Free Trade Area: Africa’s game changer

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THE countdown has begun towards the ‘go-live’ date for the African Continental Free Trade Area (AfCFTA) on January 1 2021, as the continent embarks on a new economic path.

The world’s largest free-trade zone comes amid trade tensions between China, the US and Europe, and the UK’s shambolic departure from the EU.

With its abundant natural resources, high growth rates, improved linkages to global supply chains and a youthful population, Africa is emerging as a new global centre fo economic growth, increasingly sought after as a partner by the world’s biggest economies.

And with the integrated market, artificial borders would be removed, intra-trade boosted and there would be promotion of economic growth.

After four years of talks, an agreement to form a trade bloc was reached in March 2019.

So far, 54 countries have signed the agreement, while at least 34 have deposited the instruments of ratification for the accord.

Only Eritrea has not signed.

And Ghana is the host of the trade zone’s headquarters.

Africa’s game changer

In an exclusive interview with The Patriot, the chief technical advisor on the AfCFTA and head of the AfCFTA Unit Prudence Sebahizi described the organisation as the game-changer of Africa’s economic fortunes.

“We are optimistic about the AfCFTA because it is coming in to correct the mistakes of the past. It is building on the success of Regional Economic Committees. In fact, Continental Free Trade Area is a game changer for the continent,” said Sebahizi.

Once the agreement comes into effect, 90 percent of products in Africa will enter duty-free and quota-free, seven percent for sensitive products and the remaining three percent for exclusion.

The trade pact will also facilitate the movement of capital and people, promoting investment and paving way for the establishment of a continent-wide customs union. 

Sebahizi said for a sound implementation, a stand-alone secretariat has been established to monitor and manage the AfCFTA.

“About 41 countries have submitted their tariff offers, so we have more than 62 percent of countries that are ready to start trading come January 1 2021,” he said.

When fully operational by 2030, the AfCFTA will cover a market of more than 1,2 billion people and up to US$3 trillion in combined GDP, with the potential of increasing intra-African trade by over 50 percent, according to the UN Economic Commission for Africa. 

Currently, only 15 percent of African exports go to other African countries compared to intra-regional trade level of 58 percent in Asia, 67 percent in Europe and 31 percent in North America. 

High tariffs and colonial-era infrastructure made it easier for African countries to export to Europe or the US than to each other. 

Furthermore, overlapping membership in Africa’s eight Regional Economic Communities (RECs) hindered trade standardisation and enforcement. 

According to the World Bank, meanwhile, the agreement could add US$76 billion in income to the rest of the world. 

On its completion, the AfCFTA will become the largest free trade area in the world, since the establishment of the World Trade Organization in 1994.

Full elimination of tariffs among African countries would create an overall welfare gain of US$16,1 billion in the long-run for African countries. 

Thus, it is projected that the Agreement would have significant positive impacts on African countries and their economic growth. 

“The benefits of AfCFTA are immense but it will grow incrementally. When African countries start trading among themselves, there’ll be competition that will lead to job creation, competitive prices and improved welfare for our people,” said Sebahizi. 

“Once fully implemented, AfCFTA will lift 13 million Africans out of extreme poverty and improve the income of 68 million other Africans who live on less than US$5 a day.”

A 2018 study conducted by the Economic Commission shows that both the GDP and exports of African countries would increase by one percent GDP and three percent exports.

“This contained export rise could be explained by the fact that most African exports (83 percent) are currently directed outside Africa, which means that the AfCFTA does not affect them. This agreement will, nevertheless, be a game-changer for intra-African trade,” notes the UNECA study.

Towards an integrated Africa

The journey towards African co-operation in development efforts and unity began soon after most African countries gained independence in the late 1950s to 1960s.

In 1964, the formation of the OAU highlighted this yearning for regional integration and co-operation. 

The OAU’s main objectives were to foster cohesion and solidarity among African countries within the global governance and trading system. 

The organisation later adopted the Lagos Plan of action in 1980, which aims at fostering the integration of the continent based on the ‘self-reliance, endogenous development and industrialisation’ of Africa. 

A decade later, in July 1991, the OAU adopted the Abuja Treaty that implemented a progressive approach to regional integration in Africa. 

This included the establishment of RECs and a plan for creating an African Economic Community by 2028. 

The Abuja Treaty provided a detailed pathway towards the creation of the AU. 

The first step was to establish Free Trade Areas (FTAs) in each region, followed by customs unions and then the creation of a common market to finally form a monetary union.

Despite the intended purpose of using RECs as stepping stones toward greater unification, the fact that some countries were part of various Economic Communities became problematic. 

To overcome this situation, Ministers of Trade and Industry of three RECs (SADC, EAC and COMESA) decided to merge them giving birth to Tri-Partite Free Trade Agreement (TFTA).

The TFTA called upon the leaders of the AU to be more ambitious about regional integration and economic co-operation. 

And shortly thereafter, on June 15 2015, negotiations toward a Continental Free Trade Agreement (CFTA) began.

A new status for Africa

The AfCFTA, by fostering co-operation and trust among African countries and by increasing intra-continental trade, will strengthen African country’s voices within International Organisations. 

Gradually, more member-states are planning to implement a common external tariff which will unify African voices within the international system. 

Thereafter, African countries will be able to better negotiate agreements and to defend more efficiently their interests (economic and political). 

It is also likely that Western influence, which is frequently inconsistent with African interests, will decrease within African economies and governance.

Africa has had enough of the bullying and big brother attitude.

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