OPINION - AfCFTA: Towards Unity and Harmonization, Eventually…

Articles - General

Forty four out of fifty five African countries signed the consolidated text of the African Continental Free Trade Area (AfCFTA) Agreement during the 18th Extraordinary Session of the Assembly of African Union (AU) Heads of State on March 21, 2018, in Kigali, Rwanda.

Two more trade instruments were presented for signature during the Extraordinary Summit that relate to AfCFTA’s eventual implementation– the Kigali Declaration (signed by 47 member states) and the Protocol on Free Movement of Persons, Right to Residence and Right to Establishment (signed by 30 member states).  Five more countries signed the AfCFTA Agreement a few months later during the 31st Ordinary Session of the AU Assembly held in Mauritania in July 2018.

To date, 9 countries have deposited their ratification with the Chairperson of the African Union Commission (Ghana, Kenya, Rwanda, Niger, Chad, Guinea, eSwatini, Uganda, and Ivory Coast) and 8 countries (South Africa, Sierra Leone, Mali, Namibia, Senegal, Congo, Togo, and Mauritania) have received parliamentary approval for ratification. Just this week, Djibouti’s confirmation was also announced, bringing the total number of ratifications (deposited and pending) to 18.

This is 4 countries shy of the required 22 ratifications for the Agreement to enter into force. The hope by champions of the Agreement, including the United Nations Economic Commission for Africa (UNECA), who have historically pushed for economic integration, is that this will be achieved by March 2019, and considerable effort is being exerted by the different organizations’ leaders to run the last mile in an effort to secure the 22 ratifications.

So what exactly is the AfCFTA?

The AfCFTA, considered a top priority of Agenda 2063, brings together all of the continent’s countries – 1.2 billion people (projected to reach 2.5 billion by 2050, which would represent 26% of the world’s working-age population) and a cumulative GDP of $3.4 trillion – under a single Free Trade Area (FTA).Once enforced, the AfCFTA would become the world’s largest free trade agreement since the establishment of the World Trade Organization (WTO) over twenty years ago.

The Agreement’s declared overarching objectives are summarized as follows:

 

•    to create a single market that will help facilitate the free movement of persons, goods and services, and investments, in an effort to fast-track the creation of an African customs union.

•    to reinforce intra-African trade by harmonizing the coordination of trade liberalization and facilitation regimes and instruments across the Regional Economic Communities (RECs) and across Africa in general.

•    to accelerate regional and continental integration procedures, and resolve multiple and overlapping memberships challenges.

•    to augment industrial competitiveness through production, market access and resources reallocation
Source: http://www.acintad.org

The specific overarching objectives with respect to goods are:

•    progressive elimination of tariffs

•    progressive elimination of non-tariff barriers

•    enhancing the efficiency of customs, trade facilitation and transit

•    cooperation on technical barriers to trade and sanitary and phytosanitary

•    development and promotion of regional and continental value chains

•    socio-economic development, diversification and industrialisation across Africa.

The specific overarching objectives with respect to services are:

•    enhance competitiveness of services

•    promote sustainable development

•    foster investment

•    accelerate efforts on industrial development to promote the development of regional value chains

•    progressively liberalise trade in services

Source: Trade Law Centre - https://www.tralac.org/

The architecture of the AfCFTA has two phases:

•    Phase I: Trade in Goods, Trade in Services, and procedures on the Settlement of Disputes – and associated annexes.

•    Phase II: Competition Policy, Intellectual Property Rights, and Investment.
Source: https://au.int/

The efforts surrounding the Agreement that set the establishment of the AfCFTA into motion can be viewed with both hope and tempered skepticism at the same time.

Hope because the speed with which 18 countries have ratified the AfCFTA(out of the 22 required countries for it to enter into force) shows that the continent is undergoing a long overdue paradigm shift as countries seek to drastically change the way they trade amongst themselves and position themselves in the global economy.

AfCFTA forces African countries to look inwards for solutions to major challenges – unemployment, trade deficits, lagging industrialization, maximum value addition to primary commodity exports, price shocks, etc. – while presenting a united block that strengthens the continent’s bargaining power as it negotiates for better deals in the global marketplace.

In fact, all current indications point to the Agreement’s long-term success, which in monetary terms means boosting Africa’s economic output to around $29 trillion by 2050, and increasing intra-Africa trade by 52.3%. The Agreement is also set to transform Africa from an exporter of agricultural commodities and raw materials to a supplier of finished manufactured goods. Proponents of diversification in trade argue that this would lead to sustained economic growth and employment generation. Intra-Africa trade also has a positive effect in terms of reducing the vulnerability of African economies to global shocks currently absorbed due to an over-reliance on imported commodities. Last, presenting a united voice would also empower the continent to trigger the renegotiation of multilateral trade agreements as the economies grow stronger and more harmonized in vision.

Skepticism because in their quest for integration and unity, African countries have, one too many times, drafted ambitious schemes – the Lagos Action Plan (LAP) and the New Partnership for Africa’s Development (NEPAD) to name the two most prominent ones – that have fallen considerably short of meeting the euphoria and expectations set at the grandiose signing ceremonies. Sadly, almost four decades after the LAP, Africa’s intra-continental trade numbers remain disheartening. Currently, the value of intra-African imports amount to $60.5 billion, which is barely 11% of total imports to the continent. Similarly, only 19% of the $75.4 billion dollars African export is intra-African.

Furthermore, although theoretically AfCFTA speaks of the continent as one homogenous block, the reality is that major variations exist between its 55 member states. These include, for example, stage of economic development, physical and technological infrastructure, human capacity development, amongst others. In fact, research shows that some of the concerns that are holding back the majority of countries from jumping on the bandwagon revolve around the equitable distribution of the benefits of the Agreement among economies with such vast differences. Some argue that AfCFTA is set to benefit countries with well-oiled economies that are already producing locally, thus potentially setting the stage for market dumping of weaker economies. Others argue that slashing poor governments’ key source of income, i.e. tariffs, would impact revenue and the ability to meet social welfare obligations. Some arguments even go as far as sounding alarms against unbridled foreign interference and domination.

Yet another stumbling block seems to be related to the policies regarding trade in ‘services’, with countries voicing concerns about the conceptualization and quantification of this area, as well as the actual role ‘services’ play in regional and global value chains.

However, between hope and scepticism lies a thin, but very crucial, line called pragmatism.

This is where Ha-Joon Chang’s argument comes to play. The economist and author of Kicking Away the Ladder: Development Strategy in Historical Perspective, argues:

“Allowing the developing countries to adopt the policies (and institutions) that are more suitable to their stages of development and to other conditions they face will enable them to grow faster, as indeed it did during the 1960s and the 1970s. This will benefit not only the developing countries but also the developed countries in the long run, as it will increase the trade and investment opportunities available to the developed countries in the developing countries.”

In light of the current optimism and great hope that has swept across this continent, starting with the Horn of Africa, one is more tempted to be convinced that the long-term benefits of AfCFTA outweigh the short-term challenges a country may face if it joins.This is especially so considering the fact that gains made and best practices compiled through RECs are still admissible and these regional integrations could, in a way,serve as a buffer area that would protect smaller economies.

Having said that, however, much homework remains to be done and any AfCFTA-related consideration must be premised on country-specific, nuanced studies that take context, development priorities, social and cultural makeup, human resources and capacity, and other factors, into consideration. Another key area to push for if a country chooses to join the AfCFTA club is the harmonization of goals within RECs so as to build trust and grow in a mutually complementary manner. This will reduce the likelihood of leaving some countries in the neighbourhood behind, which could eventually lead to other challenges – probably even conflict and insecurity.

Disclaimer: articles published in this column do not reflect the stance or opinion of Eritrea Profile