The AfCFTA evolution thus far
The Covid-19 epidemic and the consequent disruption of global supply chains owing to restrictions to curb the spread of the coronavirus brought to fore the urgency and utility of greater intra-African trade, especially under the auspices of the currently postponed AfCFTA. Just when the AfCFTA was needed the most, measures to curb the spread of the coronavirus ironically forced a delay in the kick-off date for the trade pact. Considering the global nature of these restrictions, with China and other major trade partners initially closing their borders in tandem, the postponement is believed by some to have been ill advised. The basis for this sentiment is sound. Allowing some time for governments to come to terms with the Covid-19 challenge seems only prudent. A more ambitious advocacy of free trade would cast the January 2021 launch date in stone.
According to the International Trade Centre (ITC), the AfCFTA offers huge advantages to the private sector. With access to a continental market, many firms would be able to tap economies of scale. They would also obtain access to less expensive raw materials. Easier and better access to regional and global value chains are oft-touted potential advantages of the trade pact. The ITC highlights why the business community must do its utmost, through proposals, engagement and lobbying with the relevant stakeholders, to ensure the AfCFTA is focused on realising these anticipated advantages. It must also ensure that these benefits flow to SMEs, many of which are informal. SMEs account for almost half of intra-Africa trade.
While the opportunities are writ large, business rightly worries the pact could be yet another failed endeavour at integration
The African business community is understandably cautious about the AfCFTA. While the opportunities are writ large, business rightly worries the pact could be yet another failed endeavour at integration. Too many trade agreements at the regional level continue to languish, generating huge government-to-government and business-to-government distrust. Early signs warn that the AfCFTA might turn out to be just another white elephant project. Even before agreeing on key elements of the agreement, such as tariff reductions, rules of origin, and services schedules, Nigeria imposed border closures to curb smuggling. Ghana, Kenya, Ethiopia and others blamed their subsequent travel bans on the Covid-19 pandemic. Such unilateral moves, plus needless politicking between Nigeria and South Africa over the appointment of the secretariat’s secretary-general, signal that huge hurdles lay ahead.
Nigeria, the most populous country and largest market in the new trade area, continues to drag its feet. Its government worries about the safety of its local industries in the face of competition from cheaper and better quality products from other parts of the continent, especially South Africa. Regional body ECOWAS, often an effective mediator of disputes among its member states, has fallen short in dampening unilateral moves by the regional behemoth. According to the Brookings Institution, “defying regional and international trade treaties, Nigeria’s border closure demonstrates the implementation gap that continues to exist between the texts of regional or international trade agreements, and the actual measures that some African governments adopt.”
In other respects, Nigeria increasingly reveals its increasing commitment to the AfCFTA. President Muhammadu Buhari approved a National Action Committee in 2019 for implementation of the AfCFTA. And in February 2020, the Nigerian government announced that all Africans would be issued visas on arrival, in the spirit and letter of the free movement of Africans as needed for the pact to succeed. And after much ado, Nigeria finally ratified the AfCFTA agreement in November 2020.
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Anticipated gains from the AfCFTA may be exaggerated, according to a May 2020 IMF study by Abrego et al. (2020). The authors estimate potential income gains from the reduction of trade barriers due to the AfCFTA to be at most 2.1 per cent. This gain is less than half the 5 per cent projected in earlier studies. These gains would mainly be due to diminished non-tariff barriers (NTBs), as opposed to already relatively low import tariffs. Note that those countries that currently have high NTBs would likely see significant income gains from their reduction. In collaboration with UNCTAD, the African Union set up the “AfCFTA NTB Reporting, Monitoring, and Eliminating Mechanism”. This is essentially a website through which traders can report NTBs they encounter while doing business on the continent. Once notified, governments are expected to eliminate the identified NTBs. Similar online mechanisms in eastern, southern and western Africa have succeeded in resolving numerous NTB issues.
Incremental gains did emerge due to prior integration efforts, although their impact is relatively small (De Melo & Tsikata, 2015).Many blame this lack of impact on weak political will and the lack of enabling institutional frameworks. Despite these flaws, intra-African trade more than doubled to 17 per cent in 2017 from 9 percent in 2000, for instance (Abrego et al., 2020). In the 2000-2017 period, food and manufactured goods accounted for a great deal of this increase in intra-African trade. In contrast, most of the continent’s exports were primary goods. Food and manufactured goods are expected to be immediate targets under the AfCFTA. Abrego et al. (2020) also highlight the absence of a continental trading hub, as China serves for Asia, United States serves for the Americas, and Germany serves for Europe. While South Africa comes the closest, its reach prevails only within southern Africa.
Several outstanding issues need resolution before unhindered trade can take place under Phase 1 of the AfCFTA. According to UNECA & the AU (2020), the following prerequisite issues are yet to be finalised: (1) Schedules of concessions for trade in goods, (2) Rules of origin and (3) Schedules of specific commitments for trade in services. “Other secondary technical work remains on components of the AfCFTA that are not critical to its operationalisation but will ease its implementation and interpretation (UNECA & AU, 2020).” This unfinished work includes (1) Guidelines on infant industries, (2) Guidelines and manual on rules of origin, (3) Regulations for goods produced under specified economic zones and (4) Guidelines on the implementation of trade remedies.
Article was first published by the NTU-SBF Centre for African Studies at Nanyang Business School, Singapore. Figures, tables, & references are in orginal article viz. https://nbs.ntu.edu.sg/Research/ResearchCentres/CAS/Publications/Documents/NTU-SBF%20CAS%20ACI%20Vol.%202020-39.pdf
