The African Continental Free Trade Area: What’s In It for Africa and Its Major Trade Partners?

The African Continental Free Trade Area: What’s In It for Africa and  Its Major Trade Partners?

While global trends continue to move from integration towards heightened protectionism, and retaliatory trade measures, African countries improved their intra-regional trade levels and deepened their regional integration by collectively launching the African Continental Free Trade Area (AfCFTA). The AfCFTA seeks to deepen Africa’s market integration at regional and continental levels; boost intra-Africa trade; promote regional and continental value chains; and hopefully deliver Africa’s rejuvenation.

Based on its basic goals, the AfCFTA deal is to reduce heavy tariffs that have been slowing the intra-Africa trade speed and shall unlock many opportunities on the continent, redesign the architectural framework of Africa’s economic systems and hopefully anchor the modern Africa that African citizens want. Nevertheless, the success of the implementation of the AfCFTA agreement depends not only on documents signed in a conference room but rather on the functions of elements beyond African countries borders such as transparency and clear rules of play. How Africa as a continent can take advantage of the huge market opportunities and Africa’s demographic dividend to boost intra-Africa trade remain the big question needed to be answered. 

The signing of the AfCFTA has made solid progress in strengthening Africa’s regional integration, given much credit to Africa’s salvation, and is expected to be officially launched in July 2020. The successful launch of the AfCFTA will be an epoch-making event and a big step in promoting multilateralism on the African continent. Despite the rise of protectionism and unilateralism, why are African countries choosing to increase inter-connectivity between them? With Africa’s fragmented markets and a large number of countries, the best option to guarantee Africa’s rejuvenation would be strengthening their integration rather than promoting protectionism or unilateralism. Given the rising sentiment of anti-globalization, protectionism and unilateralism around the world, the AfCFTA aims to boost global trade facilitation and liberalization, and inject new impetus to promoting open world economy. 2018 estimates from Brookings Institution indicate that with the actual operationalization of the AfCFTA, the African continent is likely to become a US$ 3.4 trillion economic trade zone. 

At present, Africa ranks behind other regions in terms of its overall level of regional trade volume. Despite African countries’ cultural affinity and geographic proximity, it is unfortunate that between 2015 to 2017, only about 17% of trade was conducted among African countries, largely due to Africa’s intra-trade barriers, Africa’s fragmented market, poor transport and telecommunication connectivity. Furthermore, African countries remain keen on sheltering their internal markets from external influence, while Asia intra-continental trade, especially within the Association of South-East Asian Nations (ASEAN) is estimated up to 59%, North America by 37%, Latin America by 20%, and European Union by 69%. 

What’s in it for Africa’s major trade partners?

African countries have signed many trade agreements with western developed countries as well as developing countries. Despite all the promises that lies behind the AfCFTA, what’s in it for Africa’s major economic partners? The AfCFTA agreement will help forge closer economic ties between Africa and its economic partners. In fact, the AfCFTA will improve the relations between Africa and its external trade partners, so as to guarantee a Win-Win situation, by creating a bigger market for itself and for its trade partners. On one hand, the AfCFTA will effectively reduce the costs of imports, especially those from Europe and Asia. On the other hand, the deal will create a huge market for foreign investors, improve the business environment and attract more FDI, reduce barriers to foreign investment, so as lay a solid foundation for foreign enterprises to invest in African countries. 

China has been Africa’s biggest trading partner for more than a decade, with an accumulated investment for over US$ 200 billion by 2019. China’s President Xi Jinping in his congratulatory message to the 33rd Ordinary Session of the Assembly of African Heads of States and Governments pointed out that under the guidance of the African Union, African countries have actively explored development paths suited to their own conditions and realities, congratulated African countries for their collective efforts that they made in the pursuit of their unity and self-improvement. President Xi also noted that the China-Africa relationship is currently at its best history, despite many critics and allegations over the China-Africa friendship. The 2018 Beijing Summit of the Forum on China-Africa Cooperation (FOCAC) led to a new wave in developing the China-Africa friendship, with the implementation of its results injecting new vigor into their practical cooperation in various fields, notably the “eight major initiatives” plus the “ten China-Africa cooperation plans”, both backed by US$ 60 billions of financial support, additional to the same amount that was pledged in the FOCAC Summit in South Africa back in 2015. For China, the AfCFTA will inject new vitality into upgrading China-Africa bilateral trade cooperation. 

For the USA, it will be a chance for Washington to renew its engagements in Africa, and re-address the post-AGOA agenda as a single entity. With the launch of the AfCFTA, Washington will have access to a larger and integrated market, and have the opportunity to work with emerging economies like Brazil, India, Russia, which are already active on the African continent. It will also be a way for the US to work closely with the African Union in tackling terrorism in Africa. With the AfCFTA, the potential of the African market will be further realized, which will deepen and intensify USA-Africa cooperation in industrial and trade capacities. 

What Africa should do to ensure the success implementation of the AfCFTA?

– Reduction of tariff and Non-Tariff barriers: In Africa, tariffs between countries are higher than anywhere else in the world. In 2017, the United Nations Conference on Trade and Development (UNCTAD) reported that among developed countries, tariffs on tradable goods and services are at 1.2% more or less, which are very low compared to the average tariffs on tradable goods and services among African countries which stand at around 9%. Let alone high tariffs, African countries use Non-Tariff Barriers (NTBs) among them as part of their political or economic strategy. Unfortunately, existing high tariffs in Africa help some African countries to trade more with Europe and the United States at the expense of each other. Over 60 to 70% of total African trade is with countries that are thousands of miles away from the continent. Compared to the rest of the world, this is unfortunate to say the least.

– Establish a blockchain technology: The blockchain technology is among important things that African countries have to establish in order to guarantee the success of the AfCFTA. The establishment of the blockchain technology will ensure that no African or local industrialist or manufacturer colludes with European countries, America or even China to breach the rules of origin by bringing or import finished products from Western or Asian markets and package them as indigenous manufactured leading to the creation of dumping grounds for smuggled products. For instance, China has many companies already producing products on the continent. If the blockchain technology is not established before July, it will be hard for African country to differentiate what products are Africa’s made or imported from China, which may also enjoy free-tariff and hurt Africa’s local producers. The AfCFTA Secretariat, which is already operational in Ghana, should consider the adoption or set up the blockchain technology before the full implementation of the Pan-African Economic market in July 2020 to prevent inter-Africa illegal trade practices that could result in litigation, or even worse, the withdraw of membership by some members. At present, some Africa’s Regional Economic Communities are already having a hard time to maintain low-tariff on their respective borders. Some cases are already been seen where countries have threatened to leave one bloc to another. So, it is for Africa’s interest to consider establish a blockchain technology to put an end to that threat.

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4 thoughts on “The African Continental Free Trade Area: What’s In It for Africa and Its Major Trade Partners?

  1. In addition, to tackle poverty and unemployment which are the twin evil of Africa and to achieve the desired level of growth, it is important for the region to new type of bilateral investment treaties on order to facilitate sustainable FDI.

    Patrick Ejumedia

    Reply
  2. In addition, to tackle poverty and unemployment which are the twin evil of Africa and to achieve the desired level of growth, it is important for the region to sign new type of bilateral investment treaties in order to facilitate sustainable FDI.

    Reply

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