On March 21, leaders of 44 African countries gathered in Rwanda to sign the historic African Continental Free Trade Area (AfCFTA) agreement. Championed by the African Union, AfCFTA is a move towards integration.
It has the goal of creating a single market for the African continent for goods and services. Under the agreement, member countries commit to remove tariffs on 90% of goods.1
The agreement also commits signatories to remove restrictions to the movement of persons and capital across the continent. In the future, a single currency regime could also become part of the agreement.
If fully accepted by all African states, AfCFTA will create one of the world’s largest trade areas. With a combined population of 1.2 billion and a combined GDP of over $2 trillion, the African Continental Free Trade Area will be the biggest trade agreement since the establishment of the World Trade Organisation (WTO).2
Development of the AfCFTA Agreement
The AfCFTA is the brain child of the African Union (AU). The AU first agreed to develop a free trade agreement way back in January 2012. However, negotiations started only 3 years later in 2015.
Eight rounds of trade discussions held between 2015 and December 2017. The last trade negotiation in December 2017 produced the final agreements of the AfCFTA.
Converging in the capital city of Rwanda, Kigali, 44 countries signed the trade agreement, with quite a few abstaining. Once fully adopted by all AU member-states, AfCFTA will be the largest trade agreement in terms of population served.
However, AfCFTA is not yet a done deal. AfCFTA negotiations were still in phase one by the time it was signed by the 44 nations. Phase 1 negotiations focused on trade rules and conflict resolution mechanisms.
In phase two, negotiations focus on issues such as competition, intellectual property rights and investments policies.3 These are the real bone of contention and would require plenty of compromises by each nation to make it work. Phase two negotiations are expected to kick start later this year and will be completed over the next 15 months.
Why a Free Trade Agreement in Africa?
The creation of a single market for Africa is expected to boost economic activities among African states. “The potential for the CFTA is big for both structural transformation and poverty alleviation in Africa”, says Landry Signé at Brookings Institution.4
Trade is the first benefactor of the agreement. Now, intra-African trade is presently very low. According to the UNCTAD, intra-African trading accounted for only 10.2% of the continent’s trade by 2010. But under the AfCFTA agreement, trade is expected to rise by 52.3% according to the United Nations.5 And the continent’s trade deficit with the world is expected to cut by half.
Removal of tariffs will also boost Africa’s commerce and create truly continental companies. The UNCTAD estimates that if all tariffs are removed, it would lead to gains of about $16.1bn for African countries.6
The free trade agreement is also expected to bolster the continent’s weak manufacturing base. Presently, manufacturing accounts for a meagre 10% of Africa’s total GDP. By opening market access to Africa’s 1.2 billion people, the AfCFTA could prove pivotal to growing the continents manufacturing sector.
Overall, the AU is optimistic that with AfCFTA agreement, the continent will be in a much better position to tackle poverty and improve the living standards its over one billion people.
Challenges Ahead for AfCFTA
Now, despite all the positives about the AfCFTA agreement, a few issues still threaten its success.
For one thing, not all African countries have signed the AfCFTA agreement, which is huge shocker. Only 44 of the 55 AU member countries signed the agreement back in March 2018. Although that number has risen to 49, only 6 countries have ratified the agreement.7
Meanwhile, AfCFTA requires ratification from a minimum of 22 countries for the free trade area to become active. The slow pace of ratification could be detrimental to the development of the trade agreement.
Second, Nigeria, the continent’s largest economy, is yet to sign the agreement. In March during the ceremony, Nigeria and South Africa abstained from the free trade agreement. But South Africa only recently signed the agreement during the AU meeting in Mauritania.
Nigeria on the other hand still has reservations. The country’s president, Mr Muhammadu Buhari cancelled his trip to the March summit at the last minute. An official statement said the decision to not sign the agreement was made “to allow more time for input from Nigerian stakeholders.” And further revealed that he would “not agree to anything that will undermine local manufacturers and entrepreneurs, or that may lead to Nigeria becoming a dumping ground for finished goods.”8
No doubt, domestic factors are at play here, but the absence of the continent’s biggest economy sends a negative tone about AfCFTA.
Third, Africa’s numerous economic blocs represent another major obstacle. For instance, the SADC bloc is so closely knit as a trade and customs union. Meanwhile, the ECOWAS bloc is knit more as a security pact than an economic bloc. Yet, replacing the commitments and roles played by these regional economic communities will be important to the survival of AfCFTA.
And fourth, the uneven sizes of African economies could play a large role in undercutting the cooperation that AfCFTA needs. Some believe that Africa’s most advanced economies have the advantage due to their robust manufacturing bases. This fear could trickle smaller nations to protect some industries, or exit the agreement all together.
Conclusion
Despite these fears though, the AfCFTA deal represents Africa’s best chance so far as a more organised economic grouping. Although the trend globally in recent times has been protectionism by global economies like China and the US, Africa’s individual countries won’t find it easy in such a world. A more closely knit economic ecosystem will serve the continent best in the long run. AfCFTA represents the best solution for Africa’s economic development.