The AfCFTA – Next Steps and Why Intra-Trade in Africa is Such a Big Deal
The African Union launched the operational phase of the African Continental Free Trade Area (AfCFTA) at an Extraordinary Summit of Heads of State and Government on 7 July in Niamey, Niger. African Union Commission (AUC) Chairperson Moussa Faki Mahamat termed the event a remarkable and historic achievement. It was also agreed that the Secretariat of the AfCFTA will be hosted by Ghana. The Secretariat’s primary mandate will be the implementation the Agreement. The AU’s Executive Council will now prepare the draft agenda and decisions for the 12th Extraordinary Assembly that will launch the detailed plans of the AfCFTA. In other words up until now the agreements on the AfCFTA have been harvesting the low-hanging fruit – now the real detailed grind will begin.
Even a week before the meeting in Niamey, there was doubt that Nigeria would come to the table, but after months of reluctance over competition concerns, Nigeria’s President decided to support the initiative. Nigeria gives weight to the 54-nation bloc. There are almost 300 trade treaty agreements worldwide according to data from The World Bank but none are as big as this one set in motion by the AU. African Inter-country trade makes up only 17% of exports and is exceptionally low compared with Asia, the Americas or Europe, but the agreement could create $3.2-trillion in trade within the Continent. Intra-African trade is hampered by poor infrastructure, taxes, bureaucracy and corruption. The Agreement aims to boost cross-border trade by reducing or eliminating duties and red tape.
To help lower costs, the AU launched a pan-African payment system at the Summit. More information will follow later.
African exporters want the free trade area to enter quickly into force to eliminate barriers and create free movement between states. Despite the African free trade area’s launch, much work remains before the agreement becomes effective. While all of the African Union’s 55 members except Eritrea have signed on to the free trade area, only half have ratified the deal. And even after cross-border costs are reduced, Africa’s exporters still will have to contend with non-tariff barriers (NTBs) that will take much longer to fix — such as discriminatory laws, bureaucracy and poor transport links between nations. While we can all agree that tariffs are easy to identify, many NTBs are hidden. NTBs are defined as a wide range of restrictive regulations and procedures that make cross-border trade difficult and/or costly. They are one of the main roadblocks to trade on the African continent and include customs clearance delays, restrictive licensing processes, certification challenges and rules of origin. An innovative online tool devised by UNCTAD and the African Union will help African businesses and countries identify and overcome NTBs. UNCTAD and the AU started the ball rolling by signing an agreement with COMESA (the Common Market for Eastern and Southern Africa) to use this new tool to facilitate trade in the region. In trade, time is money and African businesses and consumers could save billions if delays at borders are reduced. In landlocked Rwanda, for example, UNCTAD’s automated customs data system, known as ASYCUDA, slashed the time needed to clear goods at the border from 11 days in 2010 to less than 2 days in 2014. This cut the cost of clearance from about US$35 to US$5.
Finally on the subject of the African Union, the SA Institute for International Affairs (SAIIA) has just issued an interesting paper on the President of Rwanda’s attempts to streamline the African Union Commission (AUC). President Paul Kagame held the AUC Presidency for a year in 2017-8 and started a series of reforms. SAIIA’s research show that while reforms were necessary, their institutionalization is far from guaranteed. Egypt is currently chairing the AU and is not enthusiastic about implementing the reforms or giving more power to the AUC. South Africa is of a similar view, as are other big continental powers – President Ramaphosa is due to take over the presidency of the AUC in the next months. However, SAIIA points out if the reforms can survive 2019, they may have a qualified success. The end result will be rather different from the original proposal, yet this is to be expected, given the myriad of national interests – from 55 states in total – at play. Link to full paper: https://lnkd.in/gWYfT6n
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