It has been two years since the Africa Continental FTA (AfCFTA) came into effect. Great expectations were attached to it, as it fulfilled a major goal for the unification of Africa as laid out in Agenda 2063. The FTA is the largest of its kind since the World Trade Organisation (WTO) was formed. It covers 55 countries in Africa with a population of about 1.3 billion and a combined GDP of US $3.4 trillion
By 1 January 2023, 44 of 55 member states deposited their instruments of ratification with the AUC. Over two-thirds of member states are now parties to the AfCFTA Agreement. Somalia’s cabinet approval is pending. Eritrea is the only country not to join AfCFTA so far.
Its initial phase took effect in January 2021. It is intended to gradually diminish tariffs on 90 percent of goods traded within Africa, and the reduction of trade barriers in services is also anticipated. A World Bank report indicated that income levels could be enhanced by 7 percent up to US$450 billion by 2035, if the FTA was implemented. This was expected to reduce extreme poverty in Africa by 40 million people.
FDI is now the most important element to supplant the dependence of Africa on aid and grants.
A new World Bank study done in association with the AfCFTA Secretariat indicates that other benefits which could accrue would include FDI, both intra- African and from without. This is due to the regional markets created by the AfCFTA. FDI is now the most important element to supplant the dependence of Africa on aid and grants.
It is important because it will reduce debt stress, as accumulated debts are stretching African economies, particularly since the pandemic coerced them into domestic expenditure in a different way. FDI is expected to bring new capital, fresh technology, and additional skills which would raise the standard of living and reduce African dependence on primary and commodity exports. Real incomes may rise to about 8 percent in 2035, reduce poverty, and create a bigger middle class.
The World Bank report creates a model, indicating possibilities of improvements if the FTA was expanded as per plan. For this, harmonisation of policies on investment competition, e-commerce and intellectual property are imperative. Integration in these sectors would generate efficient markets with increased competitiveness. This additional expansion could bring enhanced gains of 9 percent by 2035 and reduce extreme poverty by a further 50 million. However, these are guidelines for policymakers and what is to be seen is how much has the AfCFTA actually achieved in two years.
The AfCFTA so far indicates a large amount of optimism but a far more realistic sense of achievement. Trade restrictions among African countries exist in large measure and need to be handled to expand intra-African trade. Much of the blame has been on the COVID pandemic impacting the integration goals of the AfCFTA. Some analysts believe that the ‘lethargic reactions of African leaders towards opening up their borders and liberalising trade leaves much to be desired’.
Three major issues have been documented, which seem to bedevil, the AfCFTA in its initial phase.
First, the negotiation on the Rules of Origin seemed endless. Several members were unwilling to ratify all the articles of agreement. Many African countries earn most of their trade revenue from exports to non-African countries. They were persuaded that the regional and domestic trade expansion could compensate for that.
Certainly, the impact of the pandemic made countries focus on strengthening existing trade mechanisms to generate more revenue. In 2022, rules of origin were resolved for 87.7 percent of the goods covered by AfCFTA, including about 3,800 tariff lines
Trade restrictions among African countries exist in large measure and need to be handled to expand intra-African trade.
Secondly, the AfCFTA suffers as does the African Union (AU) in general, from a lack of popular perception about its advantages across the board. African businesses in particular are not fully aware about the advantages of the AfCFTA. Protectionist policies followed by African countries have taken time to reduce. Moreover, persuading them about the advantages of the FTA and refocusing from exports to Europe for instance, to their neighbours, have taken much more time than anticipated.
A study by the Centre for the Study of Economies of Africa in Nigeria. one of the more anxious large economies in Africa, indicated that more than 60 percent of Nigeria’s entrepreneurs were unaware of the FTA and its benefits. Greater investment in making businesses aware of the advantages of the AfCFTA is required, as pointed out by the Africa CEO Trade Report 2022.
Thirdly, customs infrastructure to implement the AfCFTA obligations are slow. A few countries have the infrastructure and systemic capabilities for trade facilitation as required by the AfCFTA indicators – Harare