Africa turns to AfCFTA as global “trade wars” escalate
By Wanjohi Kabukuru – When US President Donald Trump decided to leave the Trans-Pacific Partnership trade pact, in 2017 a new chapter on global trade was being designed. The US went ahead to unilaterally impose taxes on imports from the European Union, China, Canada and Mexico. This prompted a “tariff war” as all these countries retaliated by imposing similar taxes on US imports. For the better part of 2018 the US and China the two largest economies have been caught up in a trade war by subjecting imports from each other to what is being interpreted as ‘punitive tariffs’.
This had been preceded earlier in mid-2016 by the UK which surprised the world when they voted to leave the European Union triggering an expected tariff spat between the UK and the EU. That was just the beginning. Fears of global political and social instability, employment and financial crisis are no longer far-fetched.
But against all these fears and the subsequent spill-over tariffs in the global trade chain currently taking place, 2018 remains one of Africa’s most integral in the global trade matrix.
Africa is poised on a quest to integrate through trade. The race for the ratification of the African Continental Free Trade Agreement (AfCFTA) is on. Ghana, Kenya, Niger, Rwanda, Chad and eSwatini have already ratified the agreement. 49 African nations have already signed the agreement.
The continental trade treaty which will see Africa becoming the world’s largest trading bloc is being hailed by economists as a key pillar that will help create wealth, reduce poverty, diversify Africa’s economic landscape and trigger industrialisation. “AfCFTA is a tool for driving African industrialisation, economic diversification and development.” Dr. Vera Songwe, the Executive Secretary of the Addis Ababa based United Nations Economic Commission for Africa (UNECA) says. “It will help to promote the type of trade that produces sustainable growth, create jobs for young people in Africa and establish opportunities for nurturing businesses and entrepreneurs on the continent.”
Dr. Vera Songwe, the Executive Secretary of the UN Economic Commission for Africa
According to Songwe, AfCFTA is also expected to “pivot the continent’s trade away from extractives sector exports towards more sustainable and inclusive trade that is less affected by fluctuations in commodity prices.”
Indeed in the last five years the African economies that had enjoyed a run during the commodities boom have suffered a hit as a slump in commodities unexpectedly surged. Statistics availed by the ECA which serves as the continent’s economic think-tank shows that Africa’s economic growth recovery was experienced in 2017 with a 3.1 per cent growth. This was considered an impressive recovery as the continent had experienced its lowest level of economic growth in a century in 2016 when it recorded a 1.6 per cent growth.
Stephen Karingi who heads ECAs regional integration department at ECA concurs that there needs to be a strategy to get the AfCFTA moving. “To fully utilize the opportunities of the African Continental Free Trade Area, each country should develop a strategy for the AfCFTA that complements the broader trade policy of each respective state party and that identifies for that particular country the key trade opportunities, current constraints and steps required for it to take full advantage of the African market.” Karingi says. “Such strategies will be in line with the African Union’s Action plan for boosting intra-African trade. Again we at ECA believe that Africa’s industrial exports will benefit the most from AfCFTA. The growth of industrial exports is key to efforts to diversify Africa’s trade and encourage a move away from extractive commodities such as oil and minerals which have traditionally accounted for most of Africa’s exports, towards a more balanced and sustainable export base.”
AfCFTA signed in the land-locked capital of Kigali in Rwanda in March this year was no coincidence. According to Karingi, land-locked African nations had expressed genuine fears necessitated by higher freight charges with unpredictable transit times as compared to other countries.
Maritime freight and excessive port charges are among fears expressed by land locked nations.
Karingi says these fears raised by land locked nations are addressed in AfCFTA which offers them tariff reductions, trade facilitation, transit and customs cooperation. Karingi also adds that within AfCFTA are the continent’s least developed countries (LDCs) which have been cushioned by precautions allowing for gradual period for implementation accompanied by protection for infant industries for countries with challenges on balance of payment issues and those whose domestic industries maybe threatened by imports. “Some of the issues people are raising are already catered for as the agreement takes care of everything.” Karingi says.
However amidst all the ring-fencing envisaged in AfCFTA to accommodate all of Africa’s 55 member states of the African Union, the challenge of effective hassle free implementation still remains. Concerns have been raised that without firm ministerial guidance AfCFTA risks being derailed or delayed based on previous examples. The case most cited is that of the Tripartite Free Trade Area launched in June 2015 but was not implemented.
“People who do not pay attention to history will always repeat the mistakes of the past. The history of the implementation of treaties and agreements in Africa is not very good. It is not only on implementations even the ratification itself has been a major challenge. Between 2002 and 2018 we have 51 treaties and only a few have been ratified. I want to raise awareness to say that this is not a joke.” Professor Emmanuel Naadozie the Executive Secretary of the Zimbabwe based continental think-tank, African Capacity Building Foundation (ACBF) warns. “60 per cent of treaties since 1963 have not been implemented. We have to do something extraordinary. If you don’t have the leadership that is visionary, that is accountable and pro-active this process is not going to happen. We need to have a strategy for the AfCFTA to work.”
AfCFTA is expected to enter into force once 22 member states of the AU have deposited their instruments of ratification at the African Union Commission. The operationalisation of AfCFTA requires that after ratification countries need to conclude the implementation road map which involves developing and submitting schedules of concessions for trade in goods.
“Implementation is AfCFTA’s hardest part.” Professor Nnadozie says AfCFTA has crossed the easy part and now the hardest part awaits it. “We are very good at signing but we need to move from signing to implementing so that we can lift our people out of poverty.”
90 per cent of total imports that will be liberalized by each customs union must be specified alongside excluded products which will be exempted temporarily from liberalisation. To complement the schedules of concessions for trade in goods is the list of product specific rules of origin to enable the application of preferences under AfCFTA. For trade in services member states are expected to first agree on which sectors are to be prioritised then agree to develop and submit schedules of concessions for the services sectors.
Statistics availed by ECA showcase that Africa’s population of 1.2billion with a GDP of $2.5trillion will benefit immensely if the continent trades as a single unit. According to the Abidjan based African Development Bank (AfDB) forecasts African GDP is set to grow to $16trillion by 2060 from the $3trillion it is expected to have reached by 2020. Africa’s market is at presently fragmented among the 55 African states divided by 107 borders. Most businesses face average tariffs of 6.9 per cent when they trade across these borders and are subjected to non-tariff barriers, like excessive documentation and custom delays. To rectify this scenario Dr Songwe says “AfCFTA will help to consolidate the African market, making it easier for its businesses to reach greater economies of scale and scope, promoting the development of regional value chains and lowering border costs for trading enterprises, businesses and consumers.”
