Africa's free trade area opens in January. What happens next?

GABORONE — At an extraordinary summit of the Assembly on the African Continental Free Trade Area last weekend, it was confirmed that African countries will be able to start trading under the AfCFTA agreement on Jan. 1 — six months later than initially planned, due to COVID-19. Speaking at the summit, African Union Chairperson and South African President Cyril Ramaphosa described it as “one of the most significant milestones in the continental integration project.” But experts warn that it is just a first step and that achieving the goals set out under the agreement will depend on proper implementation at the national level. “We have seen, in the past, countries which committed and did not implement. So it is really important to bridge the gap between intention and commitment and efforts needed to achieve the desired outcomes,” said Landry Signé, a senior fellow at the Brookings Institution. AfCFTA aims to create an African market of 1.27 billion consumers with a cumulative gross domestic product of around $2.3 trillion to $3.4 trillion, according to an AU release, eventually becoming the world’s largest free trade area by membership. The bloc will progressively eliminate tariffs on intra-African trade and will also work to remove nontariff barriers to trade, such as lengthy customs procedures and excessive paperwork. As of 2017, intracontinental trade accounted for only 17% of African countries’ exports, far lower than other regions. The hope is that AfCFTA will boost regional trade, and with it, African economies and employment. Since March 2018, 54 of the 55 AU member states have signed the agreement — Eritrea remains the only one yet to sign on — while 34 countries have deposited their instruments of ratification and 41 countries and customs unions have submitted their tariff offers. Countries need to complete all these steps to start trading under the agreement. Trudi Hartzenberg, executive director at the Trade Law Centre, said that although a lot of progress has been made, not all trade in goods and services will start on Jan. 1. Countries that have not yet completed the steps will continue the process, and negotiations are also ongoing over sensitive products such as clothing, textiles, and automotive components. “There are goods where they [countries] are prepared to lower tariffs but also where they can agree on the rules of origin, so some trade will therefore begin for these on the first of January. They will then continue negotiations, and the aim is that they complete those final negotiations by midyear 2021,” she said. Trading under the AfCFTA agreement had initially been scheduled to start in July, before COVID-19 delayed the negotiations. However, Prudence Sebahizi, head of the AfCFTA negotiations support unit, noted that the pandemic had also presented some opportunities for countries to fully realize the potential of AfCFTA, as disruptions in supply chains led to countries producing goods they had previously imported. “Many African countries started producing pharmaceutical products which were traditionally imported from China, India, and other developed countries. But now Africans have changed their mindsets. They have started to produce all the necessary products that they need for their survival, and I think that's an opportunity that has been provided by COVID-19,” he said. For Cyril Prinsloo, senior researcher for the economic diplomacy program at the South African Institute of International Affairs, one of the key objectives behind AfCFTA is to create and promote these regional value chains. “[In] years gone by, there was a lot of focus on getting African businesses tapped into global value chains. But with the AfCFTA, a key objective is for us to create regional value chains, see where regional demand is and how can we cluster creation of value chains around African needs and African demands,” he said. That could also drive industrialization, experts said. “When Africans trade with one another, over 40% of goods that they trade are manufactured products,” compared with around 15% when they trade with the rest of the world, Signé said. “So the AfCFTA will play many roles — the first being helping to unlock the African manufacturing or industrialization.” But all of that relies on countries not only agreeing and ratifying the framework, but also following through. A discussion paper by the European Centre for Development Policy Management warns that though “AfCFTA promises a virtuous circle of greater market opportunities, triggering more trade and investment, and allowing greater value addition and productivity growth – leading to more and better jobs with social inclusion … its ultimate success depends on African states not only ratifying, but fully implementing and complying with the AfCFTA, while also investing in the necessary enablers.” “A key objective is for us to create regional value chains, see where regional demand is and how can we cluster creation of value chains around African needs and African demands.” --— Cyril Prinsloo, senior researcher, South African Institute of International Affairs There are various reasons why implementation might not be a given. As the ECDPM paper notes, the continent has a mixed track record on the implementation of trade agreements. “Looking at the sub-regional trade agreements that have been concluded in the past … a common challenge has been getting member states to follow through on commitments once agreements have been signed and ratified,” the authors write. “The record of African countries on domesticating regional trade agreements (i.e. making them a part of national law) and on implementing and complying with the provisions of these agreements is very uneven, contributing to an ‘implementation gap’ in regional economic integration in Africa, and suboptimal levels of intra-African trade.” There is also a lack of effective mechanisms to ensure compliance, and there is a need for governments to invest in so-called enablers — necessary to bring AfCFTA’s objectives to life — such as better infrastructure, transport corridors, and digital connectivity. But there may not be the resources or political will to do this. Hartzenberg stressed that all the objectives of AfCFTA will only be achieved through the proper implementation of the instruments and guidelines that have been developed. “For example ... if we do not move to digital trade solution, then there will still be a lot of paperwork, and paperwork creates constraints. So if we don't implement [the guidelines], then we cannot expect the AfCFTA [to] deliver benefits,” she said. Sebahizi added that in order to ensure this, countries need to put in place national strategies for implementation to assess their own productive capacities and identify areas where they have a comparative advantage, as well as to sensitize the private sector to start producing for the African market. He said that in addition to infrastructure development, a shift in mindset from producing for national and international markets to regional markets will be the catalyst for this process. “I know there is a lot to be done in terms of improving infrastructure and the road network, but still the mindset change is very important at the beginning,” he said.