Benedict Mary Ogwa
Here’s what you need to know about the biggest trade agreement signed since the World Trade Organization (WTO) was established. African countries are set to put their signature to an agreement that will launch the African Continental Free Trade Area (AfCFTA) in Kigali, Rwanda.
The UN Economic Commission for Africa (UNECA) has estimated the agreement’s implementation could increase intra-African trade by 52 percent by 2022, compared with trade levels in 2010. African heads of government agreed to establish a continental free trade area in 2012 and started negotiations in 2015. The agreement is set to be signed by all 55 member states of the African Union, bringing together 1.2 billion people with a combined gross domestic product (GDP) of more than $2 trillion.
The draft agreement commits countries to removing tariffs on 90 percent of goods, with 10 percent of “sensitive items” to be phased in later. The agreement will also liberalize services and aims to tackle so-called “non-tariff barriers” which hamper trade between African countries, such as long delays at the border.
By creating a single continental market for goods and services, the member states of the African Union hope to boost trade between African countries. Intra-African trade is relatively limited; UNCTAD, the main UN body dealing with trade, said it made up only 10.2 percent of the continent’s total trade in 2010. David Luke, coordinator of the African Trade Policy Centre at UNECA, hopes the free trade area will correct this “historical anomaly”.
“Colonialism created a situation where neighbors stopped trading with each other. The main trading route was between African countries and European countries and between African countries and the US,” Removing barriers to trade is expected to not just grow trade within Africa, Luke said, but also grow “the kind of trade this continent needs”.
Between 2010 and 2015, fuels represented more than half of Africa’s exports to non-African countries, while manufactured goods made up only 18 percent of exports to the rest of the world, a UNECA report said.
“When you have this kind of economy, your young people cannot find jobs. And when they cannot find jobs, you see them trying to get to Europe and drowning in the Mediterranean,” Luke said.
“If you are making the basic things that everybody consumes, then you are creating jobs.” Luke hopes the free trade area will also make Africa more competitive outwardly. “If you can move further up the supply chain, you are better placed in a global context as well,” he said.
A research paper by UNCTAD concedes that elimination of all tariffs between African countries would take an annual $4.1bn out of the trading states’ coffers, but would create an overall annual welfare gain of $16.1bn in the long run. But there are fears that the benefits of the free trade area could be unevenly distributed.
Africa’s most advanced countries are at an advantage with their more strongly developed manufacturing capabilities. Allowing them to sell their goods and services to the continent’s less developed countries could undercut industrial development there.
“We need to pay attention to the big economies against the small economies. We need to pay attention to the dominant sectors against the weaker sectors.”
Eyerusalem Siba, a research fellow at the Brookings Institution’s Africa Growth Initiative, is concerned with the domestic policies “which need to be in place to assist workers and also businesses when competition increases”. Governments will need to develop a more skilled workforce adaptable to the demands of globalization and at the same time create social policies for those who will lose jobs due to increased competition, Siba said.
“Competition tends to have a detrimental impact on wages in low-cost jobs, so countries need to think about how they’re going to address that situation.
The text to be signed on March 21, 2018 contains the legal framework for the free trade area, which will then need to be ratified by the individual countries through their respective domestic processes.
AfCFTA will come into force after it has been ratified by either 15 or 22 countries – a number that has yet to be agreed on. A second phase of negotiations will be held later to cover investment, competition policy and intellectual property.
There are other details that still need to be ironed out; countries will need to submit which products they consider “sensitive”, thus exempting them from the tariff cut for now, for example. And the African Union Commission will need to establish a secretariat to preside over the agreement.