WHLE major economies such as the United States and United Kingdom are breaking away from multilateral economic agreements (NAFTA and BREXIT respectively), Africa’s leaders are coming together to fashion and push forward concrete commitments to enhance ease of doing business across the continent, writes Emmanuel Igbinoba.
Following a series of negotiations, member states of the African Union signed the African Continental Free Trade Area (AfCFTA) treaty on March 21 2018, with the stated objective of enhancing trans-African trade and deepening economic integration within the continent.
With trade commencing as of January 1 2021, the continental free trade area (CFTA) is the world’s largest free-trade block in terms of participating countries, spanning 54 of Africa’s 55 economies (Eritrea being the only non-signatory), with a market of more than 1.3 billion people and a combined GDP of more than $3 trillion.
Under the terms of the agreement, there will be full tariff liberalisation on 90 percent of goods by 2031, with a series of tariffs being phased out in stages over a ten-year period. In addition to creating a single market, AfCFTA also seeks to enhance and deepen the continent’s pre-existing value chains and economic prospects.
According to the United Nations Conference on Trade and Development (UNCTAD), intra-African trade over the period 2015-2017 was only around 2 percent, while comparative figures for America, Asia and Europe were 47 percent, 61 percent and 67 percdent respectively. AfCFTA is projected to increase intra-African trade from around 2 percent to between 40 and 50 percent by 2030, as well as enhancing job creation, resource beneficiation, and export diversification across the continent.
Some grey areas, however, will need to be ironed out to ensure the success of the treaty.
The trade agreement does not set a common tariff rate that member states can impose on imports – individual countries are at liberty to set and impose their own tariff rates. A harmonized tariff rate is needed to ensure that domestic enterprises can compete fairly in their domestic markets with exports from outside the continent. This will also prevent enterprises taking advantage of lower tariffs to import cheaply into one country and distribute within AfCFTA.
The agreement also does not provide comprehensive rules on the cumulation of origin to determine when and how goods are to be classified as African products. This makes it difficult to assess the value of originating components and increases the likelihood of accrediting African origin qualification to intermediate foreign goods.
For example, foreign enterprises, such as BMW, could take advantage of AfCFTA non classification of product origin, by using its automobile manufacturing and assembly plant in Rosslyn, South Africa to export cars all over the continent without paying tariffs or export duties, resulting in potential lost revenue to member states.
Smaller firms, which have historically enjoyed protectionism in their home countries, fear they might not have a level playing field, as the more competitive larger multinational companies from South Africa, Kenya, Nigeria, and Northern African may flood member states domestic markets with cheaper goods and squeeze them out of the market.
Other barriers also need to be resolved. These include infrastructure inadequacy (which may take decades to resolve), as well as the continent’s cultural and linguistic diversity, which could hinder effective communication and potentially hamper the free movement of goods and services. The 42 currencies currently in use across the continent can also frustrate smooth transactions between countries. Africa’s security challenges and its apparent inability to respond to such challenges is a further important obstacle to free trade and the movement of goods and people.
Finally, member states’ customs and clearance services do not appear to have enough information on AfCFTA, or how it will be implemented – neither do many enterprises and traders. Urgent measures should be taken to rectify this, as well as making government officials, chambers of commerce, and enterprises more aware of the benefits of AfCTA.
Obstacles notwithstanding, AfCFTA is undoubtedly a giant step forward for African economic integration and provides renewed optimism that the continent’s long-delayed economic revolution may be imminent.
Emmanuel Igbinoba is a researcher, economist and project manager with Masterly UK, a research and development platform, which connects researchers with data and statistical analysts. Read more related contents on Masterly BlogSpot.