Business

OPTIMISM AND CAUTION AS AfCFTA BERTHS IN JANUARY

By: ‘Seye ‘Bode.

Finally, the African Continental Free Trade Area berths in January 2021 after series of negotiation, bottle necks and legitimate concerns. The idea of a continental free trade area was first muted at the 2012 African Union summit in Addis Ababa, Ethiopia. Leaders agreed to create a new Continental Free Trade Area by 2017. At the 2015 AU summit in Johannesburg, the summit agreed to commence negotiations. This began a series of ten negotiating sessions which took place over the next three years. Nigeria and South Africa refused to ratify the agreement for obvious reasons and doubt enveloped the continent if the project won’t be stalled with the refusal of the two countries to ratify it.

Nigeria was one of the last nations to sign the agreement. At 200 million people, Nigeria is Africa’s most populous country and has about the  population of the second and third most populous countries, Ethiopia and Egypt, combined, each of which have a population around 98 million. With a nominal GDP of US$376 billion, or around 17% of Africa’s GDP, it is just ahead of South Africa, which accounts for 16% of Africa’s economy. Because Nigeria is such a significant country in terms of its population and its economy, its absence at the initial signing of the agreement was particularly conspicuous. South African President Cyril Ramaphosa underscored that in comments on 12 July 2018 and commented, “The continent is waiting for Nigeria and South Africa…”

 At the time, Nigerian President Muhammadu Buhari said that Nigeria could not do anything that would undermine local manufacturers and entrepreneurs. The Manufacturers Association of Nigeria, which represents 3,000 Nigerian manufacturers, praised the decision to back out of the agreement. Former president Olusegun Obasanjo said Nigeria’s delay was regrettable. The Nigeria Labour Congress called the agreement a “renewed, extremely dangerous and radioactive neo-liberal policy initiative”, suggesting increased economic pressure would pressure workers into migration under difficult and unsafe conditions.

Nigerian government emphasized its non-participation was a delay, not a withdrawal, and promised to soon sign the agreement. The foreign affairs minister , Geoffrey Onyeama, emphasized, that the Nigerian government intended to consult further with local businesses in order to ensure private sector buy-in to the agreement.

As the Nigerian government continued to consult with local business groups in the latter half of 2018, a key concern was whether the agreement adequately prevented anti-competitive practices such as dumping

Nigeria’s president announced on 2 July 2019 that Nigeria would sign the AfCFTA in Niger the following week. Nigeria finally signed the AfCFTA on 7 July 2019.

The African Continental Free Trade Area (AfCFTA) agreement will create the largest free trade area in the world measured by the number of countries participating.

The African Continental Free Trade Agreement will

  • Lift 30 million Africans out of extreme poverty and boost the incomes of nearly 68 million others who live on less than $5.50 a day;
  • Boost Africa’s income by $450 billion by 2035 (a gain of 7 percent) while adding $76 billion to the income of the rest of the world. 
  • Increase Africa’s exports by $560 billion, mostly in manufacturing.
  • Spur larger wage gains for women (10.5 percent) than for men (9.9 percent).
  • Boost wages for both skilled and unskilled workers—10.3 percent for unskilled workers, and 9.8 percent for skilled workers.
  • West Africa would see the biggest decline in the number of people living in extreme poverty—a decline of 12 million (more than a third of the total for all of Africa). 
  • Central Africa would see a decline of 9.3 million. 
  • Eastern Africa would see a decline of 4.8 million. 
  • Southern Africa would see a decline of 3.9 million. 
  • Countries with the highest initial poverty rates, would see the biggest declines in poverty rates. 
  • In Guinea-Bissau, the rate would decline from 37.9 percent to 27.7 percent 
  • In Mali, the rate would decline from 14.4 percent to 6.8 percent. 
  • In Togo, it would decline from 24.1 percent to 16.9 percent.

Tariff liberalization is important, but by itself it would boost the continent’s income by just 0.2 percent.

Adding trade facilitation to the mix—including measures to reduce red tape, simplify customs procedures, and make it easier for African businesses to integrate into global supply chains—would boost the income gains by $292 billion. 

These gains will require major efforts by countries to reduce the burden on businesses and traders to cross borders, quickly, safely, and with minimal interference by officials. 

COVID-19 has caused major disruptions to trade across the continent, including in critical goods such as medical supplies and food. 

Intra-Africa trade has been historically low. Intra-African exports were 16.6% of total exports in 2017, compared with 68% in Europe and 59% in Asia, pointing to untapped potentials.

At the World Economy Forum on Africa in 2019, experts speaking at the session noted that  It will be a challenge to make way for easy and quick facilitation of people and goods in Africa because there is so much fragmentation, with economies at widely varying stages of development. While the reality is there will most likely be winners and losers, the role of the African Union will be to ensure shared prosperity on the continent, creating supportive policies, eliminating monopolies, and stamping out uncompetitive behaviour.. The speakers laid out several challenges and solutions.

  • Infrastructure logjams and bureaucracy

While infrastructure has improved, there is still a long way to go to make trade easier between countries. You can’t build a value chain across the continent when there are countless customs stamps, customs signatures and certificates to simply move a container from one country to another. Logjams and bureaucracy must be reduced.

  • Harmonizing regulations

“We need one-stop border posts and common rules and harmonious regulations to ensure that the flow of goods happens far more quickly and easily. Standardization of regulations is going to be extremely important,” said Patrick Khulekani Dlamini, Chief Executive Officer and Managing Director of the Development Bank of Southern Africa.

  • Avoiding protectionism

As global trade rules are being eroded in other regions, with China and the United States spiralling into a trade war and protectionism tightening its grip in many countries, Africa has the opportunity to create a trade buffer for itself. With all countries united in one giant bargaining unit, it will hold far more sway than before.

“Africa could stride onto the trade negotiation stage as one enormous market. This could lead to a new engine of growth across the continent,” said Ngaire Woods, Dean Blavatnik School of Government at the University of Oxford.

The continent will also be able to learn from the mistakes of other regions and start integration afresh, the speakers noted. Monitoring on a month-to-month basis will be important to see how barriers are being dismantled and where gaps remain.

As a whole, Africa needs to take several steps to boost trade, such as fostering skills for entrepreneurship and providing more access to credit and capital. Business and political leaders will need to think creatively about continental joint ventures to build strong production and manufacturing networks across the continent. But with collaboration, starting 1 July 2020, this giant African market has great potential to be a new engine of growth across the continent.

The African Union (AU), the European Union (EU) Commission and the International Trade Centre (ITC) at an AU summit on 5 December 2020 released the African Trade Observatory,     a new trade intelligence tool that enables firms to easily explore and compare trade opportunities across Africa to  mitigate most of the challenges ahead of the start of trading under the new African Continental Free Trade Area. ‘Trade information is vital to the promotion of trade in Africa,’ AU Commissioner for Trade and Industry, H.E. Amb. Albert Muchanga said.

With the AfCFTA set to begin on 1 January 2021, ‘Economic Integration is close to the heart of the European Union and will continue to support the African Union towards its endeavour of the African Common Market,’ European Union Commissioner for International Partnerships H.E. Jutta Uripilainen said.

The African Trade Observatory is especially valuable for empowering the economic operators during this COVID-19 pandemic, ITC Executive Director Pamela Coke-Hamilton said. ‘we are putting an entire continent of trade intelligence at the fingertips of African entrepreneurs, especially to support small local firms, women and young people in making the most of new opportunities’.

The Commonwealth has also expressed its readiness to support member states on the free trade area. Patricia Scotland, Secretary General of the Commonwealth, explained that the Commonwealth Secretariat had been working with the 19 African member states to strengthen their institutional capacity and develop trade policies over the years and exploit the huge opportunities provided by AfCFTA.

“We are really going to intensify these supports, considering that the inter-Commonwealth trade had grown to 700 billion dollars in 2019, a target we achieved a year earlier. “We are going to continue with the cooperation to support the full implementation of a single market of goods and services in Africa. This will economically position the continent to overcome the impact of COVID-19.” -commerce. She disclosed that the Commonwealth had placed three long-term advisors at the African Union to support the development of the continental trade agenda and the negotiation of the trade agreement itself. “Our advisors have helped to finalise the African Union’s Commodity Strategy, Green Economy Strategy and African Union Digital Trade and Digital Economy Strategy. She however, added that all Commonwealth countries were facing challenges of unemployment among young people.

On the challenge of possible dumping, she said that the commonwealth would support the development of robust measures that would be fair and transparent to facilitate trade and not impede it. Holding an Africa webinar simulation performance management in January, and in February, we will be bringing together new manuscripts from small businesses particularly across the Commonwealth. A project has been named the COVID-19 Business Law Research Initiative and the experts will carry out in-depth research and produce a framework; the draft legislative provisions which can be utilised by member countries,” she said.  As the AfCFTA begins in January 2021, it is hoped that the different sub-regional, regional, bilateral and international trade agreements that many African countries are into won’t affect the commitment to the African Continental Free Trade Agreement. The Francafrique and AGOA come to mind easily.

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