Africa’s dream of a creating a borderless $3.4 trillion market
is set to face the litmus test in July next year when the African
Continental Free Trade Area (AfCFTA) agreement comes into force.
Launched
in Kigali, Rwanda, in May this year, the signing of the AfCFTA
agreement by all but one of Africa’s 55 countries was a major highlight
for the continent in 2019.
Once fully operational,
AfCTA will become the largest free trade area since the creation of the
World Trade Organisation, offering the continent’s 1.2 billion people an
opportunity to sell and buy goods with minimal tariff and non-tariff
barriers.
So far, some 28 countries have ratified AfCFTA, making it a legally valid and binding document.
“We
are very proud of how quickly countries have ratified the AfCFTA. This
is a source of pride for all of us,” said the African Union Commission
chairperson Moussa Faki Mahamat.
“For this agreement to
be effective, there is a need to open borders to other Africans. This
can only be possible by having a peaceful and secure continent. It would
be an illusion to talk of trade and development, without peace and
security.”
The member countries will in the next seven months be expected
to open their borders for trade in ways never seen before, allowing free
movement of people and goods and putting to test the continent’s air,
railway and road infrastructure.
Africa’s population is expected to hit 2.5 billion by 2050, offering a huge, ready market for its goods and services.
“This
continental free trade area regime now embodies our advancement toward
the ideal of African unity,” said Rwanda’s President Paul Kagame at
AfCFTA’s launch.
The trade pact is expected to increase
the continent’s trade with itself by more than 50 per cent, as it cuts
down on import costs while pushing up consumer spending and investment
opportunities.
Supporting instrument
Already
the continent has finalised the drafting of some supporting instruments
intended to facilitate operationalisation of the trade agreement. These
include the rules of origin, schedules of tariff concessions, online
monitoring of non-tariff barriers and elimination mechanism, a digital
payments and settlement platform, and, building of the African Trade
Observatory Portal.
Implementation of AfCFTA is
expected to attract more Foreign Direct Investment inflows from
investors seeking a large, harmonised market for their goods and
services.
“Once operational, we are going to see a
boost of Africa’s long-stymied economy by strengthening inter-regional
trade and supply chains,” said the AU trade and industry commissioner
Albert Muchanga.
Tariff barriers
Already, the majority of African countries have agreed to eliminate tariffs on most goods, which would boost regional trade by up to 30 per cent in the shorter term.
Already, the majority of African countries have agreed to eliminate tariffs on most goods, which would boost regional trade by up to 30 per cent in the shorter term.
So far, countries have adopted the
template on tariff liberalisation, which will be used by member states
in preparing the AfCFTA Schedules of Tariff Concessions, Agreement on
the designation of Sensitive Products and Exclusion List on the basis of
food security, national security, fiscal revenue, livelihood and
industrialisation.
The percentage for Sensitive
Products will not exceed seven per cent of total tariff lines, while the
Exclusion List will not exceed three per cent of total tariff lines.
The
countries have concluded talks on the agreement on a transitional
period of five years or less, that may apply for members who require
protection of their economies before the start of liberalisation of the
Sensitive Products. This means that during this period, tariffs
applicable to sensitive products may be maintained as long as they are
eliminated by the end of the phase-down period provided for under the
adopted modalities.
While the rest of the world has
often felt captive to trade tensions between the world’s two-largest
economies, the US and China, 2020 is billed as the magic year for the
continent, as it seeks to deepen trade with itself and promote open
borders.
AfCFTA has the potential to foster the development of robust regional value chains, triggering exponential economic growth.
The United Nations Conference on Trade and Development (Unctad’s) 2019 Economic Development in Africa Report notes that the establishment of AfCFTA could lead to a re-orientation of trade towards the regional market.
Non-tariff barriers
AfCFTA,
however, needs to effectively address not just tariff-related issues,
but also non-tariff barriers, such as trade facilitation, sanitary and
phytosanitary measures, and rules of origin.
“Overall,
the relative sophistication of intra-African trade suggests that the
regional market may offer a greater—and so far, largely untapped—scope
for supporting economic diversification, provided that the AfCFTA is
approached and implemented as an opportunity to enhance the consistency
of Africa’s trade policy framework and the continent’s structural
transformation agenda,” said the Unctad secretary general Dr Mukhisa
Kituyi.
Last year the continent saw benefits of AfCFTA come through, even before it entered its operational phase.
The
hosting of the Intra-African Trade Fair in Cairo, Egypt, in December
2018, recorded business-to-business transactions worth $30 billion, well
above the targeted $25 billion. Rwanda will host the next edition of
the trade fair next year, which is expected to attract even more deals
between partner states.
AfCTA’s implementation is being
complemented with the Single African Air Transport Market (SAATM), the
protocol to the treaty establishing the African economic community
relating to free movement of persons, right of residence and right of
establishment, which was intend to make the continent borderless.
As
at November this year, 32 African countries had made solemn commitment
to implement SAATM, out of which 18 had signed the implementation
agreement.
Implementation of the African open skies
agreement for the continent has been slow, casting doubts over the July
2020 AfCFTA operationalisation date.
“African countries
are making significant progress in the implementation of the African
open skies. We are encouraged by the steps they are taking and this will
now connect the continent by air better, and boost intra-Africa trade,”
said Angeline Simana, the director Air Transport at African Civil
Aviation Commission), the executive agency of SAATM.
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