African Continental Free Trade Area

It may have been delayed, but it's set to make history; it may be highly ambitious, but the African Continental Free Trade Area is going to transform the way  business is done on the continent. Billionaire Tomorrow believes this will usher in a new era for Africa and help the rise of a new generation of entrepreneurs and will be monitoring closely its progress.

AfCFTA

Politicians call it the story of the century; COVID-19 stopped it in its tracks; yet 2021 should see it rise to change the game in Africa, increasing trade on the way to hauling millions out of poverty. This is the promise of the Africa Continental Free Trade Area set to launch on January 1, postponed from July 1, that will see tariff barriers come down across the continent in a bid to attract investment industrialise the continent increase the wealth and wages created at home from its rich resources.

The plan is to remove tariffs on 90% of African goods and increase trade across the continent. It has a long road to travel. Trade between African nations is a mere 17%, of the total, compared to 69% in Europe and 59% in Asia. The plan is to increase this to more 50%. In a nutshell, the AfCFTA promises certainty, a settlement system and a common set of rules for every country that foreign investors in African have craved for years.

AfCFTA

The trading bloc will be led by South Africa lawyer, Wamkele Mene, a spring chicken of a Secretary General in his early 40s, who believes the AfCFTA will make history by bring together 1.3 billion people in 55 countries with a combined GDP of $3.4 trillion. “For the very first time in Africa we will have a set of rules for adjudicating and resolving trade and investment commercial disputes in Africa. This is a very significant step in an investor attracting point of view because we are signalling to investors that if you invest in Africa you will be subject to the same set of rules no matter which country you are investing in,” says Mene, who is based in Accra, Ghana.

The World Bank has researched the impact of the newest and largest trading bloc in the world and come up with some grand claims. Lift 30 million Africans out of extreme poverty and boost the incomes of nearly 68 million others who live on less than $5.50 a day; 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 new trading bloc also promises to Increase Africa’s exports by $560 billion, mostly in manufacturing ushering in wage gains for women -10.5%- and men by 9.9%.

What do the papers say?

The step to ratify the agreement comes as Nigeria’s land borders have been closed for more than a year in a bid to curb smuggling and with the central bank restricting access to dollars for the import of more than 40 products, saying it can be produced locally.

 

“Nigeria’s policy stance at the moment is heavily antitrade, with government officials threatening to deny foreign exchange for certain imports in order to encourage local production,” Joachim MacEbong, a senior analyst at SBM Intelligence in Lagos, said.

- Business Day, South Africa, November 12

Fundamentally, the AfCFTA will put African economies—and African citizens—on a better economic footing. The agreement will enhance competitiveness and stimulate investment, innovation, and economic growth by increasing efficiency and eliminating barriers to trade. In fact, it will eliminate tariffs on 90 percent of goods and incrementally apply the same to services—this at a time when other regions of the world are rethinking trade agreements and economic integration.

- Foreign Policy, November 13

AfCFTA

Boost wages for both skilled and unskilled workers—10.3 percent for unskilled workers, and 9.8 percent for skilled workers. Of the $450 billion in income gains from AfCFTA, $292 billion would come from stronger trade less red tape and simpler customs. The World Bank says tariff liberalisation is important, but by itself it would boost the continent’s income by just 0.2 percent. Adding trade facilitation to the mix—including measures to reduce red tape, simplify customs procedures, and make it easier for African businesses to integrate into global supply chains—would boost the income gains by $292 billion.

The World Bank claims under AfCFTA, extreme poverty would decline across the continent. West Africa would see the biggest decline in the number of people living in extreme poverty—a decline of 12 million. Central Africa would see a decline of 9.3 million. Eastern Africa 4.8 million and Southern Africa would see a decline of 3.9 million. There are concerns too about the AfCFTA. Nigeria took its time to sign the trade agreement because it feared it could be flooded with cheap imports exposing its already struggling manufacturing sector.

At the heart of the agreement is the rules of origin principle that could thwart the dumping of cheap goods across Africa. Mene says it is important for the rules of origin to ward off unfair competition. “We don’t want a shirt coming in and put a button on it to say: Made in the AfCFTA, when clearly the value addition in that product happened elsewhere. So, we have to be very, very deliberate and very thorough, product by product to design this rules of origin so that we force industrial development on the African continent,” he says.

A few sectors face job losses, governments will need to be ready to support workers with adequate safety nets and policies to retrain workers.  Governments will need to design policies to increase the readiness of their workforces to take advantage of new opportunities. By increasing regional trade, lowering trade costs and streamlining border procedures, full implementation of AfCFTA would help African countries increase their resiliency in the face of future economic shocks and help usher in the kinds of deep reforms that are necessary to enhance long-term growth, concludes the World Bank.