African Continental Trade Agreement: closer than ever.

In January, I wrote about the African Continental Free Trade Agreement (ACFTA). With the 7th July sign on of Nigeria and Benin a key obstacle to the pact’s feasibility has been eliminated.  So I thought I’d relook the subject, and see what new insights were available.

Despite the fact that we have a continent of dozens of independent states, theoretically in easy geographical reach of each other, most African countries prefer to export their products to Europe and elsewhere rather than within the continent. As a perspective, about 15 percent of African exports can be traced to other African countries, whereas exports between Asian countries is somewhere around 58 percent and in Europe, at least 67 percent.

The main reasons for this are that intra-African trade has been severely constrained by infrastructure, border delays, tariff inconsistency, lack of legal clarity, and yes, corruption. These, with other factors, drive the high costs associated with going to market within Africa.

In theory, the ACFTA will change that, uniting some 1.3 billion people, in a single $3.4 trillion economic bloc. The potential is enormous, if it can be fulfilled.

The stated goal of ACFTA is the creation of a single, continental wide system for all trade matters. It is meant to include markedly lower tariffs, simpler rules governing customs procedures, and a host of regulations for easier supply of cross border services. It also promises a framework of remedies when the rules are broken

The question is: Can it deliver?

One concern is the inequality of economic development in member states.

The basic goal of any free-trade agreement is liberalisation: Rules eased, and trade barriers removed. But when many of the self-same states rely heavily on tariffs and cross border revenues as a key economic input, there is potential for softening on different tariff schedules for different countries. Many exceptions might be granted. [FM 20- 06-19 – C. Bisseker]

In order to accommodate these states, we could see a weak, unambitious agreement that is difficult to implement and reluctantly enforced.

On the other hand, we could be seeing the groundwork for greater economic prosperity.

Africa could be in a position to take better control of its resources, and diversify its trading and export outputs. I imagine that in a best case scenario, we could also see better sufficiency in food products, and adding value to several commodity categories.

Can ACFTA make a positive difference over time?  After all, this is about Africa boosting Africa. African economies boosting other African economies. 

As Nzekwe Henry so nicely articulated in his analysis in W tracker [July 5, 2019] “Essentially, the new trade agreement has the potential to come good but it won’t just turn things around on its own. The new trade policy has to be accompanied by a continental policy, without which it would just be a beautiful plan on paper and nothing more.

[Ref:  Financial Mail, CNBC, Google, W Tracker et al]

By Kevin Abraham