Intra-African trade: On the AfCFTA

By Rafiq Raji, PhD
Twitter: @DrRafiqRaji

My column this week is an abridged version of the article I wrote for the March 2018 issue of African Business magazine on the AfCTA, which African heads of state are scheduled to sign in Kigali, Rwanda, on 21 March 2018. The complete version, with comments by experienced executives and analysts, can be found in the magazine (available at newsstands).

After about two years since the signing of the Sharm-el-Sheikh Tripartite Free Trade Area (TFTA) agreement in June 2015, which brought together member states of the Southern African Development Community (SADC), East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA), trade ministers from all of Africa’s 55 countries, including those of the Economic Community of West African States (ECOWAS) which already have a Common External Tariff, met in Niamey, the Nigerien capital, in early December last year to agree final terms for the African Union’s Continental Free Trade Area (CFTA). They made some good progress; by and large. A formal signing of the trade deal by heads of state is expected in March. There are still a few pending issues, though. They are yet to agree on tariffs on all goods, for instance. But on services, they successfully closed the book.

Intra-African trade recovers
The objective of the CFTA is primarily to engender more intra-African trade; currently 15 percent of the continent’s total merchandise trade. When compared with intra-regional trade in other continents – 67 percent in Europe, 58 percent in Asia and 48 percent in North America – this is quite low. Efforts, thus far, at improving the low trade interactions within the continent, have not been quite effective, clearly. There are signs of improvement, though. According to most recent data from Cairo-based African Export-Import Bank (Afreximbank), intra-African trade grew by 8 percent in the first nine months of 2017; with Guinea, Ethiopia, Burkina Faso, Equatorial Guinea, and Sierra Leone in the lead. This is definitely better than the marginal 0.6 percent growth to US$156.94 billion recorded in 2016. Even so, there is still much road to cover before intra-African trade recovers to the 2013 peak level of US$174.9 billion. And as recent as 2015, intra-African trade growth was almost 9 percent. Afreximbank attributes the latest recovery to rising commodity prices, “improved regional trade across regional economic communities and some countries’ increased focus on promoting intra-African trade”. There is beginning to be a paradigm shift it seems.

One big step but…
Otherwise, it could be rightly averred that after the typical jamboree around continental initiatives like the CFTA, the various heads of government could again probably just go back to their capitals and do whatever they like. Things could be different, this time around, though: the need for improved intra-regional trade relations is now almost existential. With additive manufacturing, automation and other fourth industrial revolution innovations likely keeping developed economies at an insurmountable advantage yet again, African manufactures would probably only thrive in the future if they are traded within the continent. And since it is only by trading more with each other that this could be achieved, African governments would need to ensure hassle-free market access for African-made goods. This is the underlying motivation behind the CFTA.

Challenges remain, however. Negotiations on such important issues like intellectual property rights, some tariffs, what constitutes proper competitive behaviour and so on, are still pending. Besides, there is the bigger issue of how African countries would extricate themselves for constraining bilateral and multilateral trade agreements with developed economies, which at first glance, seem beneficial to African countries, but on further scrutiny, would be found to be ultimately detrimental to their long-term industrial development. The European Union’s Economic Partnership Agreements (EPAs) are top among them. Considering the likelihood that African-made goods would ever be as competitive as foreign ones is quite slim, African countries would in addition to trading more with each other also need to exclude outsiders with as much zeal; for a while, at least.

Disunity elsewhere
Should the CFTA vision be realised, intra-African trade could increase by at least 50 percent over the next five years, some estimate. A market of more than 1.2 billion people with a combined GDP of $2.2 trillion is a far stronger bulwark against limiting external trade forces than the tiny ones that inevitably get overwhelmed in negotiations with humongous countries – even as stand-alone economies – like America, Britain and China. Incidentally, even these countries who already trade a great deal within their respective continents, are becoming increasingly isolationist. So, just as African countries are beginning to find trade unity, previously globalist and more integrated ones abroad are beginning to flirt with insularity.

Actions speak louder 
In any case, the trade barriers that really require attention on the continent would barely surface in negotiations or be amenable to them. For instance, infrastructure, the financing deficit (US$93 billion per annum) or terrible state of which, add to logistical costs and retail prices, is one of the reasons why African goods are not competitive. Non-tariff barriers like that would require not just collaboration between African governments but a sense of initiative by each of them. And even as the raison d’etre of the CFTA is palpable, would there be similar enthusiasm in implementing it?

Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://businessdayonline.com/intra-african-trade-afcfta/

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