Africa Day 2018: Moving forward with the implementation of the Africa Continental Free Trade Area – Opportunities and challenges

News

Africa Day 2018: Moving forward with the implementation of the Africa Continental Free Trade Area – Opportunities and challenges

Africa Day 2018: Moving forward with the implementation of the Africa Continental Free Trade Area – Opportunities and challenges
Photo credit: maliactu.net

On May 24, 2018, the Wilson Center Africa Program hosted a discussion on “Moving Forward with the Implementation of the Africa Continental Free Trade Area – Opportunities and Challenges.”

The event, hosted in partnership with the African Ambassadors’ Group, was part of the Africa Day celebrations. H.E. Dr. Arikana Chihombori-Quao, the African Union Ambassador to the United States, offered welcome remarks. The discussion was moderated by Dr. Monde Muyangwa, Director of the Wilson Center Africa Program.

Speakers included Dr. Donald Kaberuka, the African Union High Representative for Financing of the Union and Peace Fund and former President of the African Development Bank; Ambassador Stephanie Sanders Sullivan, the Acting Principal Deputy Assistant Secretary at the Bureau of African Affairs at the U.S. Department of State; and, H.E. Dr. Kerfalla Yansane, the Ambassador of Guinea to the United States. The Ambassador of Cameroon to the United States, H.E. Étoundi Essomba, offered closing remarks.

H.E. Dr. Arikana Chihombori-Quao opened the discussion by framing the historical context for the importance of the African Union and the Continental Free Trade Area (AfCFTA). The African Union is the successor of the Organization of African Unity, which was founded in 1963.

Ambassador Chihombori-Quao highlighted recent achievements of the African Union – including the CFTA, the Single Africa Air Transport Market, and the African Passport – which have signaled progress towards the goal of minimizing obstacles that impede African unity, in context to the long history of colonialism and artificial borders. These recent achievements mark important milestones that should be celebrated.

As she noted: “Finally, we, the children of Africa, the 55 African leaders, the 1.27 billion people are now getting it and realizing that our strength is in our unity… that which has been dividing us over the years must be destroyed, and that boundaries which are not ours must be destroyed, and that Africa must speak with one voice, one heart, and one mind.”

Dr. Donald Kaberuka added further detail to the importance of the AfCFTA and the benefits that could accrue from the agreement. He also highlighted potential concerns and obstacles to implementation and the ways forward for overcoming the obstacles and maximizing the benefits of the agreement. He noted that the AfCFTA was probably the most historic decision that Africa has made since independence.

Utilizing lessons from other continents, namely Europe and the founding of the European Union, Dr. Kaberuka argued that the significance of the AfCFTA does not only lie in promoting trade, but also in advancing security, safety, and prosperity.

While acknowledging concerns by some countries regarding dumping, rules origin, and potential loss of jobs, he noted that many of these concerns are addressed directly in the agreement. For example, the AfCFTA is 90 percent free trade and not total liberalization, which allows for protection for some infant and sensitive industries.

When implemented, the AfCFTA could help the continent move away from its dependence on commodity exports and towards developing human capital and industrialization.

While some sub-regions in Africa are still lagging behind in terms of trade, the Southern African Development Community and East African Community show higher levels of intra-regional trade; the AfCFTA will help build on and expand current successes of regional cooperation and integration. Notably, the agreement will not only benefit countries that rely on trade in physical goods; half of the benefits of the AfCFTA will accrue from trade in services.

Other key benefits of the agreement will come from reducing both tariff and non-tariff barriers to trade, including burdensome and inefficient customs processes, insufficient infrastructure, excessive paperwork, and security checks.

Dr. Kaberuka argued that the AfCFTA is a significant step in larger African efforts to create jobs, promote development, and capitalize on the demographic dividend by creating jobs and a larger economic space for youth.

Ambassador Stephanie Sanders Sullivan echoed many of the benefits of the AfCFTA from the perspective of the United States as a key international partner to Africa. She noted that this agreement, which lowers barriers to trade, would make Africa more competitive on the global market, and is, therefore, good for Africa and for the United States.

Ambassador Sullivan also stated that the United States is prepared to assist with promoting economic opportunity and trade capacity-building in Africa, as it has done with the Africa Growth and Opportunity Act (AGOA). Between 2000 and 2017, non-oil exports from Africa to the United States have increased from USD 1.3 billion to USD 4.3 billion. Likewise, U.S. exports to Sub-Saharan Africa rose from USD 5 billion to USD 14.1 billion during the same period.

The AfCFTA offers significant promise for the continent and for her international partners. By some estimates, the AfCFTA can result in a 1 to 6 percent increase in GDP for Africa and increase Africa’s industrial exports by over half by 2022.

In addressing a question about the potential conflicts between Africa’s push for a regional and multilateral approach to trade and the United States’ preferred approach of bilateral trade deals, Ambassador Sullivan said the United States was not seeking to undermine Africa but was looking to find a foothold that would induce more interest among American investors and deepen the U.S.-Africa trade relationship, and also would continue its consultations to figure out how best to move forward in the most mutually beneficial way. Through it all, the United States would continue to stand as a ready partner in advancing economic opportunity, security, and peace in Africa.

H.E. Dr. Kerfalla Yansane re-emphasized the historical and future importance of the AfCFTA for African unity and prosperity. One key challenge ahead will be remedying the fragmentation of the African market and African infrastructure, which are legacies of colonial rule. However, the demographic dividend is a hopeful piece of the equation.

While the African market is already significant at over 1 billion people, it will continue to grow and act as a “life insurance” for the continent against the mounting forces of economic nationalism and protectionism, if Africa is able to unify economically. Free, fair, and equitable trade, and solidarity among the African countries is a key condition for the success of the AfCFTA.

Further areas for future attention include important improvements in communication, and technological and physical infrastructure, which are necessary if the continent hopes to realize the benefits of the agreement. The private sector must be included not only as a source of funding but also as a voice in the negotiation and planning stages. With the cooperation of governments, civil society actors, and the private sector, the challenges can be met and opportunities realized.

H.E. Étoundi Essomba offered closing remarks that drove home the potential benefits of the AfCFTA for the continent. The Ambassador shared his appreciation for the event, which provided a forum for discussing the potential challenges, benefits, and ways forward for the AfCFTA.

The AfCFTA will provide a stronger starting-point for Africa’s trade negotiations with partners and could set the stage for more intra-African trade as well as trade with other regions, which could subsequently open the doors for a more prosperous and unified Africa in the future.


There is a time for everything: The African Continental Free Trade Area

Remarks by Dr Donald Kaberuka

The context of why Africa must reinforce its unity, its organs and its purpose at this very challenging time:

A time when multilateralism is deficient: from trade, security, epidemics, migration, refugees, let alone economic cooperation;

A time when the geopolitical situation is ever more complex;

A time when populism is gathering force, appeals to narrow nationalism, and more dangerously, as during the Cold War, African countries are called upon to take sides in conflicts which are external to Africa.

Most importantly, all three developments are taking place when the Continent is set to have the largest working force in the world, which represents both an opportunity, but also a challenge.

So what is the AfCFTA?

It is an initiative to remove tariffs among and between African nations, to be complemented by efforts to lower non-tariff restrictions, promote free movement of persons and a single Africa aviation market.

When countries wish to expand trade among themselves, they may go through several stages:

  • Preferential Trade Agreements: lower tariffs compared to non-members, but not necessarily elimination;

  • Free-Trade Areas: eliminate tariffs among members, but keep them against non-members and free to treat external parties differently.

  • Customs Union: eliminate tariffs among members but also have one common tariff for non-members;

  • Along the way, Nations may then progress to Common Markets, Monetary unions or Total Economic Unions, and maybe even some degree of political union.

In the past 50 years, African Countries have undertaken these different arrangements with varying degrees of success.

The reality however is that trade levels have remained quite modest.

If successful, the AfCFTA would raise trade levels by 52% and create one of the largest and most ambitious economic space in the World.

What the AfCFTA is not

The AfCFTA is only 90% liberalisation.

It is a pragmatic, sequential arrangement with a view to proceed cautiously bearing in mind political realities and current regional arrangements.

Each country still has the option of pointing out products that are sensitive; Products that require time, infant industries that need a period of adjustment to full competition.

It also has provisions for a “Negative List”; products that will remain protected.

That said, the AfCFTA is not just about physical merchandise. It is also about services, logistics, finance, data, IT.

It is important to emphasise this point because some countries who are not signatories have not fully appreciated that there are not only enough safeguards against things like dumping, non-respect of rules of origin, etc.

They may also wish to take note of the fact that the services sector is probably as important as physical goods. Our calculations show that around 50% of all the welfare gains in the AfCFTA are generated by the services.

So, even countries without large manufacturing sectors have a lot to gain.

I want to suggest that as AU member states move through the tortuous stages of ratifications and implementation, this moment should not simply be seen as one about elimination tariffs - but of a potential to generate a change in mindsets.

Complementary measures

While, Agreement on a free trade area is a significant achievement. It is important to understand that the existence of a free-trade area does not on its own necessarily lead to free-trade.

Tariffs are only one part of the problem, often not even the most important one. Studies conclusively show that the welfare gains are probably four or five times higher if non-tariffs restrictions are also removed.

By non-tariff restrictions, I refer here to quotas, import bans, excessive documentation, roadblocks, health and sanitary measures which are not justified, etc.

Yet, we know that dealing with such non-tariff barriers (NTBs) is a much more complex process, politically.

Eliminating (NTBs) will require a higher level political threshold. It will require the mobilisation of the citizens, the businesses who provide the services, to the varying domestic constituency interests, to demonstrate that this is not a “zero sum game”.

Finally, and above all, the timing: the geopolitical context in particular and the weakening multilateral trade context.

You just have to look at the outcomes of the last 11th WTO Ministerial Conference in Buenos Aires (Argentina). Little progress or none at all: all around.

Gone are the days of the bullish sentiments of the Uruguay Round or even the modest hopes which were pinned on the Doha Round.

The AfCFTA should therefore be seen as much more than a tariffs elimination exercise.

It should be a quantum jump in how our continent repositions itself in the context of a weak multilateral system and on the eve of a potential “demographic cliff” for Africa, for lack of a better word.

That is why dealing with fears, convincing doubters or even cynics who think all this is a utopia, is so critical.

You just have to listen carefully to the debate on Brexit! Three additional issues in particular have been pointed out:

  1. The implications for the RECs; will the Regional Economic Communities co-exist seamlessly with the AfCFTA?

  2. AU’s implementation track record of its decisions; will member countries implement?

  3. The challenge of adequate supportive infrastructure, how will the Free Trade Area function, without adequate highways, etc.

Concerning the RECs, I believe Article 21 and two other Articles provide the necessary clarity: the AfCFTA will build on and strengthen rather than weaken the RECs.

In relation to infrastructure, it is well known that the AfCFTA will be accompanied by an African Trade Development Plan of action.

That is why the Single Air Market is so critical or is one of the ways of the intensifying commercial links and progressively lowering costs of doing business.

The Africa Trade Action Plan is quite comprehensive; it concerns:

  • Trade-related infrastructure;

  • Trade Finance;

  • Payment Systems;

  • Investment policy harmonisation;

  • Movement of Persons

As for whether member countries of the AU will see through the implementation, I would like to respond this way: that is the whole essence of the AU reforms.

The ordinary citizens of Africa want an AfCFTA within a stronger African Union which is focused, effective, relevant, and which funds itself rather than remaining dependent on the outside world, half a century of independence!

These are all the matters over which President Paul Kagame of Rwanda has made proposals.

These proposals have been adopted, at the highest level. The first of which is precisely to deal with the implementation crisis – decisions taken and not implemented.

It is an existential issue for the AU and the expectations is that it will be resolved this time.

Part of the problem is that we do not mobilise the African Citizenry enough.

Hence one of President Kagame’s proposals is to figure out a way to bring the AU closer to the people, such as the African Volunteer Corps.

In that spirit, the people of Africa need to be mobilised for the AfCFTA and the AU Reform.

At the end of the day, it is by promoting economic growth through trade and investment that a fiscal space will emerge to meet the upcoming demographic challenges, while moving up the global value chains.

That is the promise of the AfCFTA.

A necessary first step to an eventual Continental Economic and Monetary Union.

Through the AfCFTA, we will boost Intra-Africa trade, increase market size, depth and diversity, increase opportunities for business, consumers, producers, diversify our economies to complex products; thereby expanding fiscal possibilities.

It is only by doing so, that we can build resilience in the global system and avoid the demographic cliff.

The adoption of the AfCFTA is not a technical choice Africa is making. It is a fundamentally, historic political choice which will have far reaching impact if successful.

That is why, everything must be done to ensure safe arrival at destination.

It will not be easy, it will require astute political management and trade off at each juncture but there is no more choice.