According to the Organisation for Economic Co-operation and Development (OECD), a free trade area (FTA) is a grouping of countries within which tariffs and non-tariff trade barriers between the members are generally abolished but with no common trade policy toward non-members. The World Trade Organisation (WTO) describes it as thus: ‘trade within the group is duty free but members set their own tariffs on imports from non-members’. Tariffs are generally taxes imposed on imports. Examples of existing FTAs are the North American Free Trade Area (NAFTA) and the European Free Trade Association (EFTA).
The most recent FTA is the African Continental Free Trade Area (AfCFTA), which was launched on 21st March 2018 during an Extraordinary Summit of the African Union and which is described by the African Union (AU) leaders as a historic moment in the life of the continent. This article will briefly evaluate the AfCFTA, its expected outcome and expected challenges towards fostering greater intra-African trade in goods and services.
The AfCFTA in Perspective
The AfCFTA is a fast track project of the African Union whose aim is to significantly accelerate growth of intra-Africa trade and use trade more effectively as an engine of growth and sustainable development, through doubling of intra-African trade by 2022, and strengthening Africa’s common voice and policy space in global trade negotiations. The FTA is further expected to set the stage for the establishment of an African Investment Bank, Pan African Stock Exchange, African Monetary Fund and African Central Bank.
AfCFTA will be the world’s largest FTA since the formation of the WTO and based on the foregoing it is arguable that its implementation may see an increase in African based international trade (as a consequence of increased intra-African trade) which under the current multi-lateral system (WTO) stands at less than 2 percent of international trade. This view is supported by the UN Economic Commission for Africa (UN ECA), which estimates that implementation of AfCFTA will lead to doubling in intra-African trade.
Whereas the full effects of the AfCFTA cannot be enumerated in this article, the project is expected to progressively eliminate tariffs and consequently make it easier for businesses to trade within Africa (by reducing costs of doing business). Businesses will also have wider access to African markets and an opportunity to trade in Africa through the progressive liberalization of services sectors across Africa. This will act as a stepping stone for these businesses to expand into overseas markets.
Further, the AfCFTA expects to ensure mutual recognition of standards, licensing and certification of service suppliers thereby making it easier for businesses to satisfy regulatory requirements of operating in the continental market.
From a social welfare point of view, it is expected that there will be reduced food insecurity in Africa due to reduction of protection measures on trade in agricultural produce amongst countries and an increase in employment opportunities for Africa’s unemployed due to increased levels of continental trade in both goods and services.
The foregoing is based on analyses on the likely impacts of the full implementation of the project. The possible full effects will only be determinable once African states begin negotiations to implement the project. Indeed, these negotiations will have and already have challenges.
According to the Trade Law Center, some of the expected challenges are significant tariff revenue losses for governments and an uneven distribution of costs and benefits of intra- African trade. Countries with large productive capacities in manufacturing may experience significant economic growth and welfare gains while small economies may face substantial fiscal revenue losses and threats to local industries.
Further, another challenge is the already existing infrastructure deficits in the continent which will require cross border investments (from both private and public sector) to ensure seamless movement of goods, services, persons and capital. Infrastructure facilitates (intra-African) trade. This view is supported by the UN ECA which notes that the continent cannot meet its development, industrialisation and trade goals if its current infrastructure network is not improved.
Another challenge may be political will to implement the AfCFTA. This is summed up by the words of Mukhisa Kituyi (in reference to AfCFTA) that political declarations must be matched with concrete action and that ‘The collective commitment has to be: Let us give our priority to the African initiative’. Without political will from African leaders, the project will not be implemented so that Africans can benefit from the expected outcomes.
The AfCFTA provides an opportunity for businesses to expand into African markets through the expected liberalization of markets and the progressive reduction of access barriers within the continent. In addition, businesses can take advantage and participate in supporting the diversification of African economies away from low-value-added products and commodities as well as in the development of regional value chains. However, going forward stakeholders (African states) are required to put in concerted effort to ensure the AfCFTA agreement comes into effect. These include, developing and submitting schedules of concessions for trade in goods and reviewing regulatory frameworks for identified services sectors in order to come up with market access offers which will be negotiated upon by the stakeholders.
Therefore, though the journey to integration has been progressed by the steps of over 44 African countries, more needs to be done to ensure the success of the AfCFTA for the Africa We Want to be achieved for both businesses and individuals.
Kenya is currently set to be the first country to ratify the AfCFTA treaty as a bill has already been forwarded to Parliament with Cabinet’s approval.
1Held from 17-21 March 2018 in Kigali, Rwanda
2The African Union Commission, Agenda 2063: the Africa We Want, A Shared Strategic Framework for Inclusive Growth and Sustainable Development,2015
4African Trade Policy Centre, AfCTA, ‘Questions & Answers’
6United Nations Conference on Trade and Development (UNCTAD) Secretary-General to African leaders at the AU Summit
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