The International Monetary Fund recently published a paper titled: Is the African Continental Free Trade Area a game changer for the continent? It’s a good question.
In 2018, member countries of the African Union (AU) took a major step towards boosting regional trade and economic integration by establishing the African Continental Free Trade Area (AfCFTA).
They agreed to eliminate tariffs on most goods, liberalise trade in key services, address non-tariff obstacles to intra-regional trade – and eventually create a continental single market with free movement of labour and capital, with the aim of improving intra-Africa trade beyond the current 20%.
The agreement is intended to open up market access and create more opportunities, particularly for small businesses and entrepreneurs, while increasing competition and sparking innovation as businesses move across borders with less difficulty.
In the modern era, an initiative like this can also promote digital, financial and social inclusion. For all the benefits to be realised, the agreement will have to be properly implemented with all measures in place. Unfortunately, history has shown us that the AU seldom fulfils its continental regional integration commitments, as seen in the cases of the Abuja Treaty and the Tripartite Free Trade Agreement (TFTA). These agreements were not fully implemented as intended by the founding objectives.
By April 2019, the AfCFTA had been ratified by 22 countries. It is likely to take effect this year, although negotiations on specific features of the agreement are ongoing. Once operational, the AfCFTA will establish a market of 1.2 billion people with a combined GDP of US$2.5 trillion, becoming an economic game changer for the continent.
It could be a game changer …
But I have my doubts, not only linked to the infrastructural challenges on the continent, but because of the implementation of grand plans like AfCFTA. Besides infrastructure, there are other challenges to overcome, and these should be addressed before the launch of the operational phase on July 7 2019.
The agreement that establishes AfCFTA is still missing key annexes or documents for the operational phase to be implementable, particularly for goods trade. The two most crucial annexes that are still missing are schedules of tariff concessions and rules of origin.
Without tariff concessions, for example, it is not clear how any country that has signed, ratified and submitted instruments of ratification will benefit after the launch. The reason is that there will be no schedule at respective borders to indicate the preferential tariffs that the country must receive, or how to deal with goods that are suspected to originate from outside of the African continent (or any non-signatory of AfCFTA).
Big piece of the picture is missing
Another challenge has to do with the fact that the leading economy on the continent – Nigeria – is not part of the current agreement.
For any regional agreement to grow intra-regional trade that translates into economic development, it is important that major economies participate. Nigeria contributes more than 10% of Africa’s GDP (2017 estimates), making its participation in the agreement significant towards materialising the set goals.
On the issue of the lack of implementation of grand plans; the clear example is the tripartite agreement (TFTA) that includes 26 countries from the eastern, southern and northern African regions and was launched at the AU Summit held in Egypt in June 2015. This agreement has similar objectives – freeing up trade among its members – but AfCFTA, which has almost twice the number of countries, is bigger, more cumbersome, and a lot more complex.
What about the existing agreements?
This agreement is not mentioned in the establishment of AfCFTA, and the Abuja Treaty is barely mentioned, even though it was initially touted as the building block for the single African market.
Disappointingly, more than two years down the line, there has been limited movements in terms of implementing the TFTA. Products from the member countries still face higher tariffs and other forms of trade barriers – which again inhibits intra-Africa trade. A simple example comes in the form of South African apples, which still face a tariff of about 20% in Egypt, but zero in the European Union.
Such instances are not limited to South Africa; they apply to other African countries as well. Egypt has been participating in the Common Market for Eastern and Southern Africa (Comesa) free trade agreement since 2000, yet it still imposes tariffs of up to 18% on apples from fellow member countries. This goes against the spirit of intra-Africa trade.
Wandile Sihlobo is an agricultural economist and head of research at the Agricultural Business Chamber of South Africa (Agbiz).