In a world where threatened trade barriers and protectionism are shaking the foundations of the global economy, a recent Free Trade Agreement (FTA) within the vast continent of Africa promises outstanding trading opportunities in a fast-developing marketplace. These developments bode well for logistics operators in the region.
The agreement, signed by 44 African countries on 21 March, in Kigali, Rwanda, is named the African Continental Free Trade Area (AfCFTA). The agreement was not signed by all 55 African Union (AU) member countries, however. One notable exception was Nigeria, as reported by The Economist.
During a lengthy interview with Forward with Toll, the African Union Commissioner for Trade and Industry, Ambassador Albert M. Muchanga, listed a range of benefits he foresees the AfCFTA will bring to the development of African trade and commerce:
- Increased investments from both within and outside Africa to reap the benefits of economies of scale in having a large aggregate population of 1.27 billion people. Africa’s middle class is expected to grow to 600 million people by 2030. This will stimulate increased production, especially in manufacturing and agro-processing as consumption by the African middle class grows. Currently, private and business spend in Africa is around US$4 trillion.
- Rapid structural transformation and economic diversification since 42% of intra-African Trade is currently in manufactured goods. Development of regional value chains under the AfCFTA will spur industrialisation and intra-industry trade. The development of agro-processing will also reduce Africa’s huge food import bill. The diversification from commodity production and export will strengthen the vitality and resilience of African economies and make them stronger.
- Increased Public-Private Partnerships in the development of trade and industrialisation-related infrastructure across Africa. These developments will improve inter-connectivity among African countries, thereby resulting in cheaper and faster movements of goods, people and services.
- Increased employment opportunities for the youth of Africa
- A stronger African voice in the global councils of commercial and economic diplomacy.
Just recently, UNCTAD, an agency of the United Nations, put some numbers on the potential benefits to African trade emerging from eliminating import tariffs between African countries, as reported by The Economist. They suggest these measures will increase regional trade by a third and lift GDP by 1% over time.
Muchanga commented, “These figures are not speculations. They are evidence-based projections. UNCTAD is one of our strategic partners in the development of the AfCFTA.”
He foresees African trading patterns altering in significant ways under the AfCFTA. For instance, with tariff liberalisation, intra-African trade is projected to increase by 52.3% by 2022, four years from now.
“The figure will double if we enforce an effective regime to combat non-tariff and technical barriers to trade. Furthermore, the program on the development of regional value chains, which is a key component of the agenda, will promote value addition and intra-African trade in both intermediate and final products,” Muchanga insisted.
To highlight “How free trade can unlock Africa’s potential”, a recent article in the UK’s Financial Times pointed out that Africa needs the benefits that flow with free trade. By way of example, the commentator highlighted how the whole of Africa’s GDP, at around $2.5tn, is roughly on par with that of the UK’s. However, Africa is “broken up” into 54 pieces, each with “its own politics, language, regulatory environment and hard border”. This stifles trade within the continent.
The Financial Times also suggested many African countries remained overly reliant on trade links with former colonial powers, often as suppliers of raw commodities. Except for a few notable exceptions, such as South Africa and Egypt, many African economies have failed to diversify, and intra-African trade remains comparatively low as a percentage of overall exports, when compared to other trade blocs.
The benefits of trade (many listed above by Muchanga) are notably absent for many African countries, according to the Financial Times. For instance, some countries would be able to move up the value chain under an FTA encompassing the continent. However, as covered in a previous Forward with Toll article, infrastructure and frictionless customs will be a fundamental requirement for this tie-up to work.
Politics will also undoubtedly play a major part in this opening up of the African market. Some commentators have wondered why several major African countries failed to sign the agreement. Dangote Cement, Nigeria’s largest business, benefited from import restrictions during its growth phase, shielding the enterprise from overseas competition, according to The Economist. A representative from the Nigeria Labour Congress suggested the agreement would destroy Nigerian industry and jobs.
“Nigeria, South Africa and nine other African countries did not sign the Agreement and Protocols establishing the AfCFTA. They stated clearly that they are still undertaking national level consultations and this, in a democracy, is good governance. It is, therefore, to be highly commended,” explained Muchanga.
However, Muchanga remains hopeful that most of the countries that did not sign in Kigali, Rwanda, will conclude their consultations by July this year, by the time the African Union Assembly of Heads of State and Government next meet in Mauritania. He revealed that the Agreement only comes into force when it has been ratified by 22 Nations.
He added, “It is at that meeting that we expect them to sign. The indications that we are receiving are that some may even sign earlier.”
In a letter to the Financial Times, Ejeviome Eloho Otobo, Non-Resident Senior Expert in Peacebuilding and Global Economic Policy, Global Governance Institute, Brussels, Belgium, highlighted how conflicts had blighted the development prospects of several African countries. This hindered these countries from reaping the full economic benefits of their natural resources, for instance. He believes African countries must adopt the world’s best practices, such as establishing cattle ranches rather relying on open grazing, as is the case for some Nigerian herdsmen. Nigeria and other countries will then be able to benefit from intra-African and global trade by adding value, such as exporting processed cattle products.
Another concern raised by The Economist is the lack of detail contained within the accord. The publication even speculated that duties on most current imports could remain unchanged for many African countries. Muchanga responded to this concern by pointing out a range of protocols within the agreement. The actual range of tariffs concessions and duties is up for negotiation.
Muchanga commented, “The Kigali Extra-Ordinary Summit held on 21 March in Kigali, Rwanda, this year called upon African Union Member States to finalise and submit their Schedules of Tariff Concessions in Trade in Goods and Schedules of Commitments for Trade in Services by January 2019.”
He also pointed out that, in May, his organisation will begin studies into the implementation and practical application of tariff liberalisation modality. They will also carry sensitivity analysis on “Schedules of Tariff Concessions in Trade in Goods and Schedules of Specific Commitments on Trade in Services”.
He also clarified some of the structures and machinery to make the accord function. He insisted, “We plan, in January 2019, to set up committees on various activities related to the smooth operation of the AfCFTA to facilitate continuous monitoring of implementation of obligations in the AfCFTA Legal Instruments.”
All these are setting the stage for the operation of a commercially viable AfCFTA with a harmonised regulatory regime as soon as the minimum instruments of ratification are deposited, Muchanga insisted.
Against this background, and in response to critics pointing to lack of clarity in the accord, Muchanga invited interested parties to point out the areas where the AfCFTA Agreement and Protocols lack specific details that could encourage state parties to act in ways that would undermine the letter and spirit of the AfCFTA.
Muchanga is confident of success in this mammoth undertaking. He is aware other free trade areas, such as one proposed for the Americas, have failed to materialise.
He explained, “We are hitting the ground running. In this connection, the first deliverable of the AfCFTA, even before the Agreements and Protocols enter into force, is the First Intra-African Trade Fair to be held in Cairo Egypt from 11-17 December, 2018.”