The Extraordinary Summit of African Union Heads of State and Government will meet in Kigali tomorrow to officially launch the African Continental Free Trade Area, following months of legal negotiations.
The AfCFTA seeks to replicate the success of the European Union in Europe, by creating a development integration approach, combining regulated integration of the continent’s markets, with simultaneous development of industry and infrastructure. By doing this, it aims to promote connectivity and harmonisation between African countries, and reduce business costs.
Business Report claims it is also forecast to improve the free movement of goods, services, and eventually people, across Africa, via liberalisation of trade and improved customs co-operation. Documentation and processes relating to customs will also be harmonised, causing better trade facilitation.
Additionally, it seeks to “enhance competitiveness at the industry and enterprise level, through exploiting opportunities for scale production, continental market access and better reallocation of resources,” according to the AU.
The AfCFTA will also enhance co-operation between nations in trade-related areas, including investment, competition, and intellectual property. Furthermore, it will establish a functioning mechanism for settling trade disputes. The chief technical adviser of the AfCFTA, Prudence Sebahizi, has also said that an African central bank, and even a single currency, could follow within ten years, reports CNN.
According to Business Report, markets across the African continent are small and fragmented, a hangover of colonialism; as a result, they do not possess the significant size needed for sustainable growth. Therefore, it calls the AfCFTA “the only way Africa will be able to firmly move up the value-chain and become a more effective player in the global economy.” It will also reportedly reduce the vulnerability to global shocks that African economies are susceptible to at present, as a result of a heavy reliance on commodities.
Mahamadou Issoufou, the President of Niger, agrees that such an agreement is necessary. Speaking in the Financial Times recently, Issoufou gave a rundown of the hurdles that are currently squashing continental trade, citing “border delays, burdensome customs and inspection procedures.” For example, it is estimated by the World Bank that a container of car parts takes as long as three-and-a-half weeks to pass through Congolese customs, according to the Economist.
Issoufou therefore believes the AfCFTA is a positive, with the potential rewards too great to be ignored. It is speculated that Africa’s economy will grow to $29 trillion (€23.6 trillion) by the year 2050, meaning that the AfCFTA “may evolve to cover a market that is larger than NAFTA [the North American Free Trade Agreement, which covers the USA, Canada, and Mexico] today.”
Despite geographical proximity, which is usually cited as one of the key ingredients for trade to flourish, intra-African trade remains low by global standards, accounting for just 16 percent of the continent’s total trade.
“In absolute terms, African countries traded almost twice as much with the European Union as they did with each other in 2016,” said the Chief Economist of London-based think tank the Official Monetary and Financial Institutions Forum (OMFIF), Danae Kyriakopoulou. “This defies one of the principles of trade economics: That proximity matters.”
According to CNN, the continent suffers from uneven, and generally slowing, growth, falling to 3.5 percent last year from 2012’s peak of 7 percent. CNN adds that growth “is forecast to rise in the coming years, but not by much.”
In 2012, however, the United Nations suggested that an AfCFTA could boost trade by up to 50 percent over the course of ten years. Business Report also considers that a “properly utilised” AfCFTA could become a catalyst for “a wave of growth in the manufacturing sector” across the continent.
“The potential for the agreement to support the continent’s development is huge,” agreed Kyriakopoulou.
The African Union claims all of the continent’s 55 countries support the deal, including its two biggest economies, South Africa and Nigeria, with CNN reporting that the latter has been chairing the negotiations.
Not everyone is convinced, however; Capital Economics’ Africa economist, John Ashbourne, has reportedly voiced fears the zone will prove “unworkably large” and that the proposed benefits would be more limited that people expect.
“While tariffs are a big problem, there are also very tangible reasons why intra-Africa trade is low,” he argued. “The infrastructure needed to facilitate intra-regional trade is poor, and most countries don’t produce many finished goods that their neighbours want.”
Yet Business Report calls the mooted project “a decisive step towards the regional economic integration project that African leaders have dreamt about since the Abuja Treaty in 1991”, which first lay the foundations for what has become the AfCFTA. Following this week’s launch, further negotiations will take place, surrounding tariffs and rules of origin.
