African Free Continent Trade Agreement – The Journey So Far

Heralding the Great African Industrialization

The African Free Continent Trade agreement is not just a trade deal, it is a “hope for Africa”, Wamkele Mene, the Secretary-General of the AfCFTA Secretariat, had said at the virtual launch in January 2021.

And with that hope, the African Free Continent Trade agreement took off smoothly with its wide wings into the open sky of endless opportunities.

It was just four days later that two Ghanaian companies marked a major milestone with the first-ever shipment, observed the latest report by the United Nations. Using the AfCFTA, the companies became pioneer exporters of products. This speaks volumes for the member countries that are part of the ambitious deal that opens a market of over a billion people with a GDP of $3 trillion

The Road So Far

The commencement of the African Free Continent Trade agreement meant meandering through 42 currency systems across the continent and finding a single-window system where, for instance, a trader from Ghana could transfer cedi to their Kenyan counterpart who will receive Kenyan shillings in return.

A major inroad has been the Pan-African Payment and Settlement System (PAPSS) project with Afreximbank giving $500 million for clearing and settlement in the West African Monetary Zone (WAMZ); it is expected to see the launch in June 2021. The bank aims to inject up to $3 billion to aid in the Africa-wide PAPSS project.
So, the trade deal has been true to its ambitious promises. It has brought more advantages.

Firstly, this agreement shapes the aspirations of the African people and the long-held dream of regional integration of the continent – a single market for goods and services made in Africa. At present, intra-African exports account for roughly 17% of total continental exports. This agreement will boost job creation and incomes with this share of exports expected to increase value addition.

At present, almost 90% of the rules of origin have been implemented with the rest expected before July 2021.

Secondly, the negotiations that took five years to be finally signed in March 2018 promise the path to post-pandemic recovery for member-countries , considering the remarkable speed with which it has unfolded in the last five months. In March 2021, Mene signed an MoU with the UN Development Programme’s Regional Bureau for Africa that supports digitizing intra-African trade, enhancing export readiness of SMEs led by women and the youth and strengthening national customs authorities. By April 2021, 36 AU member states had ratified the AfCFTA Agreement.

This means that these member-countries are open to trading with each other with their tariff concessions and the proposed rules. At present, almost 90% of the rules of origin have been implemented with the rest expected before July 2021.

Thus, the free trade deal is also the manifestation of the African Economic Community and Customs Union, as envisaged under the Abuja Treaty in 1991.

Also, it has been just the stimulus package the continent needed for its post-COVID-19 economies. It is because it is as much as an international trade agreement as much as it is an intra-trade deal as it eliminates 90% tariffs and crossing the red tape – custom delays.

The Phase I negotiations for the trade protocols in goods and services and dispute settlement are being concluded by June 2021 with Phase II negotiations on investment, intellectual property rights (IPR), competition and e-commerce concluding by the end of this very year.

 

The Challenges So Far 

With a trade deal of such a massive scale, challenges are bound to come, especially in the wake of the deadly pandemic. The trading was postponed to July 2021.

The World Bank has warned of a recession with concerns arising of vaccine delays and slow recovery.

Some streams have seen a slow response – with only South Africa, Ghana and Egypt integrating customs infrastructure for trading at the start of free trading.

But it seems that decision-making bodies had foreseen the infrastructure challenges – approving the escrow accounts to reimburse traders operating for countries who are yet to meet the customs requirements under the AfCFTA.

However, many see it as just a bolt in the grand machine. The EU common market is a case in point – Romania and Bulgaria were made members only in 2007 – almost 57 years later. Compared to that, 54 countries – barring Eritrea –are parties with ratifications expected to continue at a gradual pace.

Also, while the biggest advantage Africa has is its 60% population under the age of 25, the key challenge is its skill development.

Africa needs human resources with the skills to match to meet ambitious goals in the 21st century, says the Global Partnership for Education. For Africa, this is imperative for the success of the trade agreement.  The solution, the report said lies in the education sector that focuses on economics and entrepreneurship components suitable for enterprises.

The AfCFTA, which is being rolled out in phases, is being closely observed for its impact on existing regional communities as well as trading ties with partners – African and otherwise. For instance, Kenya has stepped towards bilateral negotiations with the US as a trade partner. And then there are economic partnership agreements (EPAs) of the countries and country groups in Africa that have negotiated with the EU. Another being the eight existing Regional Economic Communities (RECs) in Africa, with many having overlapping memberships.

 

The Opportunities and the Promises 

As per the World Bank’s July 2020 report, the AfCFTA could boost Africa’s Income by $450 billion.

It noted that smooth implementation of the free trade agreement would help curtail the effects of COVID-19 on the economy with the regional trade and value chains with the reduced trade costs.

Also, with the streamlined border procedures and enhanced regional agreements, the agreement in the future could become a strong foundation for cushioning the African countries from economic shocks and pave way for reforms necessary for the long-term growth of the African economies.

 

References

https://www.un.org/africarenewal/magazine/april-2021/afcfta-100-days-start-free-trading-prospects-seem-bright

https://www.worldbank.org/en/news/press-release/2020/07/27/african-continental-free-trade-area

https://sdg.iisd.org/commentary/policy-briefs/african-continental-free-trade-area-completes-first-month-of-trading/

https://www.globalpartnership.org/blog/education-key-success-african-continental-free-trade-area-afcfta

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