Adopted in Kigali on 21 March 2018, and launched at the AU Summit in July 2019 in Niamey, Niger, the African Continental Free Trade Area (AfCFTA), signed by 54 African states (Eritrea is yet to sign and ratify the agreement), is due to come fully into force with the dismantling of tariffs on 1 July 2020.
The numbers are well documented and speak for themselves: 1.3bn people with an annual economic output of $3.4 trillion. Intra-African trade, if you use official estimates, many of which will understate the informal sector, sits at 15%. The African Union estimates that the lifting of tariffs will lead to a 60% increase in the level of intra-African trade by 2022.
The current global pandemic has exposed the need for a robust manufacturing sector and the need to have functioning supply chains within the continent. The measures adopted by the AfCFTA aim to encourage the development of a buoyant manufacturing and industrial sector, which will consequently strengthen the resilience of African economies against external factors such as fluctuations in commodity prices on world markets and exchange rate volatility.
Greater competition and access to new markets will contribute to accelerating economic growth, including in the most fragile countries, and also enhance the competitiveness of economic operators. Success, its proponents suggest, will be determined by the emergence of new African champions that drive growth in the same way as companies like Dangote over the past two decades.
Covid-19 reinforces need for integration
The Covid-19 crisis, which has seen the closure of borders and a drop in trade across the continent, has admittedly changed the playing field – at least in the short term.
A silver lining of the current crisis is that it will add urgency to accelerating efforts towards regional integration and strengthen regional and continental value chains and trade. In order to achieve a V-curve recovery the UN Economic Commission for Africa (UNECA) is pushing African countries to accelerate the process of making the AfCFTA operational by July. One area that it is working on is in terms of pharmaceuticals, where it is working with manufacturers to help them export more within the continent at zero tariffs.
“The intra-African market can help to mitigate some of the negative effects of Covid-19 by limiting dependence on external partners, particularly for pharmaceutical products and basic foodstuffs”, said the Director of UNECA’s Regional Integration and Trade Division, Stephen Karingi, during a press conference in Addis Ababa in April.
In a best case scenario UNECA sees growth falling this year from its initial projection of 3.2% to 1.8%. The impact of the virus on some of Africa’s largest trading partners will also be greater than first anticipated. The European Union, China and the United States account for 52% of African exports and their economies are all predicted to see severe economic decline before picking up in 2021.
The general consensus is that, hitherto, the AfCFTA can be considered a success. The speed at which it has been ratified and how discussions have progressed have surprised most critics. Nonetheless, the next stage will tell us how much progress has been made as we move from planning to implementation. The role of private sector and civil society in the implementation phase will be of paramount importance.
But even in the past two years, considerable practical measures have been taken to help integrate the continent. Senegal is launching an interregional bus service with The Gambia; Rwanda has announced the elimination of visas for all African nationals. Nigeria has followed suit with its own visa-on-arrival scheme. Plans for a trans-Maghreb railway have been agreed, and plans for a single African market for air transport are advancing. Covid-19 will only accelerate the need for some of these projects, making consolidation of the aviation sector a necessary step for survival.
The process gathers speed
Political differences will have to be put aside as countries rebuild their economies and the signs are that this global crisis has refocused minds, fostering greater collaboration and a more unified approach. In 2018, the Boston Consulting Group released the report Pioneering One Africa: The Companies Blazing a Trail across the Continent. It highlighted back then that “the economic integration of the continent, which many see as key to its continued development, is manifest”.
It noted that much of the integration was driven by “indigenous entrepreneurs and fast-growing African companies, as well as multinational corporations…The primary drivers come from within the continent, led by African business. Africa invests more in Africa, Africa trades more with Africa, and Africans travel more to Africa.”
Governments will have to work even more closely with the private sector, listening to their concerns but also supporting them, to ensure a rapid recovery and enabling them to be the drivers of integration from greater cross-border investments. According to the report, intra-African exports as a share of total exports grew from 12% in 2006-07 to 18% in 2015-16.
The AfCFTA will create the largest trading block since the WTO, with the added complexity of having economies at different levels of development. It is for this reason that Ibrahim Mayaki, Executive Secretary of the African Union Development Agency (Auda-Nepad), stresses the need for a continental approach, developing “continental strategies and overlaying them with a regional dimension”.
Through this collective agenda and strategy, it becomes inevitable that Africa will be able to speak with a single voice and will be in a better position to renegotiate more favourable agreements with bodies such as the European Union, the US and the World Trade Organisation.
At a time of crisis, economic integration can provide a path towards greater “unity”, in other words greater cooperation, complementarity and solidarity between African countries. This crisis therefore can be a catalyst for greater collaboration when it comes to all issues African, be it security – terrorism, cyber-attacks, piracy – energy or infrastructure. Covid-19 has reminded us there are common challenges that African countries must address, but that we cannot resolve alone. (African Business)