The African Continental Free Trade Area Is Coming into Force. Is It Really?

May 31, 2019 5:00 PM
Photo Credit: 
REUTERS/Siphiwe Sibeko

At a time when major countries are erecting barriers and disentangling from the global economy, a very different message is coming from Africa, where countries are putting in place the largest free trade area in the world in terms of membership. With ratification by 24 of the 52 signatory countries already completed, the Agreement Establishing the African Continental Free Trade Area (AfCFTA) will be officially launched on July 7 during the Extraordinary Summit of Heads of State and Government to be held in Niamey, Niger. The AfCFTA is complemented by the Protocol on Free Movement of Persons and the Single African Air Transport Market.

This is a remarkable achievement (Gonzalez 2018). The AfCFTA will help Africa to progressively reduce tariff and nontariff barriers, facilitate the movement of goods and services, and provide certainty to businesses, allowing investors, both domestic and foreign, to leverage one of the fastest growing consumer markets in the world and to integrate into regional and global value chains. Benefits will also accrue to consumers via greater product variety and lower prices and to domestic producers who may have access to competitive inputs and services. According to the 2019 African Economic Outlook, in a scenario where elimination of tariffs and nontariff barriers is accompanied by full implementation of trade facilitation measures, the AfCFTA would yield total income gains to the group of about $100 billion and boost intra-African trade by 132.7 percent.

In a more integrated African market, textiles and apparel, leather, wood and paper, vehicles, and transportation equipment are some of the industrial goods expected to benefit the most, as are vegetables, fruits, nuts, beverages, and meat products. Intraregional tourism and modern professional services will also receive a boost, and improved backbone services would support the development of regional value chains.

So, will eager traders be able to reap the benefits from the AfCFTA immediately starting July 7? Not just yet. The AfCFTA will enter into force for the 24 countries that have ratified the agreement; for the remaining 28 signatories, it will not apply until they ratify, hopefully in the course of the next few months. Nigeria—Africa’s biggest economy—is yet to sign the AfCFTA.

In addition, three important negotiations need to take place before the agreement becomes operational.

First, governments must submit their schedules of tariff concessions to indicate the reduced tariffs to be applied to goods entering the market. Countries and regional economic communities are working on the schedules and are yet to submit them. The preparation of these schedules is a complex task not to be underestimated. Moreover, once the schedules are submitted, normally negotiations must take place to open up new export opportunities. These negotiations are particularly important in the AfCFTA, given that countries may exclude up to 3 percent of their products from tariff reductions (see table 1), which could significantly limit effective trade liberalization (Berahab and Dadush 2018 and UNCTAD 2018). At this point, negotiated market offers are to be submitted for adoption by January 2020, but this may change.

Table 1 Modalities for negotiation of tariff reductions in the African Continental Free Trade Area

Country classification

Tariff reductions

For non-sensitive products (no less than 90% of all products)

For sensitive products (up to 7% of all products)

For excluded products (up to 3% of all products)

Non-least developed countries

Fully liberalized over 5 years (linear cut)

Fully liberalized over 10 years (linear cut)

No cut

Least developed countries

Fully liberalized over 10 years (linear cut)

Fully liberalized over 13 years (linear cut)

No cut

Group of Seven ( Djibouti, Ethiopia, Madagascar, Malawi, Sudan, Zambia, Zimbabwe)

85% fully liberalized over 10 years (linear cut); additional 5% liberalized over 15 years (linear cut)

Fully liberalized over 13 years (linear cut)

No cut

Source: Based on Economic Commission for Africa.

Second, for goods to be eligible for preferential tariff treatment under the AfCFTA, they must meet certain criteria to show that they indeed originate in the AfCFTA countries. These product-specific requirements, known as rules of origin, are currently under negotiation, but again, it is a complicated and time-consuming task. Moreover, consultation with the private sector is fundamental to making sure the rules of origin adequately reflect the productive structure in the region and, more importantly, that they can actually enable trade, not hinder it (Viljoen 2019). The treatment of products manufactured in special economic zones is a critical issue, still outstanding.

And third, in the case of trade in services, governments have agreed to focus initially on five critical sectors: transportation, communication, finance, business services, and tourism. To start with, they must submit their schedules of specific commitments to specify the treatment of services and service providers in the AfCFTA countries. For example, will the number of service providers be limited? Will there be any restrictions on foreign direct investment? Will foreign and national services and service providers enjoy the same treatment? These are key questions. As in the case of goods, normally, after countries submit their schedules, they would have to negotiate market liberalization. Negotiated offers are expected to be submitted for adoption by January 2020.

The African ministers of trade are scheduled to meet in early June, in Kampala, Uganda, to review work on these issues. To sustain critical political support for the process, ministers could well commit to enhancing efforts to consult with the private sector as well as to an outcome that will actually deliver on expected results, which at this stage basically implies resisting protectionist pressures to exclude products of great trade potential, adopt stringent rules of origin, or restrict trade in selected services sectors. In parallel, efforts should concentrate on strengthening the institutional setting of the AfCFTA—in particular establishing the AfCFTA Secretariat, preparing a detailed implementation roadmap, and strengthening governments’ capacities to promote exports and investment and, more broadly, improve the business climate. The African Development Bank, the African Union, and the United Nations Economic Commission for Africa all are playing a key role in supporting the effective entry into force of the AfCFTA.

African countries have long been mostly excluded from the benefits of international trade. They are now determined to change that. During the signing ceremony of the AfCFTA, Rwanda’s President Paul Kagame said: “The promise of free trade and free movement is prosperity for all Africans.” The rest of the world should take note.

Notes

1. As of May 30, 2019, the 24 countries that have deposited their instruments of AfCFTA ratification are: Ghana, Kenya, Rwanda, Niger, Chad, Republic of the Congo, Djibouti, Guinea, eSwatini (former Swaziland), Mali, Mauritania, Namibia, South Africa, Uganda, Cote d’Ivoire, Senegal, Togo, Egypt, Ethiopia, The Gambia, Sierra Leone, Sahrawi Republic, Burkina Faso, and Zimbabwe.

2. The agreement entered into force on May 30, 2019, 30 days after the threshold of 22 ratifying states was reached on April 29, as specified in the text of the AfCFTA.