By Antony Mutunga
Because most of African countries were colonised, they are bound to their colonial masters. As a result, development is tied to the extent the masters allow. Many of the continent relies on the international trade more than it trades with itself. According to the African Economic Outlook 2017, the European Union remained the continent’s largest trading partner with 30% of trade in 2015 while intra-African trade stood at 15%.
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However, this has started to change as Africans realise that trading more with each other they can break them free of these bonds, to enable them realise their full potential. A culmination of such a dream saw the commencement in 2015 of a Continental Free Trade Treaty during the 26th Ordinary Session of the AU Assembly Heads of State and Government in Johannesburg, South Africa.
Even though it took more time than expected, as 2017 was the year it was supposed to become operational, in 2018 the majority of African states signed the Africa Continental Free Trade Area (AfCFTA) agreement during the 10th Extraordinary Summit of the AU Assembly of Heads of State and Government in Kigali, Rwanda, laying the foundation for the creation of one of the largest blocs in the world.
The AfCFTA is expected to lead to an integration of the African community. Taking a leaf from the European Union, the Africa Continental Free Trade Area also creates a single continental market for goods and services as well as a free trade agreement that allows free movement of business travellers and capital.
To make all this possible, African countries have decided to first remove trade tariffs on 90% of the goods to promote trade liberalisation between them. Removal of the remaining 10% is to be done gradually.
The implementation of the agreement is expected to increase intra African trade to 52.3% by 2022 according to the United Nations Economic Commission for Africa (UNECA). In addition, the increase is also expected to double once non-tariff barriers are removed as well.
According to Vincent Mutua, an economics professor, tariffs and non-tariff barriers have hindered the growth of intra African trade, thereby stalling economic growth. Most African nations have punitive regulations when it comes to bilateral trade, which has often beset economic relations.
The agreement is also going to expand the market in that, once it takes effect, businesses will have access to a larger pool of consumers as they will no longer be confined only to their country’s consumers but will now have a market of more than 1.2 billion people whose combined gross domestic product (GDP) is more than $2 trillion. Additionally, with the population of Africa expected to increase to about 1.7 billion by 2030, businesses, especially small and medium enterprises (SMEs), will reap big as a result of an emerging consumer spending power from the growing middle class.
Apart from expanding the market, it will help grow the manufacturing sector, which has been perennially clumsy. In 2017, according to data from the World Bank, the continent’s manufacturing sector made up an average of about 10% of its total GDP. This has been a major hindrance in dealing with high unemployment and poverty rates, especially among the youth, which are the leading challenges in Africa.
The implementation of AfCFTA promises to be a solution to these challenges, if done well and with conviction. As the continent adopts a single market and intra-African trade increases, the manufacturing sector is expected to increase as costs of production. Many jobs will be created in the process. In a word, the agreement will contribute to poverty alleviation in the continent while, at the same time, it transforms the economic structure of the continent.
There is a caveat, however.
Despite the many good tidings that the agreement brings to the continent, it will not be easy to implement as it would be better if all member came to an understanding about its workings; so far this is not the case.
During the signing of the agreement in March 2018, out of 55 African countries, only 44 had signed the agreement. Among those that did not sign the agreement are two of the largest economies in the continent, South Africa and Nigeria which have a GDP of $295 billion and $405 billion respectively according to the IMF.
Both countries argued that they needed more time to consult with their people and to ensure the concerns of all shareholders were addressed before signing the agreement. Some of those opposed to signing the agreement as it was, argued that social welfare and government revenue would be adversely affected especially where revenue is highly dependent on tariffs.
In addition, critics were also concerned that with the agreement opening up a single market in the region, local manufacturers and entrepreneurs would be undermined as a result of excessive competition from companies from other countries that offer low-cost goods.
This would eventually cause lay-offs and, worse, cause businesses to close up shop as they may not be able to keep up with the competition. A further cause for concern is that even though this would see quality goods flow in, it also paves way for harmful and counterfeit goods.
Other concerns include inequalities in terms of benefits – where some economies will reap more than others. This is backed by evidence. For example, according to Moody’s, economies that have large manufacturing bases and good infrastructure, like Kenya and South Africa, will benefit more from integration, even as it is conceded that the benefits will eventually trickle down to all economies.
The AfCFTA agreement is a good solution to gaps in intra-African trade. However, for this to come into fruition, there is need to consciously and objectively implement the agreement in a manner that is void of politics. There is need to speedily and conscientiously address the issues raised, so that objectives of the agreement are aligned with every stakeholder.
Africa needs to unite and cooperate in this manner because, for once, this is a tool that promises massive benefits. Consequently, member states must ratify it within the timelines provided, as a starting point. (