African Continental Free Trade Agreement: A Crucial Framework for Progress, Development and Inclusive Economic Growth of Africa

BY Ebenezer Amadi


The African Continental Free Trade Area Agreement (AfCFTA) was established in order to boost the trade and economic growth of Africa and to strengthen integration among African countries.

On 21 March 2018, the Establishment of the AfCFTA was signed in Kigali, Rwanda, by 44 Heads of State and Government of the 55 African Union (AU) Member States. The African Continental Free Trade Agreement (AfCFTA), is meant to create a tariff-free continent that can grow local businesses, boost intra-African trade, rev up industrialization and create jobs.

If all 55 African countries join a free trade area, it 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).In addition, the agreement contains elements that will help African countries to implement their developmental and industrialization aspirations.

 AfCFTA comprises three frameworks:

1. AN OVERARCHING ESTABLISHMENT OF THE AFRICAN CONTINENTAL FREE TRADE AREA; This framework sets out the vision of AfCFTA to create a single liberalized market for goods and services, facilitated by movement of persons, in order to deepen the economic integration of the African continent.

2. A PROTOCOL ON TRADE IN GOODS; this framework of AfCFTA consists of  general obligations and nine Annexes as well as provision for national schedules of tariff concessions. Its objectives are the progressive elimination of tariffs and non-tariff barriers, enhanced efficiency of customs procedures, trade facilitation and transit.

3. A PROTOCOL ON TRADE IN SERVICES; this framework comprises of general obligations with Annexes and national schedules of specific commitments. Its objective is to progressively liberalize trade in services on the basis of equity, balance and mutual benefit, by eliminating barriers to trade in services.  

GUIDING OBJECTIVES AND PRINCIPLES OF AFCFTA 

The Agreement sets out a number of general and specific objectives.

General objectives

The general objectives set out the vision for the AfCFTA (Article 3), which are to:

i.    Create a single market for goods, services, facilitated by movement of persons in order to deepen the economic integration of the African continent and in accordance with the Pan African vision of ‘an integrated, prosperous and peaceful Africa’ enshrined in Agenda 2063;

ii.    Create a liberalized market for goods and services through successive rounds of negotiations;

iii.    Contribute to the movement of capital and natural persons and facilitate investments building on the initiatives and developments in the State Parties and RECs;

iv.    Lay the foundation for the establishment of a Continental Customs Union at a later stage;

v.    Promote and attain sustainable and inclusive socioeconomic development, gender equality and structural transformation of the State Parties;

vi.    Enhance the competitiveness of the economies of State Parties within the continent and the global market;

vii.    Promote industrial development through diversification and regional value chain development, agricultural development and food security; and

viii.    Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes.

SPECIFIC OBJECTIVES

The specific objectives (Article 4) necessary to realize these general objectives include:

i.    Progressive elimination of tariffs and non-tariff barriers to trade in goods;

ii.    Progressive liberalization of trade in services;

iii.    Cooperation in all trade-related areas including investment, intellectual property rights and competition policy;

iv.    Cooperation on customs matters and the implementation of trade facilitation measures;

v.    Establishment of a mechanism for the settlement of disputes concerning the rights and obligations of Members; and

vi.    Establishment and maintenance of an institutional framework for the implementation and administration of the AfCFTA.

CORE PRINCIPLES

The AfCFTA is to be governed by 12 core principles (Article 5):

1. Driven by Member States of the African Union;

2. RECs’ FTAs as building blocs for the AfCFTA;

3. Variable geometry;

4. Flexibility and special and differential treatment;

5. Transparency and disclosure of information;

6. Preservation of the acquis;

7. Most-favoured-nation (MFN) treatment;

8. National treatment;

9. Reciprocity;

10. Substantial liberalization;

11. Consensus in decision-making; and

12. Best practices in the RECs, in the State Parties and International Conventions binding the African Union.

In the long-run, trade liberalization in the AfCFTA will lower trade costs and allow consumers to access a greater variety of products at lower prices. Lower costs for imported raw materials and intermediate inputs increases competitiveness of downstream producers and promotes the generation of regional value chains. Trade liberalization also allows firms to access a large continental market and gain from economies of scale. In the long run, increased competitive pressures may improve firm efficiency. However, market consolidation may arise when smaller firms are exposed to stiffer competition.

Trade liberalization allows domestic firms to access bigger markets and gain from economies of scale. Once the small local market constraints are lifted, trade may not only allow firms to grow faster but also to have better access to finance and technology in the world economy. These benefits may also bring challenges to countries. Large firms that are taking advantage of economies of scale may gain dominant position in markets at the expense of SMEs. Market consolidation may arise when SMEs are exposed to stiffer competition during the transition. Thus, in order to ensure a smooth transition during trade liberalization, complementary policies such as consumer protection and competition policies need to be put in place.

The possibility of experiencing significant tariff revenue losses during the transition remains a challenge for successful completion of the AfCFTA negotiations as these revenues are important source of income for some governments. Tariff cuts, however, should not be understood as absolute losses for countries but as redistribution of income from governments to consumers and producers.

The African Continental Free Trade Area covers trade in goods and services, investment, intellectual property rights, competition policy and, possibly, e-commerce. Given its wide scope, which moves beyond the requirements of a traditional free trade area that, in general, focuses only on the elimination of tariffs and quotas on trade in goods, the expectation is that the agreement will be a key contributor to the economic integration of Africa. If effectively implemented, it should catalyse Africa’s industrial transformation, while boosting trade and investment between countries and regional economic communities, to generate prosperity for citizens, in line with the 2030 Agenda for Sustainable Development and the African Union’s Agenda 2063: The Africa We Want.

The AfCFTA has the potential to make a concrete impact on the lives of ordinary citizens across the continent. By facilitating job creation and greater competitiveness of African micro, small and medium-sized enterprises (MSMEs), the AfCFTA will be a significant instrument in lifting people out of poverty and invigorating Africa’s growth trajectory.

Successful implementation of AfCFTA would help cushion the negative effects of COVID-19 on economic growth by supporting regional trade and value chains through the reduction of trade costs. In the longer term, AfCFTA would provide a path for integration and growth-enhancing reforms for African countries. By replacing the patchwork of regional agreements, streamlining border procedures, and prioritizing trade reforms, AfCFTA could help African countries increase their resiliency in the face of future economic shocks

CONCLUSSION 

The implementation of the AfCFTA will support the Boosting Intra-African Trade (BIAT) aim to double intra-African trade by 2022 and promote industrialization, since it will require the establishment of cross-border value chains and promote a larger and more sophisticated range of investments. Improved intra-African trade in goods will automatically promote employment, social advancement, consumer choice, and a range of other objectives closely associated with the Sustainable Development Goals (SDGs).  There is need to improve financial sector development, education levels and strong governance structures in order to benefit from the AfCFTA.

Increased levels of industrialization will reduce the exposure of African resource-rich countries to the cyclical shocks associated with a dependence on the trade of primary commodities in the international market.

RECOMMENDATIONS

In the light of the issues discussed, I recommend the following actions in order to ensure that the African Continental Free Trade Area serves as a framework for progress, development and inclusive economic growth of Africa:

  • Policy makers should make supportive complementary policies designed to support structural transformations, complementary policies such as consumer protection and competition policies need to be put in place.
  • There is need to implement a protocol on e-commerce in order to develop e-commerce facilities and connectivity.
  • Digitalization of the economy.      
  • Business owners and small-scale farmers should be equipped with the requisite knowledge and skill to comply with international SPS Standards.
  • Put in place investment plans in renewables energy, sustainable trade-related communication infrastructure, etc.
  • Implementation of Adequate plans to address the youth and employment challenge that is increasingly confronting the African Continent.
  • Improve and provide for an enabling environment for growth and sustainability of Micro, Small and Medium Enterprises, which happen to be the majority on the continent.

BY EBENEZER  AMADI Esq.

Tech and Business Lawyer

Ebylaws@gmail.com; 08061194337

REFERENCES

  1. African Union. Agreement Establishing the African Continental Free Trade Area.          March 21, 2018.  
  2. De Melo, J. and Tsikata, Y. (2015), “Regional integration in Africa: Challenges and Prospects,” CEPR Discussion Paper no: 10598.
  3. International Trade Centre (2018). A business guide to the African Continental Free Trade Area Agreement. ITC, Geneva.
  4. Milner, C. and Wright, P. (1998), “Modelling labour market adjustment to trade                   liberalization in an industrialising economy”, The Economic Journal, Vol. 108, No. 447, pp 509-528, Mar.
  5. Tanyi, Kenneth T. (2015), “Assessing Africa’s two billion populated market by 2063: The facts and fallacies of a Continental Free Trade Area (CFTA),” Business and Economics Journal, 6(154).
  6. UNCTAD (2011) Economic Development in Africa Report 2011: Fostering Industrial Development in Africa in the New Global Environment, United Nations, (UNCTAD/ALDC/AFRICA/2011).
  7. UNCTAD (2015a), “The Continental Free Trade Area: Making it work for Africa,” Policy Brief, No.44, December 2015.
  8. UNCTAD (2015b) “Building the African free trade area: Some suggestions on the way forward,” United Nations, New York and Geneva UNCTAD/DITC/2015/1

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