AfCFTA is here and hopefully, it is here to succeed.
Not every first day of a new year is as important, relieving, and exciting as the first day of January 2021. First, today marks a much-anticipated departure from what will go down in history as one of the most unusual years. The Covid19 pandemic which dominated and influenced most of affairs in 2020, disrupted lives and livelihood, shook businesses and economies of nations. We all are grateful and quite relieved that not only are we in a new year but also, numerous vaccines are already being made accessible with the hope that most of the world population would have gotten the vaccines before the end of this new year. However, for us Africans, something more interesting makes today remarkable and this is that January 1st, 2021, marks the start of free trading in continental Africa under AfCFTA. This is a good news for a continent in need of economic development.
AfCFTA was established with the goal to create a single continental market for goods and services, with free movement of business persons and investments, paving the way for accelerating the establishment of the Continental Customs Union. The African Continental Free Trade Area will bring 55 African nations together, creating the largest free trade area in the world. The World Bank estimates that the agreement will 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. The AfCFTA agreement will involve two implementation phases. Phase 1 covers trade in goods and services. This involves tariff liberalization, dispute settlement mechanisms (very important), non-tariff barriers, rules of origin, custom cooperation and harmonization of documents, trade remedies, institutional arrangements, Banking, Insurance, air and maritime transport, tourism and financial services. Phase II negotiations relate to competition policy, intellectual property rights and investments.
Due to the economic realities of some African countries classified as least developed countries, 32 LDCs have 10 years to achieve 90% trade liberalization under AfCFTA, in contrast to 5 years for the non-LDCs. The G6 countries — Ethiopia, Madagascar, Malawi, Sudan, Zambia, Zimbabwe have specific development challenges and have been afforded a 15 years’ timeline to reach 90% trade liberalization.
I am personally excited about this free trade agreement, not just because of the promises it holds for the continent but also for the institutional frameworks being developed for the agreement to work successfully. At the Africa Business Forum 2020 I attended last year, AfCFTA Secretary-General, Wamkele, highlighted that traders will be applicable to reimbursements in a situation where signatory-states refused their exports. The secretariat has also made commitments to harmonize custom regulations by socializing national custom authorities to understand the obligations of the AFCFTA agreements. This in addition to other orchestration efforts of the secretariat continue to prepare governments and private sector actors for the trading which officially begins today. So far, 34 out of 55 countries have deposited their instruments of ratification. Only 22 was needed for the agreement to come into force.
Here is why the AfCFTA is good news for Africa:
Boosts Intra-Africa Trade
The African Continental Free Trade Area (AfCFTA) will boost intra-African trade as it commits countries to removing tariffs on 90% of goods and lifting all barriers to trade within the continent. Prior to now, Africa traded more with countries outside Africa more than within Africa. In fact, Intra-Africa trade stands at 16%. In Europe, 70% of trade happens within the continent. In Asia, 51% of trade happens within the continent. When compared, it is evident that boosting intra-Africa trade is necessary in fostering economic growth on the continent.
The AfCFTA is expected to increase intra-Africa trade from an existing level of about 16% to 25% or more through better harmonization and coordination of trade liberalization.
Poor transport infrastructures, high level of insecurity and border conflicts between African countries are some of the factors that have contributed to the low level of intra-African trade. However, with shared commitment to the implementation and success of this free trade agreement, we hope to see improved intra-African trade. The AfCFTA is expected to increase intra-Africa trade from an existing level of about 16% to 25% or more through better harmonisation and coordination of trade liberalization. This will be driven forward by the complementary Single African Air Transport Market and the Protocol on Free Movement of Persons.
Creates Markets for Small and Medium Sized Business
The AfCFTA will create a single market for goods and services and movements of persons and investments, bringing together more 1.3 billion people and an economic partnership worth in excess of $3.6 trillion. This creates a huge opportunity for growth of small and medium sized businesses who will be willing to take advantage of this trade agreement. The agreement is also good news for informal traders in the continent. Informal trade makes up about 60% of trade in Africa and this trade is made up of mainly women and young people. Before now, these informal traders have encountered several challenges from border closures to corrupt custom regimes in countries to gross exploitation of these traders who are mostly women. The launch of Afcfta is a gain to these traders who will see trade barriers like border closures removed thereby increasing the ease and volume of intra-cross border trade.
Fosters Specialization and Boosts Industrialization
Asia-pacific countries like China, Japan, Thailand, Singapore, and Vietnam are proof that industrialization is key to driving economic development and reducing poverty and unemployment. For a continent like Africa, industrialization will boost exports and alleviate poverty and unemployment. Despite the low poor level of industrialization in the African Continent, Manufactured goods make up a much higher proportion of regional exports than those leaving the continent — 41.9 compared to 14.8 percent in 2014. Landre Singer notes that AfCFTA will provide African leaders with a greater negotiating power to eliminate barriers to exporting (facilitate negotiation with the European Union, the United States, and China) and further enhance technology transfer to less developed countries.
In terms of Industrialization, Aliko Dangote, Nigeria business mogul and one of Africa’s richest, has businesses in the manufacturing sector that cover cement manufacturing, food processing and freight. Among industrial projects being completed by the Dangote group are cement factories in 16 African countries, Fertilizer plants with capacity of 3 million tons a year of urea and ammonia, making it the world’s biggest and crude oil refinery in Lagos which is set to be commissioned at the beginning of this new year 2021, with full capacity being reached by the end of the first half of the year. The Dangote refinery with 650,000 barrel a day capacity will increase Nigeria’s refining capacity two-fold and help meet the increasing domestic fuel demand, while generating foreign exchange through exports. This will also have spillover effects as Nigeria’s local refining will be able meet local demands of petroleum products while also serving the continental market, ending years of exporting raw crude oil and importing refined petroleum products. More private sector investments are sure to drive industrializations under AfCFTA and that is why the AfCFTA Secretariat plans to establish the private sector dialogue.
Other benefits that will come from AfCFTA include increased employment and investment opportunities. Following the start of trading today, we will continue to see an influx of foreign direct investments from external trading partners including from private businesses in the United States and the EU and more investments from Chinese State-Owned Enterprises.
As earlier stated, the continent continues to grapple with poor transport infrastructure, a human security crisis and lack of industrial policy coordination. However, with political will from African statesmen, the agreement has every incentive to succeed.
Does not this mean that AfCFTA will not encounter challenges? No. As earlier stated, the continent continues to grapple with poor transport infrastructure, a human security crisis and lack of industrial policy coordination. However, with political will from African statesmen, the agreement has every incentive to succeed. AfCFTA is here and hopefully, it is here to succeed.
#AfCFTA #freetrade #trade #Globaleconomy #Africa #Motherland #Internationaltade #trading