Alert 84 – African Continental Free Trade Area – Opportunities and obstacles

On 21 March 2018, 44 African states signed the African Continental Free Trade Area (AfCFTA) during the final day of the African Union’s (AU’s) 10^th Ordinary Session of the Heads of State summit, held in Kigali, Rwanda. Further, 43 states signed the Kigali declaration (which expresses African unity in moving forward), and 27 signed the Protocol on Free Movement of Persons, Right to Residence and Right to Establishment. South Africa signed the Kigali Declaration and abstained from signing the AfCFTA (as did Nigeria, Burundi, Lesotho, Namibia, Eritrea, Benin, Sierra Leone and Guinea Bissau). The AU Commissioner for Trade and Industry, Albert Muchanga, was optimistic that the countries that had not yet signed would do so in July 2018 in Mauritania, when the next continental meeting convenes. South Africa’s President Cyril Ramaphosa has said that South Africa wanted to be part of this trade bloc, and that all that was holding it back was “our own consultation processes”. Nigeria attributed its abstention to concerns raised by its labour unions, as Nigeria’s President Muhammadu Buhari was warned against signing by the Nigeria Labour Congress (NLC). Nigeria now plans to broaden domestic consultations on the AfCFTA.

The AfCFTA is part of the AU’s Agenda 2063 and is aligned with other AU programmes such as the Programme for the Infrastructural Development of Africa (PIDA), the Action Plan for the Accelerated Industrial Development Africa (AIDA), Action Plan for Boosting Intra-African Trade (BIAT), and the Comprehensive Africa Agriculture Development Programme (CAADP). The AfCFTA commits signatory states to removing tariffs on 90 percent of their goods and aims to liberalise services and remove non-tariff barriers that have hindered much of Africa’s intra-continental trade. The rationale is that in creating a single market across the continent, the AU hopes to boost intra-African trade, often cited as key to alleviating poverty. Vera Songwe, the United Nations (UN) Under-Secretary-General and Executive Secretary of the UN Economic Commission for Africa (UNECA), believes that it can boost intra-African trade by 52% and benefit “African welfare to the tune of US$22 billion.”

There is less intra-Africa trade than trade between African states and the rest of the world with the Trade Law Centre (Tralac) noting that “intra-Africa trade stands at about 16%, compared with 19% intra-regional trade in Latin America, 51% in Asia, 54% in North America and 70% in Europe.” Had all 55 African countries signed, then the AfCFTA would have represented 1.2 billion people (expected to reach 2.5 billion by 2050) with a combined GDP of US$2.19 trillion.

Other expected benefits include increases in industrial exports, youth employment, and business opportunities for small and medium-sized enterprises (SMEs); as well as improvements to the challenges faced by informal cross-border traders.

AfCFTA heralds a new chapter for trade within Africa, but there are potential obstacles amid highly uneven development across and within African countries. Moody’s reports that under-developed infrastructure, non-tariff barriers, and finance constraints will limit benefits, while optimising them will require at least more infrastructure development projects; harmonised border and port handling procedures; and the eradication of petty corruption at border crossings.

Countries with relatively sound infrastructure and significant manufacturing bases (i.e. Egypyt, Kenya, South Africa) are expected to reap the immediate rewards of deeper trade integration. At the same time the AU Foundation has given the assurance that member states with “special trade needs, specificities and circumstances” will be treated with flexibility, with differential treatment for member states at various levels of socio-economic development.

Key to the AfCFTA’s implementation are the regional economic communities (RECs) across the continent which UNECA says will remain “important implementing partners and be represented in an AfCFTA Committee of Senior Trade Officials”. The role of the RECs will include coordinating implementation and measures for resolving non-tariff barriers, harmonising standards and monitoring implementation.