Discussions
African Continental Free Trade Area (AfCFTA) and the private sector
Camille Andriamahatana, tralac Intern, and Talkmore Chidede, tralac Researcher, discuss the importance of engagement with the private sector in successfully implementing the AfCFTA
African leaders launched the AfCFTA on 21st March 2018 in Kigali, Rwanda. A formal continental trading arrangement does not yet exist. It will officially exist once the AfCFTA Agreement has been ratified by 22 member states. Member states are also yet to finalise outstanding issues: some annexes of the trade in goods protocol; trade in services protocol; dispute settlement mechanism protocol; and the transitional implementation work programme (tariff liberalisation modalities on sensitive products and the exclusion list, and services modalities on choice of priority sectors). Thereafter, phase 2 negotiations on investment, competition and intellectual property rights will commence.
This discussion note endeavours to answer the following questions: Why is the private sector important for the achievement of the AfCFTA? Why is the AfCFTA important for the private sector?
Why is the private sector important for the AfCFTA?
The private sector is a major engine for sustainable economic growth and development, job creation and poverty alleviation in Africa and across the world. In Africa, the private sector accounts for 80 percent of the total production, two thirds of investment, and three quarters of credit, and employs 90 percent of the working age population. In addition, 90 percent of the firms within the African private sector are small and medium enterprises (SMEs). These businesses’ participation in cross-border trade is very limited due to tariffs, non-tariff barriers which include complex customs and trade procedures, lack of access to finance, high transportation costs and lack of access to information, among others. See the tralac infographic on the pdf AfCFTA and private sector (487 KB) .
What is to gain from the AfCFTA for the private sector?
The private sector is a key stakeholder and beneficiary of the AfCFTA. The business communities are the actual traders and investors; responsible for moving goods and services across border.
The AfCFTA aims to create a single continental market for goods and services, with free movement of business persons and investments. At the 2018 tralac Annual Conference, H.E. Albert Muchanga, African Union Commissioner for Trade and Industry, said that ‘creating a one market unleashes huge economies of scale which offer an equally huge incentive for business to locate in Africa’. The AfCFTA will progressively eliminate tariffs on intra-African trade (up to 90 percent), harmonise and coordinate trade liberalisation and facilitation and instruments across the regional economic communities and across Africa, making it easier for businesses to trade within the continent. The AfCFTA is also expected to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access and better reallocation of resources. It is important to note that these opportunities or benefits will remain potential unless and until the AfCFTA legal instruments are implemented.
Equally important, the AfCFTA legal instruments will establish rules-based governance, certainty and predictability for the business community when trading or investing across borders.
Government and private sector dialogue is crucial for the AfCFTA
To achieve the success and implementation of the AfCFTA, member states must actively engage with the private sector, allow them to share their reflections and on-ground experiences. During the AfCFTA Business Forum, which preceded the AU Extra-ordinary Summit in Kigali, the business community pledged its support for the AfCFTA. Similarly, the African leaders revealed their political will to engage the private sector in the implementation of the AfCFTA.
The AfroChampions Initiative was developed as an official platform of exchange between the private sector and African leaders.[1] The initiative will carry out several advocacy and awareness campaigns and consultations for the AfCFTA. The campaigns will be organised in four strategies: enhancing public-private dialogue around the AfCFTA; research and knowledge sharing; the promotion of intra-African trade and investment in collaboration with the Afrixembank; and dialogue with civil society. Private sector members of AfroChampions Initiative have donated US$1 million for these campaigns. It is important to ensure that the civil society, micro and small enterprises, even the informal sector participate more effectively in this initiative. This is essential to ensure that their concerns and views on the AfCFTA are adequately addressed, and that they harness opportunities offered by the AfCFTA.
[1] See https://www.tralac.org/news/article/12879-afrochampions-initiative-will-work-side-by-side-with-the-african-union-to-promote-the-african-continental-free-trade-area.html.