I will cover three main points in my statement. The AfCFTA and the opportunities it brings to investors and traders. The second point is on the current status of implementation of the AfCFTA Agreement. The last but not the least is the point on what lies beyond the launch of the operational phase of AfCFTA that was held in Niamey, Niger on 7th July, 2019.
The AfCFTA and the opportunities it brings to investors and traders
What is the African Continental Free Trade Area? It is a newly established and integrating African market supported by a comprehensive legal framework that offers attractive investment and trade opportunities. The vision of the AfCFTA is to create a single integrated African Market. All the fifty-five Member States of the African Union must sign and ratify the Agreement Establishing the African Continental Free Trade Area to truly cover the entire geographical landscape of Africa. They should thereafter embark on harmonizing domestic rules and regulations to institutionalize that integration.
Why do we need one African market? The key development challenge of Africa is that it is the most fragmented continent in the world. Count the number of countries between Cape Town and Cairo and compare with southern and northern tips of Brazil. Also count the number of countries between Mauritius and Cape Verde and compare the eastern and western coats of the US. You get the picture. Fragmentation in Africa brings with it small economies, small markets, un-competitiveness and a host of other weaknesses which make African economies fail to grow at rates high enough to reduce poverty and overcome the underdevelopment trap that they find themselves in. With this structural weakness, our countries are also vulnerable to political and commercial manipulation.
By creating one African market, we are transforming the landscape to bring in a large market of 1.27 billion people (expected to be 1.7 billion in the next eleven years) and large economies of scale and scope which will in turn attract large-scale and long term investments. Businesses operating in the AfCFTA will face huge and attractive opportunities.
Four key opportunities
Prospects of higher rates of economic growth that will emerge from a large and growing market capable of attracting large scale and long term investments. Growing economies are sources of increasing buying power. Increased buying power means high rates of profits for business. Businesses also use innovation to create new opportunities. In this connection, Africa with a young population and economies with prospects for higher levels of economic growth is ripe for start-ups and business will consequently be motivated to invest in the development of start-ups across Africa. It is for this reason that the 2020 edition of the Intra-African Trade Fair, to be held in Kigali, Rwanda from 1-7 September, will have a pavilion for start-ups developed by the African youth. Selection to exhibit in this Pavilion will be through a competitive process.
The African youth in the Diaspora are encouraged to compete and exhibit in the pavilion. Beyond this, and this is worldwide, small and medium enterprises in which start-ups initially imbed offer the most promising opportunities for employment generation. Africa is in need of 20 million new jobs every year to cater for our young and growing population. In this respect, it would not be far-fetched for business to work with the African Union in conceiving and developing AfCFTA bonds that can be used to finance start-ups and small and medium enterprises.
Good prospects for rapid economic diversification and structural transformation. This will be anchored on the development of regional and continental value chains competitively linked to global value chains. In the past, many African countries have not been able to achieve lasting economic diversification due to small markets. The AfCFTA market has changed this and it will be complemented with the African Commodity Strategy to be adopted by the Assembly of the African Union Heads of State and Government at its 2020 Summit. Value addition will be the key lever in the implementation of the African Commodity Strategy. A good start is agro-processing. When fully implemented, it will transform Africa from a net importer to a net food exporter.
To connect Africa through inter-country linkages in transport, communications and energy. One of the key levers of the defragmentation of African countries and economies is connectivity which will remove their isolation to the growth of the middle class, which is expected to rise to 600 million by 2030. Currently, private and business to business consumption is worth US$4.0 trillion. Private consumption in Africa is expected to rise to US$2.5 trillion in twelve years’ time; and business to business consumption in Africa is expected to rise to US$ 4.2 trillion by 2030. Online retail business in Africa is expected to grow to US$75 billion by 2025. All these offer good prospects for growing business operations in Africa.
Growth of intra-African trade. Intra-African trade is expected to increase by 52.3% by 2022 and double that rate if there is effective elimination of Non-Tariff Barriers (NTBs). With the recent launch of an online Non-Tariff Barriers Monitoring, Reporting and Elimination Mechanism. We are confident that the removal of NTBs will significantly contribute to the development of intra-African trade. Increased Intra African Trade Area will in turn, open up additional opportunities for business to business deals as well as improved prospects for increased share of Africa in global trade. Trading with Africa has, in this context, very bright prospects. Against this background, the AfCFTA is a multilateral trade agreement and developmental in character as already reflected in its expected contributions to higher levels of economic growth as well as economic and structural transformation. Another good example of its developmental character is that it offers good prospects for wealth creation, the most reliable guarantor of poverty reduction.
Related to this, inclusiveness at the community, national and continental levels is a key area of focus in the AfCFTA, hence our confidence that it will lead to poverty reduction. The AfCFTA will make sense to the ordinary Africans if it substantially contributes to their decent livelihoods. We are committed to making it deliver on this promise.
The current status of implementation of the AfCFTA Agreement
The AfCFTA is a set of legal instruments concluded in Kigali, Rwanda, on March 21, 2018, when the Agreement was opened for signature. The Agreement invariably provides traders with the legal predictability needed for them to trade in full confidence in the new market. The set of AfCFTA legal instruments comprise:
•A Framework Agreement Establishing the African Continental Free Trade Area;
•A Protocol on Trade in Goods;
•A Protocol on Trade in Services; and,
•A Protocol on Rules and Procedures on the Settlement of Disputes.
The Protocols have Annexes and Appendices. Work will begin this year to negotiate protocols on Investment, Competition Policy and Intellectual Property Rights. Against this background, the AfCFTA Agreement is anchored on trade liberalization. The Agreement has modalities of tariff liberalization. We have a level of ambition of 90% tariff liberalization over a period of 10 years and 13 years for the Least Developed Countries (LDCs). This is aimed at spurring manufacturing as well as facilitate increased volumes of trade in manufactured goods. Already, about 42% of intra-African trade is in manufactured goods. There are also flexibilities that are granted to countries, whilst ensuring that the commercial value of the AfCFTA Agreement is safeguarded. For example, even though countries are allowed to exclude 7% of total tariff lines for sensitive products and 3% of the total tariff lines for excluded products, they are also required to ensure that excluded products shall not exceed 10% of total import value from other State Parties.
Similarly, while a transitional period of 5 years or less is available for countries which require this flexibility before the start of liberalization of Sensitive Products, countries are required at the same time to eliminate tariffs by the end of the phase-down period. Furthermore, whilst a small number of countries have been granted additional flexibilities regarding the timeframe to achieve the 90% level of ambition of tariff liberalization, it is on the condition of reciprocity.
The provisions on levels of ambition for Trade in Services
Countries will undertake preparation of their schedules of specific commitments in the agreed priority sectors: business services, communication services, financial services, transport and tourism with a deadline of January, 2020. There will be a signalling conference in Cape Town in September this year on the margins of the World Economic Forum-Africa where business will be sensitized at continental level on the key provisions of the Protocol on Trade in Services. Trade liberalization is the platform for increasing intra-African trade. To this end, Africa decided to launch the Operational Phase of the AfCFTA on July 07, 2019 in Niamey, Republic of Niger, during the 12th Extraordinary Summit of Heads of State and Government of the African Union.
The Launch of the Operational Phase of the AfCFTA was significant in many respects. Let me start with the legal perspective. The Launch of the Operational Phase of the AfCFTA followed the Entry into Force of the AfCFTA on May 30, 2019, after the deposit of the 22nd Instrument of Ratification with the Chairperson of the AU Commission on 29th April, 2019. As of today, 27 countries have ratified and deposited their instruments of ratification. We are in this respect remaining with 28 countries yet to deposit their instruments of ratification to have a truly one African market encompassing all the fifty-five Member States of the African Union.
By Ambassador Albert M. Muchanga,
AU Commissioner for Trade.