Dec 26, 2019

An Insight To The African Continental Free Trade Agreement | Adeniran Oluwabukunmi






1.0 Introduction

The African Continental Free Trade Agreement (AfCFTA) is a trade agreement in force between 27 African Union member states.[1] It was signed in Kigali, Rwanda, on March 21, 2018. As of July 2019, 54 of the 55 African Union states had signed the agreement, with Eritrea the only country not signing the agreement. Of these member states, 27 have deposited their instrument of ratification.[2] As of fact, Nigeria was one of the last countries to sign the agreement. 



Nigeria has a population of 200 million people and is Africa's most populous country. Nigeria’s population exceeds that of the second and third most-populous countries in the ladder, Ethiopia and Egypt combined, each with its population around 98 million. 


With a nominal GDP of US$376 billion, which represents 17% of Africa's GDP, Nigeria is just ahead of South Africa which accounts for 16% of Africa’s GDP. Because Nigeria is so significant in terms of its population and economy, its absence at the initial signing of the agreement was particularly conspicuous. South African President, Cyril Ramaphosa, underscored that in comments made on the 12th of July 2018, that; "The continent is waiting for Nigeria and South Africa. By trading among ourselves, we are able to retain more resources in the continent.".[3]


Initially, 44 countries signed the agreement on 21 March 2018. Nigeria was one of 11 African Union Nations to abstain from signing. At the time, the Nigerian President, Muhammadu Buhari, said that Nigeria could not do anything that would undermine local manufacturers and entrepreneurs.[4] The Manufacturers Association of Nigeria, which represents 3,000 Nigerian manufacturers, praised the decision to back out of the agreement. The Nigerian foreign minister tweeted that more domestic consultation was needed before Nigeria could sign the agreement.[5] Former president Olusegun Obasanjo said Nigeria's delay was regrettable.[6] The Nigeria Labour Congress called the agreement a "renewed, extremely dangerous and radioactive neo-liberal policy initiative", suggesting increased economic pressure would in turn pressure workers into migration under difficult and unsafe conditions.[7]


On 21 July 2018, five more nations signed the agreement, including South Africa. At that time, the Nigerian government emphasized its non-participation was a delay, not a withdrawal, and promised to soon sign the agreement.[8] As the foreign minister had earlier emphasized, the Nigerian government intended to consult further with local businesses in order to ensure private sector buy-in to the agreement.[9]

Nigeria's president announced on 2 July, 2019 that the country would sign the AfCFTA in Niger the following week and this promise was delivered as Nigeria signed the AfCFTA on 7 July, 2019.[10]



2.0 UNDERSTANDING THE AFRICAN CONTINENTAL FREE TRADE AGREEMENT

2.1 What does AfCFTA Mean?

The proposed Continental Free Trade Area for Africa is a market integration agreement that presents an equal opportunity open market to all participating countries in the region. The plan is to substantially remove obstructions and barriers to movement of goods and services across the continent at the initial implementation stage with the hope of progressing into a customs union with free movement of capital and business persons.[11]

The agreement aims to provide for a good reduction or elimination of customs tariffs on qualifying imports between member countries. However, unlike other free trade agreements, AfCFTA provides that the signatory countries have agreed to be bound by the agreement even though the text of the agreement has not yet been finalized. For example, the “rules of origin” provisions under the agreement are still being negotiated, but reportedly these negotiations are at an advanced stage. Similarly, negotiations for reductions or elimination of customs duty on 90% of products are in process but not yet finalized.[12]

The agreement comes at a critical moment for Africa. For centuries Europe, the United States, and more recently China have stripped the continent of its raw materials. Today, more than 75% of Africa’s external exports are extractives, namely oil and minerals. Increasingly, African nations hoping to secure sustainable economic growth are shifting away from the volatility associated with extractive exports towards industrialized goods. While overall intra-African trade is minuscule, 42% of it consists of industrial goods and this number is expected to grow under AfCFTA. A focus on industrial goods promotes African industrialization and the advancement of its manufacturing sector, providing employment opportunities for the continent’s booming youth population. Amidst growing U.S.-China trade tensions and China’s efforts to decrease its dependency on export markets, some are betting that Africa is a prime successor to become the manufacturing hub of the developing world.[13] Underlining the above reality, Judd Devermont told CNBC that "This agreement underlines how Africa is moving in a different direction than other regions in the world." He further added that “The continent's leaders are embracing integration, while some global counterparts have turned away from multilateralism."[14]



3.0 OBJECTIVES OF THE AFRICAN CONTINENTAL FREE TRADE AGREEMENT

The primary aim of the Agreement is to achieve an increased volume of trade amongst African countries. Trade remains a key driver in the economic advancement of nations and getting intra- African trade right may be the much-needed catalyst to stir the African economy up. There is no doubt that it will bring about the much-needed economic expansion of African countries by taking the focus off extractives to other non-mineral products. It is believed that AfCFTA will be a catalyst for the diversification of the African economy. It is also expected that it will bring about a consciousness for African economies to make a shift towards building a production-based continental economy as no nation would want to be entirely on the consumption scale of the competition. This will create more job opportunities that would further absorb the millions of unemployed young Africans.[15]

According to the Agreement Establishing the African Continental Free Trade Area, the general objectives of the AfCFTA are to:

A) 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;

B) create a liberalized market for goods and services through successive rounds of negotiations;

C) contribute to the movement of capital and natural persons and facilitate investments building on the initiatives and developments in the State Parties and RECs;

D) lay the foundation for the establishment of a Continental Customs Union at a later stage;

E) promote and attain sustainable and inclusive socio-economic development, gender equality and structural transformation of the State Parties;

F) enhance the competitiveness of the economies of State Parties within the continent and the global market;

G) promote industrial development through diversification and regional value chain development, agricultural development and food security; and

H) resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes.[16]



4.0 POTENTIAL OF THE AfCFTA: THE FUTURE OF AFRICA

Looking at the promising new African free trade area, there is an effulgent future for Africa. The agreement is considered critical to growth and job creation for Africa and its 1.27 billion people. Perhaps, the issue of poverty engulfing Africa will finally be, if not completely taken care of, reduced.

The removal of tariffs and non-tariff barriers is likely to increase intra-African trade by 52.3% by 2020 as estimated by the UN Economic Commission for Africa (ECA). This will increase employment, facilitate better use of local resources for manufacturing and agriculture, and increase access to cheaper products. Analysts say that successful implementation of the trade pact has the potential to transform the continent, arguing that it would create a market of about 1.27 billion people with a combined gross domestic product (GDP) of $2.14 trillion. This market is expected to grow to about 2.5 billion consumers by 2050.[17]

The AfCFTA free-movement rules will also allow people to access government-funded health services in any member country. This will increase the number of foreign patients seeking treatment in countries with relatively strong health-care systems, such as Kenya and Uganda. The new free-trade area is also expected to drive growth in private health care, including medical tourism. For example, as demand for cancer treatment soars, visa-free travel will enable people in the 15 African countries without radiotherapy services to seek care elsewhere.[18]

The praises of AfCFTA echoes beyond Africa as Arancha Gonzalez Laya, the Executive Director of the International Trade Centre (ITC), while speaking during a session at the World Economic Forum on Africa, developed with the Forum's Platform for Shaping the Future of International Trade and Investment, said that “We now have leaders of 54 countries putting their neck on the line for this agreement. It’s a game-changer. There’s much more political energy today than there has ever been on integration.[19]







5.0 SHORTCOMINGS OF THE AfCFTA

Just as there are pros and cons to everything, and nothing that exists in the world is perfect, the AfCFTA also has its downsides. Agreeably, AfCFTA is an opportunity for countries and companies to help each other grow, still, trade liberalization has the potential to damage the poorest within those countries, which is why it is important for the AfCFTA to have supportive policies as the government will deem necessary for its smooth running.[20]

Furthermore, its possible negative impact on African’s health should not be ignored. Private health services and medical tourism induce clinicians to migrate from poorer to richer countries, and from public to private health care. This results in weaker, understaffed public-health systems, especially in poorer countries. Moreover, influxes of foreign clinicians will irk local medical professionals by increasing competition for jobs.

There are also worries that big pharmaceutical companies will push for restrictions on imports of generic drugs into the AfCFTA, as happened in Guatemala after the Central America Free Trade Agreement took effect. Such restrictions push up the cost of these drugs and hurt poor people the most.

Free movement of people also increases the risk that diseases will spread across borders, especially given weak disease-surveillance systems and the instability of some African countries. The continuing Ebola epidemic in the Democratic Republic of Congo is a pressing concern. Other dangerous infectious diseases, such as cholera, may also spread farther and faster. With respect to this issue, global health and development stakeholders need to become more aware of not only the opportunities but also the challenges of AfCFTA implementation for health market expansion, universal health coverage and health security, so that policies can be made to combat its possible negative outturn. 

Trade liberalization can also pose some challenges for governments in promoting competition in local markets as some firms that are taking advantage of economies of scale may grow faster than others and capture dominant positions in markets. In order to ensure a smooth transition during these episodes, complementary policies such as consumer protection and competition policies need to be put in place.[21]

Some arguments against the AfCFTA is that it is in contrast with the principles of state sovereignty. However, in contradiction to concerns about loss of sovereign power, some others argue that the AfCFTA as currently proposed is about economics, not politics. AfCFTA is a basic trade agreement. Also, trade agreements have numerous precedents all over the world, none of which has been directly implicated in the sort of collapse in sovereignty being alluded to.[22]



6.0 CONCLUSION

The negotiation stage is relatively the easy part of the puzzle; the real challenge is in the implementation of the AfCFTA. If the AfCFTA is to achieve its objectives of boosting intra-African trade and industrial competitiveness across the continent, African countries must not only conclude and ratify the AfCFTA Agreement, they must also implement it. That means domesticating the agreement as a national law and ensuring that all relevant government agencies are prepared for, and able to apply the required changes, and that they actually do so. These steps cannot be taken for granted.

For one reason or another, many African countries have not properly implemented their regional trade agreements. As a result, intra-regional trade in Africa is still plagued by high tariffs, numerous non-tariff barriers and other complications arising from the patchwork of partially implemented regional trade agreements with overlapping memberships.

It is imperative for the government of nations within the continent to set things in order as are necessary for the successful execution of the agreement. For example, improving the electricity situation within the state and creating a suitable environment enabling industries to not only survive but to thrive.

The fate of the AfCFTA ultimately depends on African leaders following through on the high expectations they have set for the AfCFTA. They must show progressive leadership and commitment to ratifying and implementing the AfCFTA (and their other regional trade agreements), and not just under the bright lights of AU Summits. This also means engaging meaningfully with the private sector and African citizenry, as they are the ultimate intended beneficiaries of all this, after all. This will be crucial to ensure the AfCFTA avoids the implementation gap into which so many African agreements have fallen.[23] The credibility of African integration is at stake. Therefore, complacency is not an option. It is hoped, after all is said and done, that the enforcement of the AfCFTA will promote economic growth and its advantages would subsequently outweigh whatever apparent disadvantages.



Written by:

Adeniran Oluwabukunmi.





[1] African Union, "Summary of the key decisions and declarations of the 31st African Union Summit". Published July 6, 2018. Retrieved 17 September 2019;
[2] African union, "List of Countries Which Have Signed, Ratified/Acceded to The Agreement Establishing the African Continental Free Trade Area" (PDF). Published 8 October 2019. Accessed December 24, 2019.
[3] "Cautious Nigeria agrees to sign African continental free-trade agreement". July 12, 2018. https://www.businesslive.co.za/bd/world/africa/2018-07-12-cautious-nigeria-agrees-to-sign-african-continental-free-trade-agreement/ Accessed December 23, 2019.
[4] Daniel Mumbere, “Nigeria's Buhari explains failure to sign continental free trade agreement”. Published March 23, 2018.
[5] Reuters, “Nigeria says domestic consultation needed on Africa free trade agreement”. Published March 27, 2018. https://www.businessdailyafrica.com/news/world/Nigeria-says-domestic-consultation-needed-on-Africa-free-trade/4259366-4360360-wurxrn/index.html Accessed December 23, 2019.
[6] Bassey Udo, “Nigeria’s delay in ratifying African free trade agreement regrettable – Obasanjo”. Published December 17, 2018. https://www.premiumtimesng.com/business/301555-nigerias-delay-in-ratifying-african-free-trade-agreement-regrettable-obasanjo.html Accessed December 23, 2019.
[7] “Why Nigeria, South Africa did not join other Nations to sign Continental Free Trade agreement”. 22 March, 2018. https://www.pulse.ng/bi/strategy/strategy-why-nigeria-south-africa-did-not-join-other-nations-to-sign-continental-free/1sfvms6 Accessed December 23, 2019.
[8] Felix Onuah, Chijioke Ohuocha, “Nigeria's President Buhari says will soon sign up to African free-trade agreement”. Published July 12, 2018. https://af.reuters.com/article/africaTech/idAFKBN1K20H9-OZATP Accessed December 23, 2019.
[9] Olabisi D. Akinkugbe, “Why Nigeria had good reasons to delay signing Africa’s free trade deal”. Published July 26, 2018. http://theconversation.com/why-nigeria-had-good-reasons-to-delay-signing-africas-free-trade-deal-100203 Accessed December 23, 2019.
[10] Yomi Kazeem, “Africa’s largest economy is finally backing the continent’s plans for a single free trade market”. Published July 3, 2019. https://qz.com/africa/1657861/nigeria-to-sign-africa-free-trade-agreement-afcfta/ Accessed December 23, 2019.
[11] Kemi Arosanyin, “Understanding the African Continental Free Trade Area”. Published August 27, 2018. Accessed December 23, 2019.
[12] KPMG, “Africa: Free trade agreement for African continent”. Published July 9, 2019.
[13] John Campbell, “African Continental Free Trade Area: A New Horizon for Trade in Africa”. Published June 10, 2019. https://www.cfr.org/blog/african-continental-free-trade-area-new-horizon-trade-africa Accessed December 23, 2019.
[14] Grace Shao, “What you should know about Africa's massive, 54-country trade bloc”. Published July 11, 2019. https://www.cnbc.com/2019/07/11/africa-free-trade-what-is-the-afcfta.html Accessed December 23, 2019.
[15] McDonald Onyema, “AfCFTA to be or not to be”. Published July 9, 2019. https://assets.kpmg/content/dam/kpmg/ng/pdf/tax/Africa-Tax-Update-Quarterly-Newsletter.pdf Accessed December 23, 2019.
[17] Linus Unah, “Can Africa’s Free Trade Agreement Transform The Continent?”. Published July 11, 2019. https://www.trtworld.com/magazine/can-africa-s-free-trade-agreement-transform-the-continent-28176 Accessed December 23, 2019.
[18] Walter Ochieng, “This is how an African free trade area could impact people's health”. Published April 18, 2019.
[20] Kim Cloete (Official Writer, World Economic Forum on Africa), “Africa's new free trade area is promising, yet full of hurdles”. Published September 6, 2019. https://www.weforum.org/agenda/2019/09/africa-just-launched-the-world-s-largest-free-trade-area/ Accessed December 23, 2019.
[21] Mesut Saygili, Ralf Peters, Christian Knebel, “African Continental Free Trade Area: Challenges and opportunities of Tariff Reduction”. Published February 2018. Accessed December 23, 2019.
[22] Prince C. Oguguo, “Debate: Nigeria isn’t buying into Africa’s free-trade area – but should”. Published February 7, 2019.
[23] Sean Woolfrey, Philomena Apiko, “The African Continental Free Trade Area: The hard work starts now”. Published February 15, 2019. https://ecdpm.org/talking-points/the-african-continental-free-trade-area-the-hard-work-starts-now/ Accessed December 23, 2019.

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