Building capacity to help Africa trade better

Making the AfCFTA work: Some additional Requirements


Making the AfCFTA work: Some additional Requirements

Making the AfCFTA work: Some additional Requirements

States have jurisdiction over their territories. They control the movement of goods, services, capital, and persons across borders. But no country can prosper in isolation. Trade agreements are legal instruments concluded by sovereign States to promote international trade and commerce in a rules-based manner. This brings the private sector (manufacturers, importers, exporters, service providers and investors) into the picture. Private sector initiatives will, to a considerable extent, determine the outcomes of a new trade agreement. Except for involvement in areas such as public procurement, Governments don’t trade. However, what Governments do (or fail to do) in terms of trade governance, is vital.

Trade agreements do not guarantee new benefits. Much more is required to unlock the potential inherent in trade deals. Rules-based access to new markets holds the key for the private sector to venture in new cross-border business transactions, and to reap the associated developmental benefits. International trade agreements are not an end in themselves, and they are not self-executing.

The African Continental Free Trade Area (AfCFTA) Agreement is a comprehensive and ambitious trade pact for the whole continent. Its implementation will be challenging; eventually all 55 Members of the African Union will be involved. Some of these countries face formidable infrastructural challenges and technical capacity constraints. Thirty-three of the world’s 46 Least Developed Countries (LDCs) are in Africa. Many are land-locked. There are also challenges with deeper causes, such as high trade costs, limited manufacturing capacity, high costs of doing business, infrastructure deficits, and limited access to loans and financing. How will these problems be tackled as part of the implementation of the AfCFTA? We mention some of the arrangements that do exist and can assist African States.

During a recent visit to Nigeria the Director-General of the World Trade Organization (WTO), Dr. Ngozi Okonjo-Iweala, emphasized the implications of the high cost of trading in Africa. Trade costs for African countries are on average the equivalent of a 304 percent tariff.[1] These costs, coupled with infrastructural capacity limitations, pose formidable obstacles to prospective investors. Improving security and lowering transaction cost for foreign investment, even for domestic investment, would be necessary. The new Investment Facilitation Agreement of the WTO can become a useful instrument for addressing these issues.

Various studies confirm that high trade costs prevent many developing countries from fully exploiting the market access opportunities that the multilateral trading system creates. Cumbersome and time-consuming border procedures, obsolete or ill-adapted infrastructure, limited access to trade finance and the complexity and cost of meeting an ever broader array of standards all serve to price too many countries out of international trade. Market access does not always convert into market presence and the potential gains from trade are not always fully realised. The Aid-for-Trade Initiative was launched at the 2005 Hong Kong WTO Ministerial Conference to tackle these kinds of constraints.

A new Aid-for-Trade Work Programme was launched in February 2020. Under the theme of “Empowering Connected, Sustainable Trade”, the Programme seeks to analyse the opportunities that digital connectivity and sustainability offer for economic and export diversification. Aid for Trade can contribute towards the latter objective by addressing supply-side capacity and trade-related constraints that exist, notably among LDCs. The Work Programme will also seek to add value by analyzing how current industrialization and economic growth objectives interact with those on sustainability and responsible production, approaches which can be collectively termed “green growth”, with a particular emphasis on women, youth and MSMEs.

The African Export-Import Bank (Afreximbank) is a Pan-African financial institution mandated to finance and promote intra-and extra-African trade. Afreximbank develops financing solutions that support the transformation of the structure of Africa’s trade, accelerating industrialization and intra-regional trade. It has also developed a Pan-African Payment and Settlement System (PAPSS) that was adopted by the African Union (AU) as the payment and settlement platform to underpin the implementation of the AfCFTA. Afreximbank is working with the AU and the AfCFTA Secretariat to develop an Adjustment Facility to support countries in participating in the AfCFTA. Afreximbank now wants to commit a $200 million envelope to support the Fund for Export Development in Africa (FEDA), to be headquartered in Rwanda.

[1] According to the World Bank-ESCAP report of 2019. https://www.unescap.org/resources/escap-world-bank-trade-cost-database

About the Author(s)

Gerhard Erasmus

Gerhard Erasmus is a founder of tralac and Professor Emeritus (Law Faculty), University of Stellenbosch. He holds degrees from the University of the Free State, Bloemfontein (B.Iuris, LL.B), Leiden in the Netherlands (LLD) and a Master’s from the Fletcher School of Law and Diplomacy. He has consulted for governments, the private sector and regional organisations in southern Africa. He has also been involved in the drafting of the South African and Namibian constitutions. He grew up in Namibia.

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