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Africa’s Ambitious Path To Trade Growth – Analysis

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The African Continental Free Trade Area, launched in July, is a landmark achievement, aiming to eliminate tariffs on 90% of products covered by intra-Africa trade and thereby spur entrepreneurial initiative and job creation. It envisages many other gains as well, but the hurdles in their realisation cannot be wished away.

By Rajiv Bhatia*

Africa’s achievements are often greeted with skepticism. But the operational phase of the African Continental Free Trade Area (AfCFTA) has been commended for its sheer vision and scope. Launched at the 12th extraordinary summit of the African Union (AU) in Niamey, Niger, on 7 July 2019, it has been described as “one of the most emblematic projects of the African Agenda”, “a dream, an old dream… becoming a reality.”[1]

What does this project entail and when will this dream materialise? At a time when several important developed economies have turned protectionist Africa’s endeavour to establish the largest free trade area in the world[2] is cause for amazement.  Will it succeed in subverting the trend towards unilateralism and restricted trade and overcome the many hurdles before it?

Gains from the Agreement

The AfCFTA reflects the continent’s deep-seated urge for unity as a means to  political and economic emancipation. It seeks to create a single commercial space in Africa and is a step towards establishing the Customs Union with a common external tariff regime. Advocates of AfCFTA are convinced that expanding intra-Africa trade will encourage entrepreneurship and job creation, accelerate economic growth and achieve the Sustainable Development Goals, including the empowerment of women and youth. The second phase of negotiations will cover Intellectual Property rights, competition and investment.

Comprehensive in character, the framework agreement provides for the liberalisation of trade in goods and services and free movement of capital and people within Africa.  With average tariffs at 6.1%, African businesses face higher tariffs when they export within Africa than outside it. The Agreement will progressively eliminate tariffs on 90% of product lines covered under intra-Africa trade.

Intra-Africa trade

So far the level of intra-Africa trade is quite low: 16% of Africa’s trade with the world as compared to the corresponding figures in respect of Latin America (25%) and Asia (nearly 50%). [3]

  • In 2016-17, intra-Africa exports saw an increase of 8% thus reaching 16% of Africa’s world exports.
  • Of Africa’s world imports, 13% came from intra-Africa imports.
  • Top intra-Africa exporting nations are: South Africa, Nigeria, Egypt, Ivory Coast, and Morocco.
  • Top intra-Africa importing nations are South Africa, Botswana, Zambia, Namibia, Mozambique, and Zimbabwe.
  • In 2012-14, 75% of Africa’s exports to the world were extractive (oil and minerals), whereas less than 40% intra-Africa trade was extractive.

AU officials claim –  based on a 2012 study – that as a result of liberalisation through AfCFTA intra-Africa trade will  increase 52.3% by 2022 over the 2010 baseline. But this is questionable, and the projected increase may not take place in the next three years.[4]

The AfCTA, which has only recently become operational and pertains to trade at the continental level, will not impede the Regional Economic Communities (RECs) in performing their task of regional economic integration. The AU recognises eight RECs[5] that have secured progress in market integration in varying degrees.

Coordination of the continental free trade area and activities of the RECs will be necessary and experts point out that the RECs will remain “important implementing partners” as they will be represented in the committee of senior officials in an advisory capacity. “Their role will include coordinating and measures for resolving non-tariff barriers, harmonising standards and monitoring implementation.”[6]

Trade and other economic ministries of member-states and their business communities will need to shoulder additional and somewhat complex responsibilities as they fulfil their obligations towards both the AfCFTA and the RECs.

Africa’s partners 

Africa’s trade partners are now increasingly aware that AfCFTA is a new landmark in the continent’s economic development. It will facilitate the realisation of the shared vision of Agenda 2063 and the Sustainable Development Goals.

Amina Mohammed, UN’s deputy secretary general, observed that the Agreement demonstrated Africa’s “global responsibility” and the desire to “forge a new path for multilateralism and sustainability”. But, she urged African countries “to move decisively and quickly” during the transitional period up to 1 July 2020 “to reap the rewards of the historic agreement”,[7] and start implementing what has been agreed to in Phase I besides embarking on negotiations for Phase II.

China is Africa’s largest trading partner and the China Daily, voicing support for the AfCFTA, added that the free trade area would attract more Chinese investment and “open a new chapter for China-Africa trade and economic cooperation.”[8]

Similarly, the AfCFTA is likely to help the United States achieve its new trading strategy to enhance economic ties. Scholarly opinion endorses the view that “Now that many African nations have unified under a single market, trading with the continent will become far easier – and a trade deal between the United States and Africa will help out everyone involved.”[9]

India

Speaking before The Gambia’s national assembly, President Ram Nath Kovind stated on 31 July that this development offered “another opportunity to boost economic ties with Africa”. Earlier, when Suresh Prabhu was minister of commerce and industry (September 2017 to May 2019) he had suggested that Africa and India consider negotiating a free trade or preferential trade agreement to secure closer economic cooperation. Second, the Indian government extended rare grant assistance – a cheque for $15 million – to Niger to help it host the AU summit where the AfCFTA was formally launched.[10]

As Africa’s free trade area takes shape, India Inc. ought to accelerate its plans to substantially increase and diversify its investments in African countries. Investment-led growth which creates local employment and skill development in Africa should be an essential part of corporate planning.

African leaders have hailed the AfCFTA as a big stride towards securing the vision of the founding fathers. Abdel Fatah El-Sisi, President of Egypt and Chair of AU, saw it as “a remarkable point in the continental regional integration and a natural extension of the joint African action throughout ages ….”, adding though that Africa still had “a long way to bring the agreement in reality and reap its promising fruits”. He also stressed the need “to boost communication with the private sector”.[11]

In similar vein, most observers concede that the Agreement is of considerable significance, but point out that the trade area is not yet a reality. The AfCFTA, which was opened for signature in March 2018, had 54 of the 55 countries of the African Union sign it over a year later, but only 27 countries – about half – have ratified it until now. More countries ought to do so as soon as possible.

Work on tariff concessions, elimination of non-tariff barriers, Rules of Origin and other technical aspects needs to be speeded up. Member-states should resist the temptation to seek long waiver periods and exceptions. The new secretariat, to be set up in Ghana, needs to act.

Expanding infrastructural connectivity, ease of travel by Africans within Africa and better transportation linkages, will need attention. The challenge for Africa’s governments is to concentrate on such hurdles and unfinished tasks.

Besides, increased infra-Africa trade is not enough per se. Africa has to concentrate on peace-building too, as a senior AU leader pointed out. “It will be a delusion to talk about trade or development without peace and security.”[12] AfCFTA’s launch shows the African governments’ capability:  their credibility depends on delivering on promises made.

*About the author: Rajiv Bhatia is Distinguished Fellow, Foreign Policy Studies Programme, Gateway House and a former High Commissioner to Kenya, South Africa, and Lesotho.

Source: This article was written for Gateway House: Indian Council on Global Relations.

References

[1] Mahamat, H.E. Moussa Faki, speech delivered at the 12th Extra-Ordinary Summit for the launch of the operational phase of the AfCFTA, 7 July 2019, <https://au.int/en/speeches/20190707/statement-he-moussa-faki-mahamat-au-commission-chairperson-delivered-12th-extra>

[2] This will be in terms of the number of countries – 55 – when all African countries subscribe to the agreement. The region then will have a population of 1.2 billion and a combined GDP of $3.4 trillion.

[3] Please see ‘Intra-Africa trade profile – 2017’, Tralac, 21 March 2019 <https://www.tralac.org/resources/infographics/13964-intra-africa-trade-profile-2017.html> and  Tralac <https://www.tralac.org/resources/infographics.html>

[4] Matheson, Archie, ‘The AfCFTA is laudable, but its imminent benefits are overstated’ African Arguments, 26 June 2019, <https://africanarguments.org/2019/06/26/the-afcfta-is-laudable-but-its-imminent-benefits-are-overstated/>

[5] These are: 1. Arab Marhreb Union (UMA), 2. Common Market for Eastern and Southern Africa (COMESA), 3. Community of Sahel-Saharan States (CEN-SAD), 4. East African Community (EAC), 5. Economic Community of Central African States (ECCAS), 6. Economic Community of West African States (ECOWAS), 7. Inter-Governmental Authority on Development (IGAD), and 8. Southern African Development Community (SADC).

[6] ‘The African Continental Free Trade Area’, African Union<https://au.int/sites/default/files/pressreleases/34017-pr-note_to_editors_-_questions_and_answers_on_the_african_continental_free_trade_area.pdf>

[7] ‘UN’s Amina Mohammed pledges full support as Africa begins to implement AfCFTA’, UNECA, 07 July 2019, <https://www.uneca.org/stories/un’s-amina-mohammed-pledges-full-support-africa-begins-implement-afcfta>

[8] ‘China stands ready to support Africa’s game changing FTA’, China Daily, 08 July 2019,<http://www.chinadaily.com.cn/a/201907/08/WS5d233773a3105895c2e7c52e.html>

[9] ‘Africa’s New Free-Trade Area is Great News for America’, The National Interest, 12 June 2019,<https://nationalinterest.org/feature/africa’s-new-free-trade-area-great-news-america-62407>

[10] Ministry of External Affairs, Government of India, ‘India extends US$ 15 million grant assistance to Niger to organise the AU summit’ 18 June 2019, <https://www.mea.gov.in/pressreleases.htm?dtl/31449/India_extends_US_15_million_grant_assistance_to_Niger_to_organise

_the_AU_summit>

[11] Fattah El-Sisi, Abdel, Statement given at the African Union Extraordinary Summit in Niamey, 08 July 2019, <http://www.sis.gov.eg/Story/140635/President-Abdel-Fattah-El-Sisi’s-Statement-in-the-African-Union-Extraordinary-Summit-in-Niamey?lang=en-us>

[12] Mahamat, 7 July 2019.



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Gateway House

Gateway House

Gateway House: Indian Council on Global Relations is a foreign policy think-tank established in 2009, to engage India’s leading corporations and individuals in debate and scholarship on India’s foreign policy and its role in global affairs. Gateway House’s studies programme will be at the heart of the institute’s scholarship, with original research by global and local scholars in Geo-economics, Geopolitics, Foreign Policy analysis, Bilateral relations, Democracy and nation-building, National security, ethnic conflict and terrorism, Science, technology and innovation, and Energy and Environment.

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