The potential and setbacks of AfCFTA

As a flagship project of Africa’s 2063 agenda, the African Continental Free Trade Area (AfCFTA) is an ambitious trade instrument initiated to stand as the world’s largest free trade area through the connection of almost 1.3 billion people across fifty-four African countries.

It was established to create a single market for goods and services, facilitated by the movement of people, to deepen the economic integration of the African continent, under the Pan African vision of “an integrated, prosperous and peaceful Africa”.

The resolution to construct the Free Trade Area was accepted and approved by the 18th regular session of the Assembly of Heads of State and Government, convened in Addis Ababa, Ethiopia in January 2012. Prior to its approval, the project was first orchestrated by the African Union (AU) and was ratified in March 2018 in Rwanda by 44 of 55 of the AU’s member states.

According to the TRA Lac Trade Law Center, 36 African countries have deposited their instruments of ratification with the chair of the African Union Commission, accounting for roughly 70% of signatory countries. The agenda, however, represents the equanimity of the African Union towards its developmental vision of 2063.

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An AfCFTA Guided Trade Initiative

Following the deposition of the instrument of ratification and submission of the tariff schedule by the 36 African countries, seven countries, including Rwanda, Cameroun, Egypt, Ghana, Kenya, Mauritius, and Tanzania, have been selected to start trading under the African Continental Free Trade Area (AfCFTA) framework in a pilot phase.

According to a statement released at the 9th meeting of the AfCFTA Council of Ministers in Accra, the selection is a move to prove the functionality of the trade and to test its environmental, legal, and policy basis.

The AfCFTA modalities also revealed that ninety per cent of tariff offers cover products that were liberalised in 2021. This will progressively be reduced over the next 10 years. Over the course of 15 years, 7% of products have been liberalized and 3% are tax-free.

While the initiative will help identify companies, products, customs procedures, and logistics processes required to enable trade to happen under the AfCFTA, it will also send a strong political message to countries that are yet to submit their provisional schedules of tariff concessions.

The AU-AFCFTA trade strategic framework

An attempt to achieve the said objectives has led the National Action Committee (NAC) on the African Continental Free Trade Area (AfCFTA) to develop eight strategic pillars in line with the African Union’s framework in July 2022.

Some of the pillars center on creating an institutional framework to coordinate the multiple agencies in the public and private sectors involved in implementing provisions of the AfCFTA agreement, focusing on selected priority product value chains and growing a highly productive workforce to earn premium wages in Africa. According to the AfCFTA national action committee, these strategies will increase production for export capacity to $50 billion annually and present huge possibilities for state governments to grow their economies by attracting and supporting businesses focused on export trade.

Reports further revealed that other pillars focus on trade facilitation, time reduction, and the cost of trade through simplifying, modernizing, and harmonizing import and export processes and procedures. It also focuses on the automation of administrative and regulatory compliance processes and the domestication of the AfCFTA agreement by updating trade and complementary policies and laws to conform with contemporary practices and the provisions of the AfCFTA Agreement.

Existing challenges in the quality of trade and transport infrastructure in Africa will also force the AfCFTA national action committee to focus on trade infrastructure, including energy, digital, and water infrastructure, so as to enable intra-Africa trade. Without doubt, the time efficiency and cost required to move cargo and people across the various transportation modes is an important enabler of trade competitiveness for Africa. Hence, these, amongst others, are what the pillars stand to achieve.

ADB-AfCFTA Institutional Support Grant Agreement

To facilitate the effective operation of these frameworks, the African Development Bank Group and the Secretariat of the African Continental Free Trade Area (AfCFTA) have signed a Protocol of Agreement for a $11.24 million support package.

The grant, which was approved in July 2022 at the ninth meeting of the AfCFTA Council of Ministers responsible for trade, held in Accra, will focus on three areas: institutional strengthening of the AfCFTA Secretariat; private sector support to implement the AfCFTA; and support of climate-resilient regional and continental value chains to boost intra-Africa trade.

According to the secretary general of the AfCFTA, Wamkele Mene, studies and initiatives will also be undertaken to identify new business and economic opportunities for women; to help develop the AfCFTA women and youth in trade protocol; and to support capacity building and targeted business skills for women.

Nigeria-South Africa move for stronger ties

Amidst moves for effective implementation of the African Continental Free Trade Area (AfCFTA) agreement among African countries, the two leading African economies, Nigeria and South Africa, have moved for stronger collaboration.

Speaking at a live stage play in Abuja, the South African high commissioner to Nigeria, Thami Mselek, said, “At the moment, the main issue for us in Africa is to make the Africa Free Trade Agreement work in practice, not just on paper, and for that to happen, the leading economies of Africa should actually collaborate.”

According to Mselek, the two countries have already discussed an all-inclusive agreement in the automobile and textile industries. South Africa, for example, has already established a strong car manufacturing industry in the past few years. Having produced 499,087 units in 2021, the automotive industry represents an increasingly important strategic and catalytic role in the overall South African economy. In Nigeria as well, there is strong potential in the textile industry. With the support of the Central Bank of Nigeria (CBN), the industry alone in 2020 produced 10 million yearly materials despite the COVID-19 pandemic and widespread insecurity. By way of industrialization, cars produced in South Africa need non-woven and woven textile functions that will give them the needed interior decoration, filtering, and comfort in vehicles. A deeper collaboration between both countries in these areas will make that happen, while accelerating the implementation of AfCFTA and the growth of the continent’s economy.

African countries’ predicted potential

Africa as a varied continent is enmeshed with separatism, different tribes, languages, and ethnicity, with 54 different sovereign governments organized into trade blocks and affiliated as members of the African Union. But because goods and natural resources still preponderate Africa’s export basket and the continent’s participation in the global value chain has remained low, African commerce is still very low in relation to world trade.

Insecurity in Africa-border conflicts, insurgency, banditory, kidnappings, these are the barriers that standstill and metamorphose into the low internal and external trade in Africa. Of course, it is a barrier that causes Africa to grind with less trade amongst itself and more with third nations, putting a strain on its balance of payments and increasing its reliance on international markets.

However, integrating Africa into one trade area through the AfCFTA initiative is an attempt to break the barriers and limit the devastating consequences of its devastating effects on African trade. An example is the gradual elimination of tariffs on intra-African trade as one of the benefits of the AfCFTA, making it easier for African businesses to trade within the horns of the continent and to cater to and benefit from the growing African market. This pointsly explains how strong Africa’s common and policy space will be in global trade affairs through AfCFTA.

Though there isn’t much more to say about AfCFTA’s potential than the above, a closer look reveals that, in the long run, its implementation is expected to: create a free movement of capital and people, as well as the facilitation of investments; contribute to the establishment of a liberalized market structure for goods and services through successive rounds of negotiations; lay the groundwork for the creation of a continental customs union; and develop the competitiveness of the African continent.

Criticisms of AfCFTA

Despite the fact that the benefits and importance of AfCFTA in the continent cannot be disputed, the project’s overall structural ideas and implementation are never without criticism from African fanatics. Many critics believe that the journey of AfCFTA’s impact will be a long one and may never be a win-win situation for all states involved, because some key elements are still lacking and under-considered.

As Africa pursues trade-driven industrialisation, one of the major elements considered by the African Union is the pre-existing inequalities of African countries. The claim here is clear-not all African countries have the same level of advancement, and as a result, gains will accrue disproportionately. Countries, cities, manufacturing firms, and the African economic elite with a level of advancement could benefit the most from the trade increase.

For instance, there are countries in Africa with a record of unequal economies and varying production capacities. The trio countries of South Africa, Egypt, and Nigeria account for about half of Africa’s total GDP, while the island countries of Cape Verde, Madagascar, So Tomé, Seychelles, and Mauritius collectively account for just one percent. Jonny Gass, assistant director of the Atlantic Council’s Africa Center, said the arrangement resulted in the greatest level of income disparity of any continental free trade agreement.

Despite the open criticism, the AfCFTA has taken the bull by its horn to maintain its stance on the erstwhile approved trade policies. The trade Secretary General, Mr. Wamkele Mene, claimed that market integration is not an event but a process that takes time, citing that the European Union too worked tirelessly for 60 years to achieve its current depth of economic integration.

“It may take some time before each of us sees the direct benefit. We are not going to be deterred by our critics who say they don’t see evidence that trading has actually started,” Mr. Wamkele Mene, Secretary General, said.

AfCFTA and the free movement of people

A close look at the functionality of the free trade area and the free movement of people will reveal that both go parri passu, to the extent that African policymakers have based the success of trade on the free movement of people.

In a remark, the coordinator of the African Trade Policy Centre (ATPC), Mr. Luke, said the freedom of movement of people, capital, goods and services are the four basic freedoms which make up the African continental and regional integration agenda.

“It is the free movement of people that will boost intra-African trade under the AfCFTA and enable African countries to proactively and swiftly respond to the twin green and digital transitions we are faced with in the 2020s,”

This clearly explains why the Economic Commission for Africa (ECA) prioritized the 1991 Abuja treaty on the free movement of people among member states in the African Continental Free Trade Area (AfCFTA). It is a treaty that forms a component part of the AfCFTA agenda as it seeks to establish a visa-free zone within the AfCFTA countries, but not every African country is on board with the concept. Only Rwanda has ratified the treaty, which was signed by 30 African countries. Nigeria and South Africa, two major AfCFTA signatories, have yet to sign the Protocol, owing to a lack of political will.

Grievances of African young entrepreneurs

The number of deals and funding in African entrepreneurship has been growing over the last few years, and the ratification of the AfCFTA is a great addition to help boost the African entrepreneurship ecosystem.

With the AfCFTA, entrepreneurs will have access to a much larger market, which will facilitate their international expansion. But as member states partake in this single market, it perhaps could be more interesting for big players in the African entrepreneurship industry. But as young entrepreneurs and small-scale industries seem left out of the picture, as they have no muscle and mileage to compete with well-established industries, or else, they may lose their firms, leading to high unemployment, crime, and poverty. It is for this reason that a network of young entrepreneurs from across the African continent, together with chambers of entrepreneurs and other development partners, formed  Youth Entrepreneurs Federation (AFYEF)—which served as a representative voice for young entrepreneurs on AfCFTA.

Speaking on behalf of the members, the pioneer president of AFYEF, Siita Sofo, said that “young entrepreneurs are the underdogs when it comes to maximizing AfCFTA because they do not have the needed resources – money, know-how, and capabilities – to push and succeed. So we have come together under AFYEF to galvanize young African entrepreneurs for this 3.5 trillion dollar single market.”

The consolidation of Africa into a single trade area provides wide opportunities for entrepreneurs, businesses, and consumers across the continent and the chance to support sustainable development in the world’s least developed region. But without broad policy-making and all-inclusive preferential treatment for Africa’s economies, the AfCFTA could work for economic divergence, rather than a force for good. It is therefore important that participating economies prepare an efficient and participatory institutional architecture to avoid leaving any economies behind.

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