Africa’s dream of creating a borderless $3.4 trillion market is set to face the litmus test in July next year when the African Continental Free Trade Area (AfCFTA) agreement comes into force.
Launched in Kigali, Rwanda, in May this year, the signing of the AfCFTA agreement by all but one of Africa’s 55 countries was a major highlight for the continent in 2019.
Once fully operational, AfCTA will become the largest free trade area since the creation of the World Trade Organisation, offering the continent’s 1.2 billion people an opportunity to sell and buy goods with minimal tariff and non-tariff barriers.
So far, some 28 countries have ratified AfCFTA, making it a legally valid and binding document.
“We are very proud of how quickly countries have ratified the AfCFTA. This is a source of pride for all of us,” said the African Union Commission chairperson Moussa Faki Mahamat.
“For this agreement to be effective, there is a need to open borders to other Africans. This can only be possible by having a peaceful and secure continent. It would be an illusion to talk of trade and development, without peace and security.”
The member countries will in the next seven months be expected to open their borders for trade in ways never seen before, allowing free movement of people and goods and putting to test the continent’s air, railway and road infrastructure.
Africa’s population is expected to hit 2.5 billion by 2050, offering a huge, ready market for its goods and services.
“This continental free trade area regime now embodies our advancement toward the ideal of African unity,” said Rwanda’s President Paul Kagame at AfCFTA’s launch.
The trade pact is expected to increase the continent’s trade with itself by more than 50 per cent, as it cuts down on import costs while pushing up consumer spending and investment opportunities.
Supporting instrument
Already the continent has finalised the drafting of some supporting instruments intended to facilitate operationalisation of the trade agreement. These include the rules of origin, schedules of tariff concessions, online monitoring of non-tariff barriers and elimination mechanism, a digital payments and settlement platform, and, building of the African Trade Observatory Portal.
Implementation of AfCFTA is expected to attract more Foreign Direct Investment inflows from investors seeking a large, harmonised market for their goods and services.
“Once operational, we are going to see a boost of Africa’s long-stymied economy by strengthening inter-regional trade and supply chains,” said the AU trade and industry commissioner Albert Muchanga.
Tariff barriers
Already, the majority of African countries have agreed to eliminate tariffs on most goods, which would boost regional trade by up to 30 per cent in the shorter term.
So far, countries have adopted the template on tariff liberalisation, which will be used by member states in preparing the AfCFTA Schedules of Tariff Concessions, Agreement on the designation of Sensitive Products and Exclusion List on the basis of food security, national security, fiscal revenue, livelihood and industrialisation.
The percentage for Sensitive Products will not exceed seven per cent of total tariff lines, while the Exclusion List will not exceed three per cent of total tariff lines.
The countries have concluded talks on the agreement on a transitional period of five years or less, that may apply for members who require protection of their economies before the start of liberalisation of the Sensitive Products. This means that during this period, tariffs applicable to sensitive products may be maintained as long as they are eliminated by the end of the phase-down period provided for under the adopted modalities.
While the rest of the world has often felt captive to trade tensions between the world’s two-largest economies, the US and China, 2020 is billed as the magic year for the continent, as it seeks to deepen trade with itself and promote open borders.
AfCFTA has the potential to foster the development of robust regional value chains, triggering exponential economic growth.
The United Nations Conference on Trade and Development (Unctad’s) 2019 Economic Development in Africa Report notes that the establishment of AfCFTA could lead to a re-orientation of trade towards the regional market.
Non-tariff barriers
AfCFTA, however, needs to effectively address not just tariff-related issues, but also non-tariff barriers, such as trade facilitation, sanitary and phytosanitary measures, and rules of origin.
“Overall, the relative sophistication of intra-African trade suggests that the regional market may offer a greater—and so far, largely untapped—scope for supporting economic diversification, provided that the AfCFTA is approached and implemented as an opportunity to enhance the consistency of Africa’s trade policy framework and the continent’s structural transformation agenda,” said the Unctad secretary general Dr Mukhisa Kituyi.
Last year the continent saw benefits of AfCFTA come through, even before it entered its operational phase.
The hosting of the Intra-African Trade Fair in Cairo, Egypt, in December 2018, recorded business-to-business transactions worth $30 billion, well above the targeted $25 billion.
Rwanda will host the next edition of the trade fair next year, which is expected to attract even more deals between partner states.
AfCTA’s implementation is being complemented with the Single African Air Transport Market (SAATM), the protocol to the treaty establishing the African economic community relating to free movement of persons, right of residence and right of establishment, which was intended to make the continent borderless.
As of November this year, 32 African countries had made solemn commitment to implement SAATM, out of which 18 had signed the implementation agreement.
Implementation of the African open skies agreement for the continent has been slow, casting doubts over the July 2020 AfCFTA operationalisation date.
“African countries are making significant progress in the implementation of the African open skies. We are encouraged by the steps they are taking and this will now connect the continent by air better, and boost intra-Africa trade,” said Angeline Simana, the director Air Transport at African Civil Aviation Commission), the executive agency of SAATM.
-The East African
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