AFRICAN CONTINENTAL FREE TRADE AREA – CURRENT AFFAIRS BY EDEN IAS

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AFRICAN CONTINENTAL FREE TRADE AREA – CURRENT AFFAIRS BY EDEN IAS

The vision of “pan-Africanism” and “collective self-reliance” has long been an integral component of attempts by African leaders and policymakers to find Africa-driven solutions to African problems. However, due to weak political, economic and governance structures, these attempts have largely failed to facilitate a structural transformation of the continent and today, the African nations continue to be fragmented economies working in isolation. Therefore, in order to achieve an African resurgence, virtually all the African countries have embraced the notion of “regionalism” and “regional integration” as part of their broader aspirations towards continental integration.

Over the years, various pan-African organisations have been working towards deepening economic, social and political integration in Africa.

One such attempt was made at the 18th ordinary session of the African Union (AU), held in Addis Ababa in January 2012, with a decision to launch a Continental Free Trade Area (CFTA) by 2017. This was followed by eight rounds of negotiations between 2015 and 2017. A major breakthrough was achieved on 21 March 2018 when leaders from 44 African countries met in Kigali, Rwanda, and signed a framework agreement to establish what is being called one of the world’s largest trade blocs.

The agreement declared that the African Continental Free Trade Area (AfCFTA) would “come into effect 30 days after ratification by the parliaments of at least 22 countries. Each country has 120 days after signing the framework to ratify the agreement”.

Different Sections of the Continental Free Trade Area (CFTA)

  • The first section of this paper discusses the objectives of the CFTA agreement and its expected benefits for the African countries.
  • The second section describes the history of African regional integration efforts and the establishment of Regional Economic Communities (RECs) over the past decades.
  • The third section highlights the status of intra-African trade within the eight officially recognised RECs by the African Union using the 2016 African Regional Integration Index report as reference.
  • The fourth section charts out the earlier African initiatives aimed at enhancing regional integration, such as the New Partnership for African Development 2002, Minimum Integration Programme 2009, Boosting Intra-African Trade 2012, and Tripartite Free Trade Area 2015.
  • The fifth section explains the opportunities for and challenges facing the AfCFTA agreement.
  • The sixth section examines current trends in India-Africa trade and the potential impact of the AfCFTA agreement.

Aims and objectives of AfCFTA

The CFTA is an attempt by the African governments to “unlock Africa’s tremendous potential” to deliver prosperity to all Africans. It seeks to create a single continental market for goods and services with free movement of business people and investments.

By 2030, the African market size is expected to reach 1.7 billion people, with a combined and cumulative consumer and business spending of US$6.7 trillion.

The CFTA aims to expand intra-African trade through better harmonisation and coordination of trade liberalisation and facilitation regimes and instruments across subregions (RECs) and at the continental level.

As part of the agreement, “countries have committed to remove tariffs on 90 percent of goods with the remaining 10 percent of items to be phased in at a later stage”.

A study by the UN Economic Commission for Africa (UNECA) estimates that successful completion and implementation of the CFTA agreement – complemented with efforts to improve trade-related infrastructure, reduced import duties and transit costs – could lead to a 52.3 percent increase in intra-African trade by 2022, from the 2010 levels.

An increase in intra-African trade will “drive the structural transformation of economies from low productivity and labour intensive activities to higher productivity and skills intensive industrial and service activities”.

This will subsequently help in generating better paid jobs, leading to poverty alleviation.

The AfCFTA also seeks to “foster a competitive manufacturing sector and promote economic diversification”

At present, manufacturing represents only about 10 percent of the total GDP in Africa, on average, lagging behind other developing nations

Given the CFTA’s enormous “market size of 1.2 billion people and over $3.4 trillion of cumulative GDP”, if implemented properly, the CFTA could reduce this gap by increasing growth in the manufacturing sector and its value added products

Benefits of Regional economic integration

  • Free movement of goods, services, people and capital between national markets.
  • More robust, equitable economic growth.
  • Elimination of poverty and reduction in unemployment.
  • Increase in competition in global trade and improvement in access to foreign technology, investment and ideas.
  • Integration of small landlocked African countries, connecting them to a much larger, deeper regional and global market.

Opportunities and Challenges for AfCFTA

The AfCFTA provides an important opportunity for the African countries in an increasingly globalised world. The elimination of tariffs in goods and services will help in boosting economic growth of the African countries, transform their economies and achieve sustainable development goals (SDGs). Furthermore, if the non-tariff barriers to trade in goods and services are addressed and if the informal trade is integrated into the formal channels, the benefits accruing from the CFTA will be even greater. The following are some of the potential benefits of AfCFTA:

  • A bigger and integrated regional market for African products.
  • Improved conditions for forming regional value chains (RVCs) and integration to global value chains (GVCs).
  • Consumer access to cheaper imported products from other African countries.
  • Benefits to producers from economies of scale and access to cheap raw materials.
  • Better allocation of resources leading to faster economic growth.
  • Higher intra-African and external direct capital flows to African countries.
  • Elimination of challenges associated with multiple and overlapping trade agreements.
  • The structural transformation of the African countries from resource and low technology-based economies to more diversified, knowledge-based economies.
  • Stronger cooperation in other areas, such as technology transfer, investment, innovation and continent wide infrastructure development

Although, the CFTA offers numerous opportunities for attaining sustainable development, there are formidable challenges facing the participating member states.

  • Firstly, the share of intra-African trade in the total African trade is small, around 11.3 percent in 2011 which increased to 15 percent in 2018. These numbers show that “intra-African aggregate trade and share in total African trade is low as compared to other parts of the world, such as Asia, Latin America etc.
  • Secondly, analysts hypothesise that the trade growth and welfare benefits from the CFTA are likely to “accrue unevenly among African countries”. Countries with stronger supply capacity and competitiveness will be able to capture larger portions of the benefits and trade growth.
  • Thirdly, Nigeria – Africa’s largest economy and most populous country – has refused to sign the CFTA agreement.
  • Finally, the CFTA agreement needs to work out complementary policies in a number of diverse areas, such as market access to goods and services, competition policy, dispute settlement mechanisms, intellectual property and unfair trade practices.

Conclusion

The AfCFTA agreement represents a historic development in Africa’s journey towards creating a single, common and integrated market for the continent. To achieve this goal, it is imperative that the African countries develop the ability to produce and manufacture goods on their own, which will subsequently increase intra-African trade. There are many constraints that have impeded Africa’s progress. Some of the key ones are: lack of implementation of cohesive policies, underperformance in trade liberalisation, poor infrastructure facilities, lack of skilling, restrictive movement of persons, and illiteracy.

There is also a need to ramp up investments in infrastructure to build linkages within and among the African countries. The challenges are immense in the landlocked countries. On the other hand, although Africa has made progress through port modernisations and trans-border road projects, these need to be completed in time to provide economic benefits. The trade policies need to be harmonised and the non-tariff barriers eliminated.

As for the AfCFTA, the African countries must fast-track the process of ratifying it to realise its promise. They must demonstrate commitment to unite and create a single, large market for the collective aspiration of seeing the ‘Africa Rising’ come true. As Kwame Nkrumah, the first prime minister of Ghana and a visionary, argued half a century ago, the clarion call, “Africa must unite”, continues to ring true today.

 

 

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