The African Continental Free Trade Area : A Review

Published on 20th August 2019

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. 

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