By Joel Peter Oryang
What is the African Continental Free Trade Area (AfCFTA) Agreement?
The African Continental Free Trade Area (AfCFTA) Agreement is an initiative of the African Union (AU) that is geared towards creating one boundless continent-wide market potentially covering the 55 Member States of the African Union. This makes AfCFTA the world’s largest Free Trade Area (by number of participating countries) since the formation of the World Trade Organization (WTO) in 1994. To date, 54 Member States have signed the agreement – something that represent a remarkable degree of consensus in a large diverse continent. Having legal provision that set a threshold of ratifications of at least 22 African Countries to enter into operational phase, the AfCFTA crossed the threshold in May 2019 and to date, 30 Countries (Uganda inclusive) have deposited their instruments of ratification with the AU Commission. The speed at which the ratification happened could be interpreted as widespread political buy-in, probably driven in part, by analysis showing that lowering intra-African trade tariffs can produce significant long-term economic gains.
It is called “Free Trade Area” but with a wider scope than that of traditional free trade area. The main objective of AfCFTA is to create a single continental market for goods and services, with free movement of business persons and investments and to lay the foundation for a Continental Customs Union.
The AfCFTA implementation plan is built around Member States successfully undertaking activities and programmes that should improve seven priority action clusters identified by the AU Action Plan for Boosting Intra-African Trade. These action clusters are; trade policy, trade facilitation, procedure capacity, trade related infrastructure, trade finance, trade information and factor market integration. The initial beneficiaries from the implementation of the AfCFTA will be countries that have moved beyond just ratification of the Agreement but have followed through with trade policies and strategies that focuses on improving local productivity and quality especially in sectors of comparative advantage. Generally, countries need to prioritize and take actions on all the above seven clusters areas.
Will the Implementation of AfCFTA Reduce Dependency of Africa on Imported Goods in Light of the COVID-19 Pandemic?
As mentioned by the newly inaugurated Secretary General of AfCFTA, H.E. Mr. Wamkele Mene, during his inaugural speech on 19th March 2020, Africa should not despair and fall into despondency from a trade perspective arising from the current global challenge due to the COVID-19 pandemic. Instead, Africa should see this crisis as an opportunity – through the AfCFTA to reconfigure its supply chains, to reduce reliance on others and to expedite the establishment of regional value chains that will boost intra-Africa trade. The Secretary General further quoted Prof. Landry Signé and Acha Leke, writing in 2019 saying, “African industries have the opportunity to double production to nearly $1 trillion within a decade, with three-quarters of that growth coming from manufacturing to substitute imports and meet increasing local demand”.
Therefore, to mitigate the economic fallout from the COVID-19 Pandemic, AU Member Countries should implement the AfCFTA swiftly. As its implementation date arrives, global supply chains are completely disrupted and with countries in Asia, Europe and the America being worst hit, the huge exports they normally sent to Africa have already been hampered. This is the time for Africa to adopt progressive industrial policies that create inclusive, prosperous and sustainable manufacturing and for the AfCFTA market to be opened to enable the budding local manufacturing sector to quickly blossom by benefiting from the ready market left vacant by the hampered importation. Import substitutions must happen quickly.
In this context, there is a pressing need to reduce the continent’s high trade dependence on non-African partners. The AfCFTA can help facilitate this, but that means dismantling tariff and non-tariff barriers as much as possible, and intensifying the economic regionalization processes which is already ongoing. The liberalization of tariff barriers on 90% of products, for example, was originally scheduled to take place over five years. This timeframe could be reduced in the face of the current challenges.
As it stands, Africa is the least integrated continent. According to Economic Commission for Africa (ECA), Intra-African trade before COVID-19 stood at only 16%, compared with 19% intra-regional trade in Latin America, 51% in Asia, 54% in North America and 70% in Europe. Once fully operational, the AfCFTA could boost intra-African trade by 60% in just three years. The agreement will be a catalyst for endogenous development through trade, with the extension of value chains across the continent helping to lay the groundwork for industrialization.
The acceleration of implementation of the AfCFTA is above all a matter of political will and commitment of member states and their leaders. The African Union Development Agency (AUDA-NEPAD) indicates that the cost of dismantling the customs taxes that weigh on intra-African trade amounts to $3.5 billion, which is just over 0.1% of the continent’s GDP. Rescinding these taxes will result in virtually no shortfall, and will unlock the continent’s endogenous growth potential.
Maximizing the possibilities of the AfCFTA will be an effective shock absorber as long as the pandemic, and uncertainty about its course, keeps the global economy depressed. It will also make Africa an attractive proposition when the global economy turns around. The continent has no time to lose but to reorganize itself in many areas;
First, Africa needs a strong regional coordination mechanism to consolidate small uncompetitive firms operating in small atomistic market structures. With a consumer base of 1.3 billion and $3.3 trillion market under AfCFTA, the continent has no choice but to bring together its fragmented markets.
Second, Africa needs to build better institutions, strengthen weak ones and introduce the ones missing. No better wake-up call is required than the present pandemic. It is depressing to note that with just a month a way to initial start of trade date under AfCFTA, most State Parties have not published National AfCFTA Implementation Strategies. Worse still; even many have not created the national AfCFTA Committees that should be established by the trade ministries to strategize how the country can benefit from the implementation of the agreement. These gaps are a symptom of un-readiness at the national level.
Third, one important sector that has been abruptly disrupted is the supply chain for goods. Africa relies heavily on the freight transport industry to keep supply chains functioning, and with a significant reduction in the number of international and regional cargo flights able to operate due to measures to control spread of COVID-19, there is increasing reliance on road transport operators. The challenges have transform from one to another now that truck drivers have become a risk to further spreading the disease. All these should be eye openers for Africa to diversify into safe and quicker means of regional cargo transport to avoid the current challenge in cases of a pandemic.
Therefore, with the current effects COVID-19 pandemic on trade, AfCFTA offers an opportunity for Africa to rethink and reengineer its future. The Africa of tomorrow must look inwards for its solutions. – Whether in feeding its own people or building industrial powerhouses, should all be led by African champions. The agreement will inspire a change in perception of the continent by the rest of the world. Negotiating as a free trade bloc, Africa will enjoy an improved bargaining position on the international stage.
In spite of the current direction for a postponement of the July 1st “Start of Trade” date sighting the low level of readiness among Member States and the ongoing health emergency from COVID-19 pandemic, Afro Champions argue that the very reasons being cited for a postponement are actually the reasons why the AfCFTA July 1st start of Trade should not be postponed.
The writer is the Principal Standards Officer at Uganda National Bureau of Standards