geographical origin

Fifth is dumping and anti-dumping. These rules prohibit countries from exporting their excess goods and selling them at a lower price in a member state.

To address these disputes, members must be willing to work together, learn and listen to each other. The vision will not be implemented in the AU boardrooms but at the borders where traders cross every day, It is, therefore, important that the vision is communicated to the last person in the continent, particularly the border officials who will be instrumental in making this vision a reality.

As a whole, the continent will have to take several steps to boost trade. They are promoting skills for entrepreneurship and providing more access to credit and capital particularly for SMEs, addressing Africa’s infrastructure deficit of $90 billion and most importantly, providing environment conducive for local businesses to thrive and grow. And as AfCFTA Secretary General said during the launch, “Africa has nothing to prove to her critics, but to the 1.27 billion Africans, we have to deliver on our promises”.

Business and political leaders will need to think creatively about continental joint ventures to build strong production and manufacturing networks across the continent.

Agnes Gitau is the Managing Partner at GBS Africa, where she provides political and economic risk advisory for businesses operating in Africa.