Free trade in Africa: Opportunities for Canada
As part of its 2nd Annual Africa Day Celebration in Ottawa, the Canada-Africa Chamber of Business on 24 May 2018 held a presentation / panel discussion on the African Continental Free Trade Area (AfCFTA) Agreement, followed by a networking cocktail reception.
Keynote speakers for the afternoon session included David Luke, Coordinator of the African Trade Policy Centre, Regional Integration and Trade Division, United Nations Economic Commission for Africa; and Jesse Moore, Chief Executive Officer, M-KOPA Solar. Download their presentation, Africa leapfrogs to wireless energy (pdf).
The event was co-sponsored by the Gowling WLG (Canada) LLP and Global Affairs Canada.
David Luke also addressed a Toronto audience on 23 May on the AfCFTA and what it means for Africa and its trading partners.
AfCFTA and the opportunities and implications for Canada
Presentation by David Luke in Ottawa
AfCFTA: What it means and state of play
On 21 March 2018, 44 African countries sign the AfCFTA, indicating considerable political commitment at the highest level. The Agreement establishing the African Continental Free Trade Area consists of:
Protocol on Trade in Goods
- Elimination of duties and quantitave restrictions on imports
- Imports shall be treated no less favourably than domestic products
- Elimination of non-tariff barriers
- Rules of Origin
- Cooperation of customs authorities
- Trade facilitation and transit
- Trade remedies, protections for infant industries and general exceptions
- Cooperation over product standards and regulations
- Technical assistance, capacity-building and cooperation
Protocol on Trade in Services
- Transparency of service regulations
- Mutual recognition of standards, licensing and certification of services suppliers
- Progressive liberalization of services sectors
- Service suppliers shall be treated no less favourably than domestic suppliers in liberalized sectors
- Provision for general and security exceptions
Protocol on Dispute Settlement
- Rules and Procedures for Settlement of Disputes within the AfCFTA
Phase 2 negotiations
- Intellectual property rights
- Competition policies
What does the AfCFTA mean in concrete terms?
Businesses, traders and consumers will no longer pay tariffs on a large variety of goods that they trade between African countries;
Traders constrained by non-tariff barriers, including overly burdensome customs procedures or excessive paperwork, will have a mechanism through which to seek the removal of such burdens;
Cooperation between customs authorities over product standards and regulations, as well as trade transit and facilitation, will make it easier for goods to flow between Africa’s borders;
Through the progressive liberalization of services, service suppliers will have access to the markets of all African countries on terms no less favourable than domestic suppliers;
Mutual recognition of standards, licensing and certification of service suppliers will make it easier for businesses and individuals to satisfy the regulatory requirements of operating in each other’s markets;
To protect against unanticipated trade surges, State Parties will have recourse to trade remedies to ensure that domestic industries can be safeguarded, if necessary;
A dispute settlement mechanism provides a rule-based avenue for the resolution of any disputes that may arise between State Parties in the application of the agreement.
And why does it matter?
70% of Africa’s exports to the RoW comprise extractives (oil, gas, minerals, and metals). These create revenues, but are capital intensive, and volatile in price.
Intra-African trade is different, with extractives only 40%: more value-added, industrial, and better diversified, helping to generate employment, industrialization and sustainable growth.
The AfCFTA helps promote such intra-African trade: ECA estimate it will have the potential to boost intra-African trade by between 52 and 100%, depending on the extent to which tariffs and NTBs are eliminated.
In turn, this helps to fuel sustainable development in Africa.
Next steps for the AfCFTA
Entry into force after 22nd instrument of ratification deposited with the AUC. So far: Kenya, Ghana, Rwanda and Niger have reportedly ratified. After 22nd ratification the AfCFTA Secretariat will be established.
By Jan 2019 countries must also submit:
- Schedules of concessions for trade in goods
- Schedules of concessions for trade in services
- Rules of origin
Countries will begin negotiating Phase II issues by start of 2019: Competition, investment, intellectual property rights and potentially e-commerce
Trade and investment: Canada-Africa opportunities
Canada exports foodstuffs and advanced machinery to Africa. Growth has been slow over last decade. And imports mostly petroleum oils, precious stones, and agricultural products. Imports have fallen with oil prices.
No explicit sectoral investment data for ‘Africa’, but Africa accounts for about 50% of ‘other countries’ to which 2/3rds of Canada’s outward investment comprises oil & gas and mining
Opportunities: Need for new thinking
Changing African opportunities
Currently a market of 1.2 billion people, and a combined continental GDP of about $2.5 trillion. The middle class in Africa now represents almost a third of Africa’s current population and is growing.
However, by 2050 Africa will be home to 2.5 billion people – more than a quarter of what will be the world’s population, with an economy estimated to be worth as much as $29 trillion. By then, the market of just Nigeria will account for around 8 times as many people as Canada. With the AfCFTA, this is an increasingly integrated market.
Petroleum oils, gas and mining will continue to be important for Africa. However Africa now represents new investment opportunities, many of which can draw from Canadian expertise:
Education: Africa has a skill gap of 4.3m engineers and 1.6m agricultural scientists and researchers (ACBF)
Infrastructure: AfDB’s Programme for Infrastructure Development in Africa (PIDS) initiative comprises projects focusing on integration, power generation, ICT and water resources – total cost of all projects by 2040 is $360bn
Agriculture and processed agriculture: food security
Draw from Canadian expertise
A services trade and investment focus should be emphasized
Canada can leverage its expertise in tertiary education, clean energy development, technological cooperation on climate change, and agricultural productivity services
Canada’s cooperation model with mining companies for improved corporate social responsibility provides lessons for deeper engagement in Africa: lessons learned – both good and bad – can help develop new bilateral trade and investment relationships.
But also a change in perspective: need to good beyond traditional investment and trade opportunities
AfCFTA: what it means for Africa and its trading partners
Presentation by David Luke in Toronto
Africa’s economic structure is broadly similar to India’s:
India is a single consolidated market (7th biggest in the world) – Allows scale economies and competitive businesses
Africa is fragmented over 54 countries and 107 unique land border – Businesses face average tariffs of 6.9% and non-tariff barriers
But India creates far greater excitement for investors.
Consolidating Africa’s market helps create more exciting opportunities: Facilitating regional value chains; Fostering economies of scale and scope; Better allowing businesses to gain from Africa’s excellent market dynamics
Providing incentives for investors and opportunities for African businesses
And re-orientating African exports away from extractives dependency: Petroleum oils & gas, minerals, ferrous and precious metals; Volatile prices, produce few jobs, and fluctuating revenues
Because intra-Africa trade is less extractive dependent: Only 40% is extractives (compared to 70% of exports to outside Africa). More balanced and sustainable exports deliver more sustainable growth; More labour intensive and better at fostering structural transformation and long-term sustainable growth
This provides a real development case for continental integration
ECA estimate that the AfCFTA has the potential to boost intra-African trade by 52.3% by eliminating tariffs
With the reduction of NTBs, intra-African trade doubles
ECA estimate all African countries to experience welfare gains
We forecast that the AfCFTA will benefit particularly industrial and value-added exports
These sectors create more jobs for Africa’s bulging youth population and opportunities for MSMEs than does Africa’s trade with the rest of the world, which tends to be fuels and minerals
Increasing importance of intra-African trade
Intra-African trade will grow, helping to diversify and create a more stable African trade profile – this is because a far larger share of intra-African trade is non-extractives, which are less volatile.
Establishes a more economically reliable and prosperous trading partner.
Trade policy coherence
The AfCFTA is expected to go beyond a traditional free trade area and in doing so will serve as a basis for continental trade policy coherence.
Rather than a patchwork of individual agreements, a consolidated Africa would ensure that all African countries are brought along together in a manner that better suits regional value chains and trade integration.
In looking forward to trade negotiations with the EU, the US post-AGOA plans, and potentially emerging markets like India and China, this will give Africa a stronger negotiating footing.