Ensuring sustainable and inclusive growth in Africa through trade
The African Continental Free Trade Area agreement charts a new way for development and will help achieve greater integration
The signing of the African Continental Free Trade Agreement (AfCFTA) in March 2018 was an expression of Africa’s belief in trade as an engine of growth, job creation and poverty reduction. It was also a bold effort to define a trading relationship among African countries in as inclusive and as sustainable a manner as possible.
African heads of state and government signed on to a package that included liberalization of trade in goods and in services; a legal and institutional framework for the implementation of the agreement; and establishment of a dispute settlement mechanism. Phase 2 of the negotiations, expected to begin in 2019, will cover investment; intellectual property; and competition policy and enforcement.
The accord will come into force one month after the deposit of 22 instruments of ratification with the chair of the African Union Commission.
We so far have 13 ratifications. It is important to note that the AfCFTA is not just about trade liberalization, but is also about Africa’s integration.
It is a political as well as an economic imperative, part of the journey towards an integrated African market as espoused in the Abuja Treaty, which envisages creation of the African Economic Community.The AfCFTA supports growth, job creation and poverty reduction in Africa by confronting the barriers and hindrances that have depressed intra-Africa trade, particularly when compared to those of other regions. Boosting intra-Africa trade and deepening African integration is particularly important because of the small and fragmented nature of African economies.
This fragmentation has prevented African economies from developing the economies of scale and the market size necessary to attract large-scale transformative investments as well as enhance the competitiveness of African firms. The AfCFTA does this by removing tariff and non-tariff barriers affecting efficient and cost-effective trade in goods within the continent. It also addresses barriers to trade in services by ensuring services market liberalization, as well as by pushing an agenda for regulatory cooperation and harmonization in the agreed services sectors.
In trade in goods, the AfCFTA eliminates tariffs on African products within agreed timeframes, with flexibilities given to sensitive products by allowing longer time frames for their elimination, as well as the possibility of some exclusion of certain products from liberalization. This balance between ambition and flexibilities is key to the agreement’s sustainability as well as its inclusivity.
Trade agreements will always create winners and losers. The flexibilities in the agreement ensure that the winning is spread as widely as possible while the losses are properly mitigated for all parties. It is also in this regard that the African Union is working with key stakeholders like the African Export-Import Bank (Afreximbank). Doing so will ensure that we develop financial avenues to support the adjustment mechanisms that will be established to enable state parties adapt to short term revenue losses that may arise from their immediate liberalization commitments. The development of regional value chains, part of the AfCFTA agenda, will also contribute to development of inclusive trade in the emerging market.
In the same vein, the AfCFTA addresses the non-tariff barriers that perhaps pose the greatest challenges to intra-Africa trade. The agreement includes commitments and obligations on standards, sanitary and phytosanitary measures (SPS) and technical barriers to trade (TBT), as well as dedicated annexes on customs procedures, non-tariff barriers, transit and trade facilitation. All in all, it represents the most ambitious commitments to addressing the challenges facing intra-Africa trade that have ever been made. The accord also includes the negotiation of specific rules of origin meant to enhance the integration of African producers into regional and global value chains as well as promote value addition and the transformation of African commodities.
For trade in services, the African Union identified the priority sectors of financial services, transport, professional services, ICT services and tourism services for immediate liberalization and regulatory cooperation and harmonization. The prioritization of services is especially important because it has grown clear that without a competitive services economy that facilitates industrialization, Africa’s dream of structural transformation will remain unachievable. This is particularly relevant with the increasing automation and digitization of industrial and economic processes.
This holistic approach is critical to the success of the AfCFTA regarding the objectives of increased growth, job creation and poverty reduction. It is reinforced by the focus on the issues of investment, competition policy and intellectual property that will be dealt with in Phase 2 negotiations.
In conclusion, the AfCFTA marks an attempt by African countries to chart a developmental integration path using trade as a tool for development. It does so through the breadth of issues addressed in the agreement and its ambitious targets, as well as the flexibilities built into the accord, to ensure that the potential benefits are maximized and challenges are mitigated.
However, like every other trade agreement, implementation remains the key to its success. African leaders have shown strong and broad political will in pushing the AfCFTA to the point it is now. With this leadership, there is sufficient commitment to ensure the implementation of the rights and obligations enshrined in the agreement on time and in full.