AFCTA Presentation

What is it?

The AfCFTA was conceived in January 2012 after the 18th Ordinary Session of the Assembly
of Heads of State and Government of the African Union, held in Ethiopia. It was agreed that
a Continental free Trade Area will be established with the following objectives;

To create a single continental market for goods and services, with free movement of
business persons and investments, and thus pave the way for accelerating the
establishment of the Continental Customs Union and the African customs union.
To expand intra African trade through better harmonization and coordination of trade
liberalization and facilitation regimes and instruments across Regional Economic
Communities (RECs) and across Africa in general.
To resolve the challenges of multiple and overlapping memberships and expedite the
regional and continental integration processes.
To enhance competitiveness at the industry and enterprise level through exploiting
opportunities for scale production, continental market access and better reallocation of
resources.

The agreement was then agreed to and signed by 44 countries at the 10th Extraordinary
Session of the African Union on AfCFTA in Rwanda. An additional 10 countries have also now
signed on to the agreement with ratification occurring at a speedy pace and the agreement
came into force (technically) on 30 May 2019.

Benefits?

the AfCFTA will create the largest trading block in the world. The thing is, with all 55 African
countries signing on, this agreement will be the world’s largest by number of countries,
covering more than 1.2 billion people and a combined GDP of $2.5 trillion, according to the
UN Economic Commission for Africa (ECA). Furthermore, the agreement mandates that
countries joining AfCFTA must commit to removing tariffs on at least 90% of the goods they
produce. The benefits of these are obviously enormous. Economists believe that tariff-free
access to a huge and unified market like the one envisioned in this agreement, will
encourage manufacturers and service providers to increase production; an increase in
demand will instigate an increase in production, which in turn will lower unit costs. This will
lead to consumers paying less for goods and services thereby helping to improve the
economies of several African countries.

One of the major benefits of the agreement is that it will open up new markets for a lot of
African owned companies. The agreement will allow African owned companies to expand
their customer base and lead to new products and services. What this does is that it not
only helps companies grow, it will also make investing in innovation viable.

In furtherance of this, another major benefit of the agreement is that it will help grow the
manufacturing sector and increase the percentage of GDP manufacturing contributes.
Presently, manufacturing represents only about 10% of total GDP in Africa, on average and
this is well below levels seen in many other developing regions. A bigger and more robust
manufacturing sector will lead SMEs to create more well-paid jobs, especially for young
people.

Significantly, the AfCFTA will lead to a reduction in input costs when it comes to
manufacturing. This is so because the agreement will ease the process of importing raw
materials from other African countries. It will also enable SMEs to set up assembly firms in
other African countries, to access cheaper means of production.

Challenges

Transportation…… Arguably the single biggest infrastructural challenge that has held back
the African continent for decades. The issue of transportation and logistical challenges on
the African continent is one so fundamentally rooted in the pace of development across the
continent that one can easily see the link between the more developed African nations,
their transportation networks and economic growth, compared to their African
counterparts. The issues relating to the easy transportation of especially perishable goods
across the African continent will be a major challenge countries need to solve or at the very
least have a plan for, for the AfCFTA to truly work. Abolishing tariffs and removing trade
barriers are all well and good and will make an impact. However, if the costs of transporting
goods from Ghana to Ethiopia far outweigh any potential benefits of a tariff free trade, then
is it worth it? If moving goods from the port city of Mombasa and delivering them in
Bamako, Mali will be nearly impossible, then some will say, what is the point? Road
networks both within countries and across the border of especially landlocked countries
must be improved. Rail networks must be built and existing ones improved and upgraded.
Air transport also must be better as all these will ease the movement of goods across the
continent.

Another major challenge and problem that will be encountered will be the potential
increase in competitive pressure and the choking of local SMEs. Many emerging African
markets rely on farming for employment. These small family farms will not be able to
compete with large agri-businesses in high-income African countries like South Africa,
Kenya, Ethiopia, Egypt and Nigeria. This will lead loss of farms, income, and a potential to
increase unemployment. The fact that consumers will always prefer cheaper products may
also lead to local producers losing huge sales to foreign suppliers, because they can lower
the cost of their products by leveraging on the reduced tariffs imposed on imported goods.
The dumping of cheap products by countries with already established manufacturing
industries on smaller nation is a real possibility and is dangerous. It will stall growth and is
one of the reasons countries like Nigeria and South Africa were hesitant to sign the
agreement.

Significantly, the threat the agreement poses to the protection of intellectual property in
Africa is not talked about much. The agreement could potential leave African companies
more open to intellectual property theft. The fact is that many African countries don’t have
enough laws in place that protect patents, inventions and new processes. The laws they do
have aren’t always strictly enforced. As a result, companies’ ideas often get stolen. With the
AfCFTA, this could get worse as new ideas and innovations might lose protection moving
across borders so easily.

Conclusion

Having laid out some of the potential benefits and challenges of the AfCTA, I will conclude
with this. I believe it is a better option than the current reliance on foreign aid and cheap
foreign products. Quite a few western countries and trading blocs have indicated interest in
signing a trade deal with Africa over the years and this shows the potential of African trade.
The fact that intra African trade is also low has created this unique opportunity for African
countries to truly strive for independence long after the colonisers have gone. Some have
argued that the trade deals and agreements African countries sign with western countries
and blocks give room to new kinds of colonialism. Well, this is an agreement made by
Africans for Africans. I believe it can work. However, the challenges have to be met and
faced head on.

Extra but better

When the plan for the African trade area agreement started, it seemed like another
ambitious project typical of African leaders that had no clear-cut implementation strategy.
However, what has preceded the trade agreement’s announcement has been nothing short
of spectacular. Since the trade area’s creation, African leaders have united to achieve a
common goal, regardless of affiliation and individual or political interest.

The commencement of trading under the AfCFTA agreement on January 1st, 2021,
represented a significant landmark in the agreement’s short but impactful history. It
signified the beginning of realizing a better future for Africa and the African Union’s Agenda
2063.

However, just like other developmental policies, the AfCFTA has experienced its fair share of
challenges.

Challenges

Although 54 out of 55 African Union nations have signed the pact, and 36 states have
deposited their instrument of ratification, only Ghana, South Africa, and Egypt have met the
custom requirements on infrastructure for trading. This means throughout the entire
continent, just three states can trade effectively under the liberalised AfCFTA terms. Clearly,
there is a long way to go. International policies, government bureaucracies, and economic
woes resulting from the Covid-19 pandemic have further affected the full implementation of
the agreement across the continent.

The closure of borders is another challenge undermining a successful AfCFTA. In August

2019, the Nigerian government ordered a partial border closure and subsequently, in
October 2019, a full closure of all land borders with its neighbouring countries (Benin,
Cameroon, Chad, and Niger). Although Nigeria ratified the AfCFTA last minute in December
2020, the notion that these are the policies of a nation ready to embrace free trade is
laughable. In reality, the AfCFTA will only be realized if all African countries look beyond
their immediate priorities and focus on the possibilities of an integrated market that the
agreement offers.

Lack of infrastructural capacity to combat smuggling and other illicit practices across borders
is another challenge that has proven to undermine the agreement. Many African countries
lack the institutional ability to monitor and control activities around their land borders,
which are essential to the verification and monitoring rules of the AfCFTA, and various
regional economic communities. As more countries trade with each other through the
AfCFTA, there are high tendencies that this problem will become even more widespread if
not addressed soon.

There is also an urgent need to adopt a cohesive policy that is mutually beneficial to all
member states. Nigeria and South Africa represent the two largest economies in Africa. The
cooperation between these two countries can affect the success of the agreement. Many
small economies may suffer from structural and regulatory changes resulting from the
agreement. The AfCFTA needs to resolve these issues, and if they do, the benefits will be
enormous. After all, in assessing the economic impact of the AfCFTA, the World Bank has
noted that under the agreement, “countries with the highest initial poverty rates, would see
the biggest declines in poverty rates.”

Opportunities

With 54 countries involved in the AfCFTA, representing over 1.3 billion people and a
combined GDP of over $3 trillion a year, the AfCFTA is the world’s largest free trade area.
The opportunities are many and will herald a new dawn of economic prosperity,
industrialization, and sustainable development across a continent that has been associated
with poverty for too long.

The United Nations Economic Commission for Africa states that within five years,
implementation of the agreement could increase intra-African trade by 52%, compared to
2010 levels. The UN predicts this figure could then double again once the final 10 percent of
tariffs on “sensitive goods” are phased out. This is great news because, as it stands, intra-
African trade accounts for just 13 percent of exports, compared to 59 percent in Europe or
69 percent in Asia.

The principal beneficiaries of this agreement are the small-medium-scale enterprises (SMEs)
which currently account for 80 percent of Africa’s economy. Besides these entrepreneurs,
women and youths will also benefit because of more job opportunities, and the AfCFTA’s
impact on the industrialization of the continent’s economy.

What does the future hold?

Although solutions to the many problems facing the AfCFTA may take a long time to find,
free trade across Africa will help combat the extreme poverty that has forever plagued the
continent and help set its citizens on a path to economic prosperity. However, this brighter
future will not happen unless every relevant stakeholder places the continent’s agenda over
individual interest and the self-aggrandizement of the elites.