By Antony Mutunga
In March 2018, at the 10th Extraordinary Session of the African Union, attending states agreed to create the African Continental Free Trade Area (AfCFTA) – as well as sign the free movement protocol by order of interest and the Kigali Declaration. Although not all states signed all three instruments, the majority – 44 out of 55 – agreed to formally establish the AfCFTA after rounds of negotiations between 2015 and 2017.
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The next step was for at least half of the founding nations (22) to ratify the legal instruments to bring the order into effect. During the African Union Summit held in July 2018, five more countries signed up bringing the number of signatories to 49. In 2019, this number had grown to 52 and, on May 30, AfCFTA finally came into force, with 24 countries ratifying the agreement. The next step involves forming a comprehensive free trade region for the continent.
According to Albert Muchanga, the Commissioner of Trade and Industry for the African Union, the agreement, ‘a bold, pragmatic and continent-wide commitment to economic integration’, is expected to launch market during the 12th Extraordinary summit on AfCFTA this July.
It is, however, not time to pop the champagne yet, for critical parts of the agreement are yet to be completed. Thus far, all that has been done is in the scope of the first phase of the AfCFTA – liberalising goods and services. Some portions are still outstanding.
For instance, countries that have ratified AfCFTA must agree on rules of origin, schedules of service commitments and traffic concessions. Because these issues are still pending, regulations regarding the type of value addition that must occur within an AfCFTA party in order for a product to benefit from AfCFTA tariff rates remain unclear. In addition, it is not clear which products will be affected by tariff cuts and which service sectors will have their restrictions loosened or removed.
Phase two of the AfCFTA agreement will focus on three areas; investment, competition policy and intellectual property rights. Additionally, the AU must work to establish a secretariat to govern the agreement. Even with the outstanding issues of the first stage, negotiations for phase two commenced in February this year. According to the AU, they are expected to be complete by June 2020.
Once these phases are complete, traders in Africa are expected to reap richly from what, once complete, will be the world’s largest free trade area.
Those yet to sign the agreement include Nigeria, which is the continent’s largest economy, Benin and Eritrea. President Muhamadu Buhari of Nigeria has held off from signing because he believes the arrival of highly competitive products could harm the local industry and negatively affect domestic manufacturers.
Nigeria is also concerned about tariffs. According to the agreement, 90 percent of the tariff on goods are to be liberalised with the rest being divided into sensitive products (7 percent) which will be given a longer timeframe to liberalise and excluded products (3 percent) which will be exempt from liberalisation altogether, to remain under each Member States’ existing tariffs. Because tariffs are one of Nigeria’s major sources of revenue, it is reluctant to forgo the revenue for the trade agreement.
Once AfCFTA is fully operational, it is projected to reduce tariff and non-tariff barriers and facilitate the movement of goods and services, thereby allowing investors to leverage one of the fastest growing consumer markets and providing certainty to businesses.
AfCFTA will also provide a boost to domestic producers by providing access to competitive inputs and services. Consumers, on the other hand, will enjoy lower prices and a greater variety of products. This will be crucial especially with the intensifying global trade wars happening around the world.
According to the 2019 African Economic Outlook, in a scenario where tariffs and non-tariff barriers are eliminated in conjunction to full implementation of trade facilitation measures, the AfCFTA would yield total income gains of about Sh10.2 trillion ($100 billion) and boost intra-African trade by 132.7 percent. This is, however, contingent on full onboarding by all states.
When this happens, Africa will have created the single largest market for goods and services of over 1.2 billion people and with a total GDP of more than Sh305 trillion ($3 trillion) – the elusivity of which has kept at bay the benefits of free international trade.
Importantly, the AfCFTA presents a real milestone for African unity. If implementation is successful, a free-trade continental bloc will move us closer to the dream of a ‘United Africa’. (