Sierra Leone has become the latest country to subscribe to the trade treaty seeking a unified African market. President Julius Maada Bio appended his signature to the African Continental Free Trade Area (AfCFTA) agreement in the Mauritanian capital, Nouakchott on Monday, State House in Freetown disclosed. President Bio, in office for just four months, was making his maiden appearance at the 31st Ordinary Session of the African Union General Assembly.
The theme was: ‘Winning the Fight Against Corruption: A Sustainable Path to Africa’s Transformation.’
President Bio is the head of the AU’s Committee of Ten on the Reform of the United Nations Security Council, a position he inherited from his predecessor Ernest Bai Koroma.
He is also chairman of the AU Peace and Security Council, under which he chaired several sideline meetings. AfCFTA promises to break the cross-border trade barriers to ensure productive economic activities among member countries. It specifically aims to create a single continental market for goods and services, with free movement of business people and investments, and thus paving the way for accelerating the establishment of a continental customs union.
The deal initially requires members to remove tariffs from 90 per cent of goods to allow free access to commodities and services across the continent. AfCFTA's overall goal is to bring together the 54 African countries with a combined population of more than one billion people and a gross domestic product of more than $3.4 trillion, the AU says.
If successfully implemented, analysts say, it could increase the economic diversification and intracontinental trade significantly. And a study attributed to the UN Economic Commission for Africa (UNECA) notably says that AfCFTA could lead to a 52 per cent increase above the baseline in intra-African trade flows by 2022.
The agreement, which was first unveiled at an extraordinary summit of the AU Heads of State and Government in the Rwandan capital, Kigali, earlier in March, will create what has been described as potentially the largest free-trade area in terms of participating countries since the formation of the World Trade Organisation.
Sierra Leone was in the middle of its elections at the time which ushered in a new government.
Freetown State House said Monday in a statement that President Bio’s ascension to the agreement signifies his commitment to his “ambitious agenda” to ensure that it has access to the rest of the continent’s market and use trade and investment to revitalise its economy.
The agreement had been signed by 44 member countries in Kigali.
Kenya, Ghana and Rwanda were first to sign and ratify the agreement.
It requires 22 ratifications by members for the treaty to come into effect.
AfCFTA WORKSHOPS SERIES 2018
First Edition - The Weston Hotel, Nairobi - Kenya!
October 23 - 24, 2018,
For exporters, importers and cross-border investors to learn how the African Continental Free Trade Agreement (AfCFTA) and other trade changes will impact your business this year and beyond.
We’re speaking with leaders who are on top of all the changes and innovations made to the most important trade agreement in Africa. We’ll be offering up a mix of information on tax reform, AfCFTA, trade/tariffs and more.
This special AfCFTA workshop series, in collaboration with the experts at AU Commission, will be held in various cities over the coming months, with the kick-off in Nairobi October 23 - 24, 2018. For each discussion, members may tune-in from anywhere.
1. Keynotes on the AfCFTA and its implementation
2. The business framework and the outlook for AfCFTA and its implications on African countries [Presentation]
3. Challenges and opportunities: a practical approach [Panel Discussion]
4. The deepening of East African integration, and Kenya as key player in regional supply chains [Presentation]
5. The most prominent concerns of the AfCFTA implementation, immigration and border security [Presentation]
6. Importance of the AfCFTA to Ethiopia, Ghana, DRC, Mozambique, Morocco [Panel Discussion]
7. AfCFTA and Getting Globalization Right: Poverty, Inequality, and Trade [Presentation]
8. Rules of origin, arbitration, and the effect of exchange rates on the utilization of AfCFTA; [Presentation]
9. Market Panel: Tanzania, Congo, Togo, Uganda [Panel Discussion]
10. INDUSTRY TOUR
Join PACCI for this important event in-person or virtually.
Goal: Learn from practitioners and experts who are up-to-date on all the information exporters and importers need to know about AfCFTA.
Who Should Attend: Executives at exporters, importers and investors – CEOs, COOs, CFOs, EVPs, business, sales, marketing.
– – – – – – –
In-person location: African Union Headquarter - Addis Ababa
ABOUT THE AfCFTA
AfCFTA is a new trade agreement between African countries.
It makes it easier to export goods and services, benefitting people and businesses in Africa.
On 21 March 2018 African heads of state and government officials met in Kigali, Rwanda, to sign the framework to establish this initiative of the African Union.
National parliaments in African countries will then need to approve AfCFTA before it can take full effect.
It will only enter into force fully and definitively, however, when (twenty-two) 22 AU Member
States have ratified the Agreement.
The deal will bring benefits for people and businesses across Africa. It will help to generate growth and jobs by:
- Boosting exports;
- Lowering the cost of the inputs businesses need to make their products;
- Offering greater choice for consumers, and
- Upholding African standards for products.
WHAT WILL AfCFTA DO?
AfCFTA offers new opportunities for African businesses of all sizes to export across the continent. Following ratification AfCFTA removes duties on 90% of products (tariff lines) that the African countries trade with other African countries.
The agreement will especially benefit smaller companies who can least afford the cost of the red tape involved in exporting to other African countries. Small businesses will save time and money, for example, by avoiding duplicative product testing requirements, lengthy customs procedures and costly legal fees. Member States' authorities dealing with export promotion and chambers of commerce stand ready to help businesses to start exporting in Africa, boost existing trade, and attract investment.
The agreement also offers better legal certainty in the service economy, greater mobility for company employees, and a framework to enable the mutual recognition of professional qualifications, from architects to crane operators.
PROCEDURE AND NEXT STEPS
AfCFTA will be fully implemented once 22 Member States ratify the deal according to their respective constitutional requirements. At the time AfCFTA will take full effect, a new Dispute Resolution System will be put in place.
THE BENEFITS OF AfCFTA
- Helping to generate growth and jobs
- Creating a level playing field for African companies, big and small
- Lowering prices and widening choice for Africa's consumers
- Cutting customs duties for exporters and importers
- Cutting other costs for African businesses
- Making it easier for African firms to sell services across Africa
- Helping Africa’s rural communities market distinctive food and drinks
- Protecting Africa's innovators and artists
- Recognizing each other's professional qualifications
- Protecting people's rights at work, and the environment.
The Intra-African Trade Fair 2020
to be hosted by Rwanda
Trade Fair -2018 closed with turnover of USD 30 billion
Cairo - The turnover between companies participating in the first edition of the Intra-African Trade Fair (IATF / 2018), closed on Monday dec 17, 2018 in Cairo, Egypt, valued at about 30 billion dollars, thus it exceeded the expectations of the African Union (AU), promoter of the event.
The Rationale for the Trade Fair
Analysis by the African Export- Import Bank (Afreximbank) shows that one of the main reasons why intra-African trade is low at around 15% compared to Europe (59%), Asia (51%), and North America (37%) is because of lack of access to trade and market information. To address this challenge, Afreximbank decided to, among other initiatives, convene the Intra-African Trade Fair every two years to provide trade and market information and connect buyers and sellers from across the continent.
What IATF 2018 offered?
The Intra-African Trade Fair is the first of its kind in Africa, consisting of a 7-day trade show that provides a platform for sharing trade, investment and market information and enabling buyers and sellers, investors and countries to meet, discuss and conclude business deals. It provides an opportunity for exhibitors to showcase their goods and services, engage in Business to Business (B2B) exchanges and conclude business deals.
IATF provides a platform for entry into a single market of over one billion people joined together under the African Continental Free Trade Area.
Primary Objectives of the Intra-African Trade Fair
- To bring together continental and global players to showcase and exhibit their goods and services, and to explore business and investment opportunities in Africa
- To serve as a marketplace where buyers and sellers of goods and services meet and explore business opportunities
- To provide a platform for B2B exchanges and development of business opportunities
- To share trade, investment and market information with stakeholders including investors, SMEs, the informal sector, Africans in Diaspora, and to identify solutions to address the challenges affecting intra-African trade
- For Afreximbank and other financial institutions, to share information about their trade finance and trade facilitation interventions that will support intra-African trade
- To discuss topical issues affecting intra-African trade and provide practical and effective solutions
- To deploy multi-country and multi-company pavilions that will serve as one-stop shop for intra-African trade and investment opportunities in Africa
What is Intra-African Trade?
Afreximbank defines intra-African Trade as the trade in goods and services between or among African countries and the flow of goods and services between Africa and Africans in the Diaspora. The scope of intra-African Trade has also been broadened to include informal cross border trade to enable the Bank to design special products and dedicate resources to formalize this trade.
Afreximbank Strategy to promote Intra-African Trade
The Trade Fair is informed by Afreximbank’s strategy for the promotion of Intra-African Trade. The strategy can be summarized under three key pillars: Create, Connect and Deliver
Create: This pillar supports the production of goods and services with a view to enhancing engagement in regional trade. It seeks to build capacity for the expansion of production and processing capabilities, with a focus on agricultural production, agro-processing, manufacturing and services.
Connect: Afrexim seeks to provide traders with links to various markets on the continent. The Bank aims to identify institutions and agents that are able to facilitate the connection of demand and supply across markets. This pillar is central to the trade fair, which is aimed at bringing relevant entities together and facilitating business growth and opportunities.
Deliver: Here the focus is on facilitating the provision of efficient and cost-effective distribution channels within the continent. This includes the creation of transport logistics, storage and service payment systems, and buyer-financing arrangements which will help to accelerate the flow of goods and services to buyers, thereby creating a market.
The Trade Fair will contribute towards the bank’s objective to increase intra-African trade from USD170 billion in 2014 to USD 250 billion and by so doing, ensure that intra-African trade share of Africa’s total trade reaches 22% by 2021. “Conservatively, intra-Africa trade is a USD 6 trillion opportunity for Africa in the short term and USD 12 trillion in the long term” (Amy Jadesimi: Forbes, May 23 2017). Afreximbank will use the Trade Fair as well as other interventions to assist the continent to realise its trade potential and achieve positive transformation for Africa.
The French utility, ENGIE, has announced its plans to launch off-grid energy in Africa at the Africa Energy Forum. The news was revealed at the event, which took place between 19-22 June in Mauritius, with ENGIE confirming it intends to expand its solar home system (SHS) and mini-grid activities. Through its unit, ENGIE PowerCorner, the firm will introduce new mini-grid projects to Zambia, whilst the Fenix subsidiary will target Côte d’Ivoire with its SHS. The recent plans are part of the company’s ultimate goal to supply access to decarbonised, decentralised energy provision to 20mn people globally by 2020.
“Advances in decentralised energy put universal access within reaching distance, but the scale of the challenge is significant,” stated Yoven Moorooven, CEO of ENGIE Africa. “As governments work hard to improve electrification rates, decentralised solutions must be part of the mix.” “The extension of national grids, combined with the development of local mini-grids and solar home systems can together be a viable solution towards the UN's 7th Sustainable Development Goal, provision of affordable, reliable, sustainable and modern energy for all.” “Demand for clean and safe energy across Africa is continuing to increase, and the supply needs to rise in both speed and quantity.” “It is encouraging to see a number of African governments and regulators putting renewable energy at the core of their energy policies and implementing much-needed supporting regulations.” (African Business Chief)
The African Guarantee Fund (AGF) has announced it will be offering small firms that adhere to being environmentally friendly “affordable” loans.
The Nairobi-based lender has set aside Sh2.6bn (US$25.8mn) to lend to small and medium enterprises (SMEs) within the energy, infrastructure, agri-business, and green growth industries. The initiative aims to enhance and empower small firms, allowing them to handle big ticket jobs through local currency-dominated funds.
“Strengthening African Small and Medium Enterprises (SMEs) is critical to enhancing their global competitiveness in the development agenda,” remarked Felix Bikpo, CEO of AGF. “With this increased capacity, AGF will support larger local currency transactions for SMEs involved in all sectors.” The fund partnered with the Investment Fund for Developing Countries (IFU), receiving a Sh1.55bn ($15.4mn) injection.
IFU also offered Sh200mn ($2mn) to the Capacity Development Fund in the form of a grant, along with the Nordic Development Fund, which donated Sh150mn ($1.49mn). (African Business Review)
As part of the trade integration awareness service and in light of the recently signed African Continental Free Trade Area we have been sharing articles that explain FREE TRADE and all the technicalities in this column. There is a lot to understand FREE TRADE AREA (FTA) as well as TRADE FACILITATION. As part of the awareness effort read below two articles that explains technicalities of FTA some practical experiences on the ground.
Advantages and disadvantages of WTO
Readers Question: What are the advantages and disadvantages of the WTO formally the General Agreement on Tariffs and Trade (GATT)?
The WTO is a body designed to promote free trade through organizing trade negotiations and act as an independent arbiter in settling trade disputes. To some extent the WTO has been successful in promoting greater free trade. The principles of the WTO are
- Promote free trade through gradual reduction of tariffs
- Provide legal framework for negotiation of trade disputes. This aims to provide greater stability and predictability in trade.
- Trade without discrimination - avoiding preferential trade agreements.
- WTO is not a completely free trade body. It allows tariffs and trade restrictions under certain conditions, e.g. protection against 'dumping' of cheap surplus goods.
- WTO is committed to protecting fair competition. There are rules on subsidies, dumping
- WTO is committed to economic development. For example, recent rounds have put pressure on developed countries to accelerate restrictions on imports from the least-developing countries.
Advantages of promoting free trade
- Lower prices for consumers. Removing tariffs enables us to buy cheaper imports
- Free trade encourages greater competitiveness. Through free trade, firms face a higher incentive to cut costs. For example, a domestic monopoly may now face competition from foreign firms.
- The law of comparative advantage states that free trade will enable an increase in economic welfare. This is because countries can specialise in producing goods where they have a lower opportunity cost.
- Economies of scale. By encouraging free trade, firms can specialise and produce a higher quantity. This enables more economies of scale, this is important for industries with high fixed costs, such as car and aeroplane manufacture. In new trade theory, it is this specialisation and exploitation of economies of scale that is most important factor in improving economic welfare.
To what extent has the WTO being able to promote free trade?
- The WTO has over 160 members representing 98 per cent of world trade. Over 20 countries are seeking to join the WTO.
- An increased number of trade disputes have been brought to the WTO, showing the WTO is a forum for helping to solve disputes.
- WTO regulations and co-operation helped avoid a major trade war; this was significant during 2008/09 global recession. We could compare this to 1930s, where trade wars broke out causing a fall in global trade. According to (Bagwell and Staiger 2002) the average tariff in 1930s was 50%. In 2000s, average tariff is 9%
- World exports as a % of GDP have increased from 22% of GDP in 1995 (when WTO formed to just under 30% in 2015. Indicating importance of trade to global economy.
Disadvantages of WTO
- However, the WTO has often been criticised for trade rules which are still unfavourable towards developing countries. Many developed countries went through a period of tariff protection; this enabled them to protect new, emerging domestic industries. Ha Joon Chang argues WTO trade rules are like 'pulling away the ladder they used themselves to climb up'
- Free trade may prevent developing economies develop their infant industries. For example, if a developing economy was trying to diversify their economy to develop a new manufacturing industry, they may be unable to do it without some tariff protection.
- WTO is being overshadowed by new TIPP trade deals. These deals are negotiated away from WTO and focuses mainly on US and EU. It excludes China, Russia, India, Brazil and South Africa. It threatens to diminish the global importance of WTO
- Difficulty of making progress. WTO trade deals have been quite difficult to form consensus. Various rounds have taken many years to slowly progress. It results in countries seeking alternatives such as TIPP or local bilateral deals.
- WTO trade deals still encompass a lot of protectionism in areas like agriculture. Protectionist tariffs which primarily benefit richer nations, such as the EU and US.
- WTO has implemented strong defense of TRIPs ‘Trade Related Intellectual Property’ rights These allow firms to implement patents and copyrights. In areas, such as life-saving drugs, it has raised the price and made it less affordable for developing countries.
- WTO has rules which favour multinationals. For example, 'most favoured nation' principle means countries should trade without discrimination. This has advantages but can mean developing countires cannot give preference to local contractors, but may have to choose foreign multinationals - whatever their history in repatriation of profit, investment in area.
- In response to this the WTO may say that free trade has been an important engine of growth for developing countries in Asia. Although there may be some short term pain, it is worth it in the long run.
- Also the WTO has sought to give exemptions for developing countries; enabling in principle the idea developing countries should be allowed to limit imports more than developed countries.
Integration Efforts in the EAC
The East African Community (EAC) is an economic bloc formed by Kenya, Tanzania, Uganda, Rwanda and Burundi. The countries have a history of cooperation dating back to the early 20th century. In the recent years, they have started various infrastructure projects to improve the connection between its members, ultimately decreasing the cost of doing business and making the bloc more attractive to trade with foreign countries.
Singapore is enjoying this opportunity, with investments in the African continent growing at a compound rate of 12% per year; the city-state has traded more than US$400 million with the EAC alone in 2013. Singapore is currently involved in various businesses in the region, ranging from agriculture to digital logistics solutions, and is eager to expand its presence even more. This pace will increase as legal frameworks and institutions covering the whole EAC bloc gain strength and eliminate corruption in the region; and when basic infrastructure problems are solved and an easy flow of goods and services is reached in the region.
Surrounding the pristine Lake Victoria, Kenya, Tanzania and Uganda formed the original core of the East African Community (EAC), which came into force in July 2000. Neighbouring countries Rwanda and Burundi joined the Community in 2007. The 5 countries are home to 157 million citizens, have a combined Gross Domestic Product (GDP) of US$147 billion and an average annual GDP growth of over 6% projected for the coming 2 years. The EAC came together to establish a common trade bloc with open borders to free up the transit of capital and citizens, and an ultimate goal to have a common currency and turn the group into a political federation, with a single sovereign state.
With the motto “One People, One Destiny”, the Community has created the East African Customs Union, established the Common Market in 2010, and implemented the East African Monetary Union Protocol. These are just some of the steps the EAC has taken in order to attract investments, nurture economic growth and reduce poverty.
In all of its 5 countries, there is a sentiment of pride and hope that this union will keep bearing good fruits. There is a joint effort to make several changes to the national laws to allow the full implementation of the common market in areas such as immigration, labour and customs.
Challenges that the EAC faces are mostly related to poor infrastructure, such as inefficient border posts, road blocks, transit road weighbridges, long clearances at ports, and poor roads and railways. Corruption is also a problem, with 4 of the 5 countries ranking over the 100th position among the most corrupt in the world. Rwanda has the best score, with a ranking at 44. These challenges, however, in themselves constitute opportunities for companies understanding Africa and willing to engage in infrastructure development.
One of the main aims for the creation of the EAC bloc was to decrease or eliminate tariff barriers for trading goods among the members of the Community. Kenya largely benefits from bilateral trading agreements with other country members of the EAC. In 2014, Kenya exported goods worth more than US$900 million to Uganda, Tanzania and Rwanda. Uganda ranked as the main trading partner of Kenya, having imported more than US$470 million in Kenyan goods in 2014, according to the Kenya National Bureau of Statistics. Kenya traditionally exports lime, cement, fabricated construction materials and consumer goods to Uganda.
The bilateral relations between Kenya and Uganda also extend to the oil and gas sector. In August 2015, the countries decided on the crude oil pipeline that will transport oil from Albertine to Lokichar in Turkana County, the Hoima-Lokichar-Lamu oil pipeline. The agreement also includes the development of an oil refinery in Uganda. However, it does seem that Uganda is also exploring opportunities with Tanzania for the export of its oil via Dar es Salaam. Time will tell as to what option Uganda will eventually follow.
In 2015, Tanzania was Kenya’s second largest export destination within the EAC, with products like soap, foodstuffs, cleansing and polishing preparations as the major exports.
The decrease of tariff barriers incentivizes trading within the bloc. As trading and competition increase, buyers start demanding better quality products. The quality of some Ugandan products is now rivalling that of items, which for example, Rwanda previously imported from South Africa. The EAC integration means that Rwanda has to apply tariffs to products from the Southern Africa Development Community, while Ugandan goods are basically entering a domestic market. In the third quarter of 2015, Rwanda imported a total of US$126 million from other EAC countries, 26% of the total imports. Of these, 50% come from Uganda, making it Rwanda’s main trading partner in the bloc.
There is much to be done to interconnect the 5 countries of the EAC. The poor state of infrastructure across borders is one of the critical elements dragging down the economic growth in the region. The states have committed to improve road and railway systems, port conditions and electricity distribution grids in order to elevate the economies to a medium income level within the next decade. After addressing these basic infrastructure problems, the countries will be able to spark a rapid industrialization process. The final objective is to increase trade between the East African Community members, to reduce the cost of doing business, and to facilitate the movement of people, goods and services across borders.
Currently the railway systems connecting the countries are old, lacking maintenance. In Kenya, the construction of a new railway system was started in October 2013 to provide a more efficient integration between two of the country’s most important cities: the capital Nairobi, and Mombasa, the largest port in East Africa. The Standard Gauge Railway (SGR), which is built to copy the most efficient railways in China, will be 609km long and is expected to be completed by the end of 2017. It will transport passengers and cargo. The project will cost US$3.8 billion, being 90% financed by the China Exim Bank and 10% by the Kenyan government. The new railway line constitutes the first phase of the SGR project that aims to connect Kenya, Uganda, Rwanda, Burundi and South Sudan.
The railway is the biggest transportation project in Kenya since its independence, and it will shorten the travel time between Mombasa and Nairobi from 10 to 4 hours. Freight trains will complete the journey in less than 8 hours. The railway line is designed to carry 22 million tonnes of cargo a year or a projected 40% of Mombasa Port throughput by 2035
More than 30,000 jobs are expected to be created during the construction. Today many Kenyan families can already thank the project for the economic growth the region is experiencing. The contract, signed by the local government and the construction company, China Road and Bridge Corporation (CRBC), has assured that a large percentage of the workers are locals, and not foreigners.
Besides direct employment, the construction of the SGR is also making room for many new openings in companies that provide supporting services, such as security, transportation, accommodation and catering. Currently, construction materials, fuel, equipment, vehicles, sub-contracting works and consulting services are provided by local suppliers, while steel rails, steel strands, and other steel components have to be imported. The local steel industry is evolving, but has not yet reached the internationally recognized safety and quality levels required for the project.
In addition to the Mombasa-Nairobi connection in Kenya, inter-nations agreements have been signed to extend the railway to the adjacent countries. The governments of Kenya and Uganda signed a memorandum of understanding (MoU) in October 2009 to construct the SGR line from Mombasa to Kampala, the capital of Uganda. The railway will reduce transportation costs of goods from Mombasa to Kampala by up to 58%.
In August 2013, Rwanda joined the agreement, which would extend the railway from Kampala in Uganda to Kigali, the capital of Rwanda. The SGR line from Mombasa to Kigali is expected to be completed by 2018.
The ports are also extremely important in the transportation system in the East African Community. The ports of Mombasa (Kenya) and Dar es Salaam (Tanzania) are vital for the region. The Port of Mombasa not only serves Kenya, but is also the main gateway to the Eastern African hinterland countries of Uganda, Rwanda, Burundi, Democratic Republic of Congo and South Sudan. It is the largest port in East Africa, currently receiving more than 22 million tons of cargo per year.
Kenya is working hard to benchmark the performance of its ports with that of highly efficient ports such as Singapore, Rotterdam and Hamburg. To achieve this, the country is harmonizing its sea and inland ports’ operational standards with a focus on international best practices, investing in new technologies, expanding and improving infrastructure, enhancing logistics processes and embracing automation of services. The developments will not only reduce cargo and container dwell times, but will play a greater role in reducing the overall cost of doing business in the region.
To the north of Mombasa, talks about the multi-billion dollar project, the Lamu Port Southern Sudan-Ethiopia Transport (LaPSSET) Corridor, are ongoing. The project will include an 880-megawatt liquid-natural-gas-fired power plant, an oil pipeline to transport crude finds in northern Kenya and neighbouring Uganda, 6 berths at a deepwater port in Lamu, and a desalinization plant. The port is expected to make Kenya a trans-shipment hub because of its deep waters and ability to accommodate large vessels.
Lamu port and adjacent infrastructure are the central pieces of the LaPSSET Corridor, but not the whole of it. The project also includes roads and railway connecting the port to Ethiopia and South Sudan. A Standard Gauge Railway with 1,720km will connect Lamu to Juba, capital of South Sudan, and a two-lane highway will link the port to the cities of Isiolo, in the heart of Kenya, and Nakodok, on the border with South Sudan. Airports will be built in Lamu, Isiolo and in Lokichogio.
The LaPSSET project, once completed, will link Kenya to its two northern neighbours, Ethiopia and South Sudan, opening up the region to immense socio-economic development, especially in the northern, eastern and north-eastern parts of the country, and promote cross-border trade. The whole LaPSSET Corridor is estimated to cost US$26 billion and will be fully completed by 2030.
Tanzania is also engaged in improving its ports capabilities. Dar es Salaam is the main port of the country, handling about 90% of Tanzania’s international trade, with an annual capacity of more than 14 million tons of cargo. The port’s performance is far from satisfactory though. According to the World Bank, trade costs are 60% higher between Tanzania and China than between Brazil and China, despite the distance being double.
The Dar es Salaam port situation has not just been a problem for Tanzania. It has also held back neighbouring landlocked countries Rwanda, Burundi, Zambia, Uganda, Malawi and the Democratic Republic of Congo. If the port of Dar es Salaam reaches the same level of efficiency as that of Mombasa, the Tanzanian economy will gain almost US$1.8 billion a year, according to a World Bank analysis, which also said that inefficiencies at Dar es Salaam cost Tanzania and its neighbours up to US$2.6 billion in 2014.
In order to reverse this situation, Tanzania Ports Authority, TradeMark East Africa, the World Bank and the UK’s Department for International Development (DFID), signed a Memorandum of Understanding in September 2015 for an expansion project that aims to increase Dar es Salaam’s cargo handling capacity to 28 million tonnes in 2020 and to 34 million tonnes by 2025. The project has a price tag of US$750 million.
Additionally, the construction of a new port in Bagamoyo, located 75km from Dar es Salaam, is expected to start in July 2016. The US$10 billion project includes roads and railways and will take 10 years to be completed. The project is financially backed by China Merchants Holdings, China’s largest port operator, who will also be responsible for much of the construction work. The other partner in financing the project is Oman’s State General Reserve Fund. The new port will be the largest in East Africa and will be able to handle 20 times more cargo than the Dar es Salaam Port.
Road transport projects taking place in Tanzania and Kenya are serving as examples to the other countries of the East African Community of how improvement in infrastructure can generate business and foster economic growth. The Bus Rapid Transit (BRT), operating since early January 2016 in Dar es Salaam, uses a surface metro-like system of roads dedicated to buses, extending for 21km on three trunk routes and with 76 servicing buses. The system is responsible for decreasing traffic jams and shortening the commuting time of passengers in the city.
In Kenya, the 50km Nairobi-Thika Superhighway, launched in November 2012, covers an area that lies within the Nairobi Metropolitan and Central Province, including large sections of the City and Thika district, and covers an area inhabited by more than 1 million people. The highway not only reduced the commuting time between Thika town and Nairobi, but also brought a large number of businesses to its vicinity. New residential and commercial real estate were built, including 7 shopping malls.
Near the border with Tanzania, the Kenyan government has started to invite companies to bid for the upgrade of the 172km highway connecting Ahero to Isebania. The project, traversing four counties – Migori, Kisii, Homa Bay and Kisumu, is expected to improve trade in the Lake Victoria basin, which currently struggles with the narrow and worn road. The new highway will be larger and will have special service roads at commercial centres to boost the uptake of goods.
On the electricity infrastructure flank, there is the Eastern Electricity Highway Project, that will have a total of 1,045km of 500kV power lines extending from WolyataSodo in Ethiopia, to Suswa in Kenya. The US$1.26 billion project will be financed by the World Bank, African Development Bank (AfDB), Agence Française de Developpment (AFD) and by the government of Kenya, and has an environmental and social management plan and a resettlement action plan to take care of the communities that will be affected by the construction works.
The project, which is planned to be completed by the end of 2017, has the objective to increase the volume and reduce the cost of electricity supply in Kenya due to the cheap hydro-power from Ethiopia. The interconnection will also offer alternate power supply to Kenya and Ethiopia in the dry season when hydro generation is dismal. In addition to that, it will develop the pathway to create a regional electricity grid interconnecting the Eastern African countries, including other members of the EAC bloc. This will facilitate power exchange and develop electricity trade in the region.
Services and Businesses
In the services arena, a new platform for money transfer between Rwanda and Kenya was launched in October 2015. Users will be able to send and receive money seamlessly and affordably between the two countries. This regional remittance will greatly reduce the cost of doing business across the border, improve trade and increase market competitiveness in the region.
Another example of a business that is crossing borders is the Java House, a Kenyan coffee shop franchise that owns 36 shops in Kenya. The company, with revenue of US$29.5 million in 2014, is planning a massive expansion to Nigeria, Ghana, Zambia and Tanzania, following the growing number of coffee drinkers and enthusiasts.
The 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union, held in Addis Ababa, Ethiopia in January 2012, adopted a decision to establish a Continental Free Trade Area by an indicative date of 2017. The Summit also endorsed the Action Plan on Boosting Intra-Africa Trade (BIAT) which identifies seven priority action clusters: trade policy, trade facilitation, productive capacity, trade related infrastructure, trade finance, trade information, and factor market integration.
African leaders held an Extraordinary Summit on the African Continental Free Trade Area (AfCFTA) from 17-21 March 2018 in Kigali, Rwanda, during which the Agreement establishing the AfCFTA was presented for signature, along with the Kigali Declaration and the Protocol on Free Movement of Persons, Right to Residence and Right to Establishment. In total, 44 out of the 55 AU member states signed the consolidated text of the AfCFTA Agreement, 47 signed the Kigali Declaration and 30 signed the Protocol on Free Movement.
The AfCFTA will bring together all 55 member states of the African Union covering a market of more than 1.2 billion people, including a growing middle class, and a combined gross domestic product (GDP) of more than US$3.4 trillion. In terms of numbers of participating countries, the AfCFTA will be the world’s largest free trade area since the formation of the World Trade Organization. Estimates from the Economic Commission for Africa (UNECA) suggest that the AfCFTA has the potential both to boost intra-African trade by 52.3 percent by eliminating import duties, and to double this trade if non-tariff barriers are also reduced.
UNECA’s African Trade Policy Centre (ATPC) and the African Union Commission (AUC) have stated: “AfCFTA is an opportunity for development in Africa. But it must be wielded by private enterprise. Through doing so, businesses can benefit from the great opportunities that the continent has to offer, and contribute to its sustainable growth and development.”
The main objectives of the AfCFTA are to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Customs Union. It will also expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation and instruments across the RECs and across Africa in general. 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.
The establishment of the AfCFTA and the implementation of the BIAT Action Plan provide a comprehensive framework to pursue a developmental regionalism strategy. The former is conceived as a time bound project, whereas BIAT is continuous with concrete targets to double intra-African trade flows from January 2012 and January 2022.
- Decision on Boosting Intra-African Trade and Fast Tracking the Continental Free Trade Area (PDF, 34 KB)
- Declaration on Boosting Intra-African Trade and The Establishment of a Continental Free Trade Area (CFTA) (PDF, 92 KB)
- Boosting Intra-African Trade: Issues Affecting Intra-African Trade, Proposed Action Plan for Boosting Intra-African Trade and Framework for the fast-tracking of a CFTA (PDF, 928 KB)
Synthesis Paper on Boosting Intra-African Trade and Fast Tracking the Continental Free Trade Area (PDF, 72 KB)
The Continental Task Force (CTF) on the CFTA, which met for the first time in October 2013, is tasked with coordinating actions between the African Union Commission and the Regional Economic Communities to ensure that the CFTA negotiations are conducted within the agreed timelines. Negotiations for the establishment of the CFTA were officially launched in June 2015 in Johannesburg, South Africa. H.E Mahamadou Issoufou, President of the Republic of Niger, was mandated by the 28th Ordinary Session of the AU Assembly of Heads of State and Government in January 2017 to champion the process of the CFTA. A Progress Report on the CFTA negotiations was received by the 29th AU Assembly in July 2017.
The CFTA Negotiating Forum (CFTA-NF) has held eight meetings towards the finalisation of the draft modalities for negotiations on both tariff liberalisation and trade in services. Four meetings of the CFTA Technical Working Groups were held in 2017: in February (Kigali), April (Nairobi), August (Durban) and November (Abuja), giving trade experts the opportunity to provide technical inputs in the draft CFTA texts. The 8th Negotiating Forum arrived at three outcomes on the CFTA: Framework Agreement on the CFTA, Protocol on Goods, and Protocol on Trade in Services and a built-in agenda. The three documents were formally approved and adopted by African Trade Ministers in Niamey, Niger in December 2017.
The fifth meeting of African Union Ministers of Trade (AMOT), held in Kigali, Rwanda on 8-9 March 2018, adopted the legal instruments constituting the African Continental Free Trade Area (AfCFTA), namely (a) the Agreement Establishing the AfCFTA, (b) the Protocol on Trade in Goods, (c) the Protocol on Trade in Services, and (d) the Protocol on Rules and Procedures for the Settlement of Disputes. Legal scrubbing of the documents was concluded during the Ministerial Meeting of the Second Extra-Ordinary Session of the Specialized Technical Committee on Justice and Legal Affairs held on 14 and 15 March ahead of the official signing ceremony which took place during the 10th Extraordinary Summit of the Assembly of the AU on 21 March 2018 in Kigali.
Following the submission of tariff concession schedules for trade in goods by each State Party (including the particular 90 percent of products that are to be liberalised, list of sensitive products requiring an extended time period for liberalisation, and list of excluded products that are to be temporarily exempted from liberalisation), initial market access offers on trade in services, and development of a list of product-specific rules of origin (part of the built-in agenda), the AfCFTA will then enter into force after the deposition of the 22nd instrument of ratification with the Chairperson of the African Union Commission.
- Update on the outcome of the Third Meeting of the CFTA Technical Working Groups - Durban, September 2017 (PDF, 234 KB)
- Update on the Continental Free Trade Area negotiations: Presentation by Mr. Prudence Sebahizi, Chief Technical advisor on the CFTA and Head of CFTA Negotiations Support Unit, AUC - 2017 African Prosperity Conference (PDF, 3.27 MB)
- Fast-tracking the Continental Free Trade Area: Regional Economic Communities (RECs) as Building Blocks: Paper by Mr. Prudence Sebahizi, African Union Commission - November 2016 (PDF, 811 KB)
- Decision to establish a High Level Panel of five eminent persons to champion the fast tracking of the CFTA - 27th AU Assembly, July 2016 (PDF, 293 KB)
- Decision on the Launch of Continental Free Trade Area Negotiations - Johannesburg, June 2015 (PDF, 165 KB)
- Declaration on the Launch of The Negotiations for the Establishment of the Continental Free Trade Area (CFTA) - Johannesburg, June 2015 (PDF, 166 KB)
- Draft Framework, Road Map and Architecture For Fast-tracking the Continental Free Trade Area (CFTA) (PDF, 117 KB)
- Decision to convene a Dedicated Session of Senior Officials to develop a Road Map towards the launch of the CFTA negotiations - 26th AU Executive Council, January 2015 (PDF, 449 KB)
- Decision on the Report of the High Level African Trade Committee (HATC) on Trade Issues - 24th AU Assembly, January 2015 (PDF, 312 KB)
- Update on the Continental Free Trade Area (CFTA) and Work Plan for the AU Commission for the Preparatory Phase of the CFTA Negotiations, 2014 (PDF, 204 KB)
- Decision on the Report of the Extraordinary Session of the AU Conference of Ministers of Trade (CAMOT) - April 2014 (PDF, 98 KB)
- Decision on the Report of the High Level African Trade Committee (HATC) on Trade Issues - 22nd AU Assembly, January 2014 (PDF, 165 KB)
Draft objectives and guiding principles for negotiating the Continental Free Trade Area (CFTA) - 2nd Meeting of the CFTA Continental Task Force (CTF), April 2013 (PDF, 1.34 MB)
Partnering with governments by business is essential to ensure and facilitate investment in the accompanying measures necessary to complement the AfCFTA. This includes intra-African trade infrastructure as well as supplying trade finance, trade information, and logistics services. Such provisions will help businesses recognize and realize the trading opportunities available through AfCFTA. Additionally, more active involvement of the private sector in terms of advocacy is required in order to ensure direct input into the AfCFTA negotiating institutions to ensure that the AfCFTA is shaped to assist the business community to trade in Africa.
Although an advocacy and communication strategy has been developed to ensure that there is a buy in from all stakeholders in the AfCFTA – the AUC, RECs, member states, civil society, parliamentarians, and the private sector – African civil society organisations have made several calls for citizens, workers, farmers, traders, producers, enterprises, and the private sector to participate more effectively in negotiations towards the AfCFTA to ensure their concerns and views are adequately reflected.
- Civil Society Advocacy around the Continental Free Trade Area (CFTA) Timeline 2016-2017 (PDF, 289 KB)
- Report: The Continental Free Trade Area (CFTA) in Africa – A Human Rights Perspective - FES and UNECA, July 2017 (PDF, 597 KB)
- African Civil Society Statement on the Continental Free Trade Agenda at Africa Trade Week 2016 - November 2016 (PDF, 61 KB)
Déclaration de la société civile africaines préalablement à la Semaine du commerce africain sur la Zone de libre-échange continentale - November 2016 (PDF, 60 KB)
The CFTA We Want: African Civil Society Demands at Africa Trade Week - November 2016 (PDF, 55 KB)
- Scoping study: Designing the Continental Free Trade Area (CFTA) – An African Human Rights Perspective - Friedrich-Ebert-Stiftung, May 2016 (PDF, 1.74 MB)
- Report: Colloquium on Africa’s Continental Free Trade Agreement (CFTA) – Internal coherence and external threats - TWN-Africa and ATPC, March 2016 (PDF, 849 KB)
- The CFTA: Elements, Expectations, Schedules and Challenges - Presentation by Prudence Sebahizi, CSOs Consultations in Accra, March 2016 (PDF, 4.46 MB)
Transparency, Consultation and Participation in the CFTA Negotiations in Africa: Recommendations from the Multi-Stakeholder Expert Workshop on a Potential Human Rights Impact Assessment (HRIA) of the CFTA (2015-2017) (PDF, 283 KB)
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Research and analysis
tralac has been monitoring the AfCFTA negotiations with keen interest. Several papers, briefs and discussion notes have been published to encourage debate and inform government officials, policymakers, and interested stakeholders on key issues involved in the negotiation of Africa’s mega-FTA.
How will the AfCFTA be established and its Legal Instruments be implemented? - Discussion by Gerhard Erasmus
22 Mar 2018
How will the AfCFTA co-exist with other African Trade Arrangements? - Discussion by Gerhard Erasmus
22 Mar 2018
Launching the AfCFTA: Getting the Politics and the Expectations right - Discussion by Gerhard Erasmus
22 Mar 2018
The African Continental Free Trade Area (AfCFTA) and non-tariff barriers (NTBs) - Discussion by Willemien Viljoen
22 Mar 2018
Trade in services and the AfCFTA: No service is an island - Discussion by Ashly Hope
15 Mar 2018
The legal and institutional architecture of the Agreement Establishing the African Continental Free Trade Area - Discussion by Talkmore Chidede
15 Mar 2018
A gender responsive AfCFTA - Discussion by Ashly Hope
8 Mar 2018
The African Continental Free Trade Area (AfCFTA) and other African Union initiatives for economic integration - Discussion by Talkmore Chidede
1 Mar 2018
The African Continental Free Trade Area (AfCFTA) and the Sustainable Development Goals (SDGs) - Discussion by Willemien Viljoen
23 Feb 2018
Are Trade Remedies important for achieving the AfCFTA Goals? - Discussion by Gerhard Erasmus
23 Feb 2018
Africa should not ignore what happened in Buenos Aires - Discussion by Gerhard Erasmus
23 Feb 2018
The AfCFTA: It’s not just about the tariffs - Discussion by Ashly Hope
14 Feb 2018
The 30th AU Summit adopts decisions key to advancing Africa’s economic integration agenda - Discussion by Talkmore Chidede
1 Feb 2018
Investment policy landscape of the African Regional Economic Communities, Tripartite Free Trade Area and Continental Free Trade Area - Trade Brief by Talkmore Chidede
18 Oct 2017
The Sanitary and Phytosanitary (SPS) policies of the African Regional Economic Communities, and the way forward for the CFTA - Trade Brief by Abrie du Plessis
7 Jun 2017
Towards the Continental Free Trade Area – opportunities for South Africa’s Industrial Policy Action Plan priority sectors in the Kenyan market - Working Paper by Taku Fundira
18 May 2017
Issues for CFTA negotiators to consider - Trade Brief by Ron Sandrey
22 Feb 2017
Services trade in Africa - Working Paper by Ron Sandrey
8 Feb 2017
Trade Remedies as part of the Continental Free Trade Area - Working Paper by Gerhard Erasmus
10 Sep 2015
How the CFTA could advance the Framework of the Abuja Treaty - Trade Brief by Gerhard Erasmus
10 Sep 2015
What is the Continental FTA Mandate? - Trade Brief by Gerhard Erasmus
3 Sep 2015
The new Principles for Negotiating the Continental FTA - Trade Brief by Gerhard Erasmus
1 Jul 2015
Suitable Mechanisms for Negotiating Trade in Services and Movement of Business Persons in the Continental Free Trade Area - Working Paper by J.B. Cronjé
1 Apr 2015
Market Access in Africa: A review of existing tariff structures and the road to a Continental Free Trade Area - Working Paper by Taku Fundira
4 Feb 2015
While tralac endeavours to list current legal instruments, we cannot accept responsibility or liability for any inaccuracies or omissions. The negotiation, ratification, implementation and/or modification of these instruments is an ongoing process and not always well-reported or updated by the relevant authorities. All documents are in English unless stated otherwise.
By Simion Allison, retrieved from Mail & Guardian
A cross section of Africa’s most powerful people gathered in Kigali this week to sell a dream - and sell it hard.
Rwandan President Paul Kagame, who revelled in his role as host of this extraordinary African Union (AU) summit, described this dream as “among the most consequential actions that this Assembly has ever taken”. Former Nigerian President Olusegun Obasanjo said that anyone who did not support it was a “criminal”. South Africa’s Cyril Ramaphosa invoked not one but three liberation heroes to underscore the significance of the moment:
“This is probably just as important as the formation of Organisation of African Unity (OAU). This is what Kwame Nkrumah dreamt of, what Julius Nyerere wanted to see, what Nelson Mandela wanted to see realised. It’s truly a new dawn for Africa,” he said.
The presidents were speaking, of course, about the signing of the African Continental Free Trade Agreement, a landmark trade deal that would create a single market from the Cape to Cairo, and from Djibouti to Dakar.
On Wednesday, 44 African countries committed themselves to eliminating cross-border tariffs and making border posts more efficient. 27 countries signed an additional protocol to allow for the free movement of people across those borders.
If fully realised, this agreement would revolutionise trade in Africa. For the first time, Kenyan manufacturers would be able to sell their products in Nigeria without paying tax at every border crossing; a Ghanaian PR firm could open an office in Namibia without going through any regulatory hoops; and all African citizens would have the right to live and work in any African country.
“The border gates are now going to fall apart,” said Ramaphosa.
The dream of continental integration has long been a cornerstone of the AU, and the OAU before it. The AU’s long-term strategy document, Agenda 2063, paints a utopian vision of a continent effectively without borders, where citizens travel on an African passport and spend their afros, the proposed single currency.
The logic is simple: if Africa wants to compete economically with the big boys, it must play as a team. Africa’s entire population is roughly the size of India’s, but Africa is 55 countries, with 55-odd currencies and 55 regulatory environments and 55 different sets of red tape. Doing business on the African continent is a nightmare, both for foreign investors and for African businesses who want to expand.
In fact, it’s easier for African businesses to trade outside the continent. The statistics don’t lie: as of 2016, intra-African trade accounted for just 17.6% of Africa’s total exports. In Europe that figure is 70%.
“Economic integration thus responds not only to aspirations born out of Pan-Africanism, but also to a practical imperative linked to the economic viability of the continent,” said Moussa Faki Mahamat, chair of the African Union Commission. “Our peoples, our business community and our youth, in particular, cannot wait any longer to see the lifting of the barriers that divide our continent, hinder its economic take-off and perpetuate misery, even though Africa is abundantly endowed with wealth.”
But Mahamat, who replaced Nkosazana Dlamini-Zuma last year, also sounded a note of caution. He is more familiar than most with the disconnect between the AU’s noble ideals and its no-can-do record when it comes to implementation - and he knows that the continental free trade dream is still some distance from becoming reality. He pleaded with his fellow leaders to this time prove the doubters wrong.
“...some actors, but also our own peoples, have seen so many proclamations remain a dead letter, so many commitments without practical execution that they have come to doubt the strength of our commitment. This summit must, therefore, mark a break…It must confound those who, outside Africa, continue to think, with barely concealed condescension, that our decisions will never materialise.” said Mahamat.
Obstacles to a full, continent-wide implementation of the free trade area are large and many. The most serious, for now, is the reluctance of Nigeria, the continent’s biggest economy, to join the integration club.
Muhammadu Buhari so nearly signed on the dotted line. Summit gossip had it that the Nigerian President was already on his way to the airport in Abuja when he abruptly cancelled his trip, apparently swayed at the last minute by vocal opposition from trade unions - a constituency he cannot afford to alienate in the run-up to next year’s election.
“We at the Nigeria Labour Congress are shocked by the sheer impunity or blatant lack of consultation in the process that has led to this,” said Ayuba Wabba, who heads the labour movement. “We have no doubt this policy initiative will spell the death knell of the Nigerian economy.”
These fears are not unfounded. Although all economists seem united in predicting that greater economic integration will lead to greater prosperity - potentially increasing intra-African trade by 52% in the next four years - there may also be a shake up of the established economic order. So while the continent as a whole will win, there will be individuals, companies and maybe even countries who will lose out in the short to medium term. Persuading them to act for the greater good regardless of the personal cost will be a major political challenge.
Another challenge, of course, is to get the free trade agreement ratified. It now goes to parliaments all over the continent who must rubber-stamp the text, a process which could take years. The bureaucratic hurdles have already claimed a major scalp: South Africa, which in Ramaphosa has one of the agreement’s most vocal cheerleaders, did not actually sign the agreement. Ramaphosa said that although he was committed to doing so, legal requirements meant that local stakeholders must be consulted first.
But even should all this red tape be cleared, more torturous negotiations lie ahead. As much as African leaders deserve credit for taking just two years to thrash out this agreement, to make the self-imposed deadline - encouraged by Kagame, who was desperate to conclude the deal during his term as AU chair - they postponed dealing with some of the most contentious issues.
The protocols on competition policy and intellectual policy have yet to be agreed; nor is there any accord on rules of origin, the criteria to determine where a product is actually from. These are usually among the most contentious areas of any free trade negotiation, so expect plenty of contention to come.
For all the fine words and noble ideals expressed at the Kigali summit, and for all the undoubted progress that has been made, a fully-functional African Continental Free Trade Area is still many years - and lots of compromise - away.
So put away your afros, because you won’t be spending them quite yet. And don’t bank on disappearing borders any time soon.