African FTA- An illusion or a step forward

On 21st March 22, 2018, 44 African countries signed an agreement among them to establish one of the biggest trade deals in the world after the establishment of the World Trade Organization in 1995. The trade deal known as the African Continental Free Trade Area (AfCFTA) is expected to come into effect in the next six months.

The objective of the agreement is to create a single market for the free movement of goods and services, business persons, and investments and most importantly reduce tariffs among members states. According to African Union, AfCFTA is the bedrock for the establishment of the Continental Customs Union. From the 55 members of the African Union, 44 countries signed the agreement and are committed to remove trade tariffs, and import quotas between each other and boost intra-Africa trade (See complete list of the countries and the Legal Instruments they signed during the summit on the AfCFTA, posted on the AU Website: www.au.africa ). The rest of the member states including Nigeria and South Africa refused to sign the deal asking for more time to study the agreement and consult local stakeholders.

Source: CNN/ Getty Images

BENEFITS OF AfCFTA

The agreement is expected to boost the local economies of African countries. As observed by Paul Kagame, the Chairperson of the African Union, AfCFTA will help improve the well-being as well as the human dignity of all Africans particularly women and children. It also is expected to create more jobs, bring in investments and diversify the economies. According to the United Nations Conference on Trade and Development (UNCTAD), if African governments fully eliminate tariffs among African countries, welfare gains among members states is estimated to grow around $16.1 billion, this is after subtracting tariff loss of $4.1 billion, while GDP and employment will increase by 0.97% and 1.17% respectively.

In the case of partial tariff reduction which will include the exemption of sensitive products, UNCTAD estimates welfare gain to rise by $10.7 billion, 0.66% increase in GDP and 0.82% in total employment growth. The largest employment growth is observed in the areas of the manufacturing sector, followed by service industry and agriculture. Generally, with the exception of the mining sector, all other areas are also expected to grow. These developments are in line with the agenda of AfCFTA.

As it stands now, intra-trade among African nations is around 10%. This is primarily due to colonialism which placed importance on trade between Africa and Europe, the Americas and recently China to the detriment of internal trade.  The lack of infrastructure connecting African countries in the area of aviation, railways, road and, ports also hinders intra-trade among African. However, intra-Africa trade can be enhanced with the implementation of AfCFTA. According to a report by the United Nations Conference on Trade and Development, intra-Africa trade is expected to grow by 33% and 24% respectively, depending on how the tariffs agreements are implemented–either fully or partially.

CHALLENGES

Even before the agreement could be signed in Kigali, the deal had its major setback- Nigeria, the continent’s most populous and biggest economy pulled out while South Africa asked for additional time to study the agreement. According to the Nigerian government who hitherto was a leading participant in the agreement, certain key stakeholders in Nigeria indicated that they have not been consulted for which reasons they had some concerns on the provisions of the treaty. As expected, the business community in Nigeria and trade unions have raised the red flag about the negative effects free trade will have on local business. This is due to the fact that the trade agreement is expected to be developed into an integrated body which will see the free movement of people, goods, and services across the continent. They argue that the free movement of goods and services will cripple Nigerian business. Experts argue that the absence of these countries which account for nearly 30% of the continent’s GDP and 43% of intra- Africa trade can be detrimental to the survival of the agreement.

Another problem relates to what can be collective called transitional challenges. These are the challenges which UNCTAD describes as short run (early challenges) as a result of the implementation of trade agreements. These includes are setbacks such as reduction of income for the public sector due to the elimination of tariffs, movement of labor and capital from one country to the other, unemployment and the possible collapse of local industries due to the influx of cheap goods from other countries. There is also the cost associated with upgrading the expertise of workers to make business competitive. While these challenges are described as temporary, there is no exact timeline and the effects on countries may vary.

Related to the above is the uneven development of African countries. This presents many problems such as their economic abilities to absorb the shocks of transitional challenges, the potentials for the few industrialized nations on the continent greatly benefit from the agreement. These problems can lead to unequal growth and development among the countries. For example, while the average GDP growth rate for member countries is estimated to be 1%, other countries are expected to grow by 3%.

Again, the number of countries involved in the agreement and the size of Africa act as a blessing and a challenge for the implementation of the policy. The European Union (EU) with all its challenges seems to be the modeled AfCFTA is embracing. The EU started with 6 countries and currently have 28 members while AfCFTA is starting with 44 members with the expectation that all 55 members will come on board. Although the vastness of the African continent provides larger market, it also means the rectification of the agreement must go through different legislative processes including the 22 mandatory rectifications processes as set by the African Union before it can become a law. These can serve potential delays to the six months timeline.

Aside from the above, there is also the challenges of local and regional interests. Local politicians will be careful not to approve anything agreement that has the potential of reducing their chances in elections. This can lead delays possible crashes of interest between local, national, regional and continental agencies. This point is coupled with the fact that Africa is also divided into different regional bodies with different priorities. It remains to be seen how ACfTA can synchronize the activities of these different bodies.

Finally, the free movement of people within the continent also brings to mind security issues particularly transnational terrorism. In recent years, transnational terrorism has gained grounds in certain areas in Africa, if not implemented with caution, AfCfTA can also serve as a channel for the spread of terrorism and its negative effects.

CONCLUSION

The economic integration of Africa is long overdue, AfCfTA is a giant step towards the actualization of the founding fathers’ dream. In this paper, I examined the benefits and challenges of the agreement. While there are many challenges that need to be addressed in the short, medium and long terms, the advantages of AfCFTA far outweigh the challenges.  As the Chairperson of the African Union Commission, Moussa Faki noted the economic integration of Africa is not only born out of Pan-Africanism but also a practical imperative linked to the economic development of the continent.

Richmond Danso

Richmond Danso

Contributor at InPRA
Richmond Danso is a second year Ph.D. student at Howard University specializing in International Relations and American Government and Behaviors. He is a graduate of Kwame Nkrumah University of Science and Technology, Kumasi- Ghana and Montana State University- Bozeman, where he earned degrees in Political Science and Public Administration respectively. His research interests include regional integration, democratization, public policy, international organizations, security and development in Africa, and Blacks in the diaspora.
Richmond Danso

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