Is the AfCFTA Being Taken Seriously?
On May 30, 2019, the framework agreement establishing the African Continental Free Trade Area (AfCFTA) entered into force, but this continental body still hasn’t become fully operational, as nations at different levels of development and economic vibrancy continue to negotiate on critical commitments, including tariff liberalization schedules and services. Once fully realized, the AfCFTA would cover 54 countries (the largest of any regional trade bloc), creating a market encompassing 1.2 billion people with a combined economic output in excess of $2.5 trillion. The World Bank estimates that the AfCFTA could lift more than 30 million Africans out of extreme poverty (defined as having an income of less than $1.90 per day), and 68 million more people out of moderate poverty (an income of $5.50 per day), within 13 years. Nevertheless, there continue to be skeptics.
The closure of borders and
shutdown of economies under COVID is partially responsible for the delay in
implementation of AfCFTA, but it was always envisioned as a work in progress
because all signatory nations aren’t able to liberalize as quickly as others. Moreover, under colonial rule, normal
economic functions were skewed, forcing African stakeholders to adapt to such a
convoluted situation. Consequently, when
asked to abide by accepted international trade rules, many were reluctant to do
so because they’d learned to make money the so-called “wrong” way, and it’s
difficult to give up practices that work for you even if someone explains that
much of the rest of the world succeeds in doing things differently. This likely accounted for the reluctance of
nations such as Nigeria to adopt quick ratification of the AfCFTA agreement.
An Africa-wide trade
liberalization plan dates back
to the 1960s when
the Organization of African Unity (OAU) was established.
The OAU was intended
to foster economic cooperation among
its members,
and efforts by the OAU and its successor, the
AU, created in 2002, have primarily aimed
to use Africa’s eight regional
economic communities
(RECs)
as the building blocks for eventual pan-African
integration
– a United States of Africa. Initial plans envisioned transforming
the RECs into customs unions,
providing free trade among
members and
a common external tariff rate before merging
them into a continental trading
bloc. These plans eventually
became untenable given the RECs
variable performance and
their increasingly overlapping membership. The
AfCFTA approach
is seen
as more flexible, allowing
for an agreement that includes commitments between
both RECs and individual states.
However, there are numerous
obstacles on the way to African continental integration. Not only are there different legal and
economic systems in place, there are different languages, which may seem minor
but often lead to misunderstandings that can have serious implications. Ask anyone who’s negotiated an agreement in
more than one language. Then there are the outside influences to take into
account. The British Commonwealth and La
Francophonie exert varying levels of influence and create requirements that do
not favor a singular continental union.
This is a major reason why intra-Africa trade has lagged over the years.
In
2018, 16% of
Africa’s total exports were intra-regional,
which was considerably below that of
most global
regions, including
North America (30%), Asia (60%), and Europe (69%). Intra-African
trade rose from
7% to 16% of total African trade from
1990 to 2018. During this period, intra-African
trade generally
included more value-added content than African trade
with the rest of the
world. Manufactured goods
accounted for 40% of intra-regional trade
from 2007-2017, while
exports to the world consisted largely of
raw ore and
energy commodities with manufactured goods accounting for 16%. Growth
in intra-regional trade, however, occurred primarily within RECs,
and such progress was not uniform; 75% of intra-African trade
occurred in just five of eight
RECs. Long-term trends in Africa, however, suggested such trade
would
increase,
but it is today estimated at 15% - largely but not exclusively due to the COVID
shutdowns.
There
are technical difficulties as well. Solving cross-border payments within
the continent, for example, could “exponentially increase intra-Africa trade,”
according to a joint report by the United Nations Development Programme and the
AfCFTA secretariat entitled Making the AfCFTA Work for Women and Youth. A
typical cross border payment is a multi-player process that begins when a
purchase transaction is initiated, and the merchant’s bank requests payment
from the buyer’s bank. Then, the money is transferred from the buyer’s bank to
its correspondence bank in the merchant’s country for final settlement into the
merchant’s bank. Cross border payments also
are facilitated via different payment methods such as credit cards, cross
border payment gateways, wire transfers and e-wallets, among other methods. How
AfCFTA protocols facilitate cross-border payments will go a long way toward making
this program the success it should be.
Non-tariff barriers such as quotas, import restrictions,
and expensive export and import licenses, are among hurdles that, if not
effectively addressed will continue to limit growth across the continent. It is several times more expensive to
transport goods just 1,700 km from Douala in Cameroon to N’Djamena in Chad than
it is to ship those same goods 12,000 km away to Shanghai, China. Some of these
high costs, of course, can be attributed to poor infrastructure, but non-tariff
barriers also play a large role in making trade between African states more
expensive, and therefore, less likely. While implementation of the AfCFTA will
reduce 90% of tariffs between African states and make trade far cheaper, failing
to address these issues adequately will continue to make trade unnecessarily costly.
There are hopeful developments, though. The Africa Trade Exchange (ATEX), a business-to-business
(B2B) e-commerce platform, was launched during the official opening of the 54th Conference
of African Ministers of Finance, Planning, and Economic Development in Dakar, Senegal, last month.
The platform was developed by the Economic Commission for Africa (ECA)
and the African Export-Import Bank (Afreximbank), in collaboration with the
African Union and the AfCFTA Secretariat to serve as a B2B and
business-to-government (B2G) digital marketplace. According to ECA, ATEX is
expected to enable pooled procurement of basic commodities to ensure countries
have access to scarce supplies in a transparent manner.
Comments
Post a Comment