Implementation Challenges Loom for Africa's Trade Aspirations - Emerging Market Views

Implementation Challenges Loom for Africa’s Trade Aspirations

As AfCFTA Approval Nears, A Closer Look At What’s Ahead

African Union (AU) officials are “increasingly hopeful” that the African Continental Free Trade Agreement (AfCFTA) will be ratified by the close of February’s annual summit. If so, the AU will have defied expectations by formalizing the agreement in under a year.

Speaking exclusively to Emerging Market Views, the African Union’s trade commissioner, Albert Muchanga, hailed “the unique momentum behind the ratification process”. 18 national parliaments have now approved the deal, meaning only four more ratifications are required for it to take effect. Mr Muchanga said reaching the threshold of 22 by mid-February is “possible but not guaranteed, despite ratification being at a highly advanced stage in several countries.”

Once the 22 ratification instruments are deposited with the African Union, there will be little time for celebration however. 27 of the deal’s 49 original signatories will still need to ratify and four countries are yet to sign up, including the continent’s largest economy Nigeria. David Luke, coordinator of the UN’s Africa Trade Policy Centre, said: “Nigeria are likely to join the agreement, but political sensitivities in the run-up to next month’s elections are delaying the process.”

Mr Muchanga spoke of his focus on the challenge ahead after the political wrangling ends. “We must concentrate on turning the development framework into an agreement that produces tangible results for ordinary Africans,” he stressed. The African Union has made ambitious predictions about how the agreement will eliminate tariffs, generate jobs and boost intra-regional trade.

In 2017, trade between African nations amounted to only 17.8% of Africa’s trade – the lowest figure for any continent. The Economic Commission for Africa (UNECA) estimates that by removing import duties the AfCFTA has the potential to increase intra-African trade by 52 per cent, and it could even double it if non-tariff barriers are also addressed.

“Nigeria are likely to join the agreement, but political sensitivities in the run-up to next month’s elections are delaying the process.”

Mr. Muchanga expressed his confidence in the work of the African Union in “making these predictions a reality”. Despite the commissioner’s conviction, trading blocs have historically been less effective than hoped in Africa. The COMESA bloc, which encompasses 21 countries across east and southern Africa, recorded a 1.76 per cent drop in intra-regional exports earlier this year.

Kim Musau, CEO of Kenya’s Machakos Investment Promotion Board, said: “While the regional economic blocs have free movement and customs unions in place, these are often dysfunctional and fail to address the bigger problem with countries’ production structures. The same will probably be true of the AfCFTA – implementation will be a nightmare.”

The only bloc which has seen a dramatic rise in intra-regional exports is the SADC, thanks in large part to South Africa’s atypically diversified economy. The problem is that most of Africa’s growth has been staked on natural resources, which account for roughly 70% of the continent’s total exports, rather than building competitive advantages in other sectors. This means that African countries often fail to add value to their raw materials by turning them into competitively priced goods. Ethiopia, for instance, exported $866 million of coffee in 2017, mostly as raw beans; however, they could have near tripled that number if they had the infrastructure to process the coffee themselves.

Vera Songwe, the Executive Secretary of UNECA, conceded that the AfCFTA does little to overcome the underlying problems inhibiting trade within Africa. “Even with the free trade area, if countries stay with the same production structures they have, it’s not going to change much so you need to start diversifying economies,” she said.

UNECA is currently working with ten countries across Africa to remedy this problem by putting together a roadmap for diversifying their economies which focuses on “developing even the slightest semblance of a comparative advantage into a competitive advantage”.

In the short term, the AfCFTA will help open up trade routes for countries with surpluses of goods. Egypt, for instance, has an excess of pharmaceuticals while Kenya and Uganda import 70% of theirs. For the first time, trade between these countries will be uninhibited and growth will surely follow.

Questions remain, however, over how far-reaching the AfCFTA’s impact will be. The answers to these questions must come from national governments, not just the African Union. There is clearly a powerful collective will across Africa to make the AfCFTA a reality. However, the true success of the agreement relies on how much resolve there is in the capitals of Africa to make the changes closer to home that will enable each and every country to make the most of the free trade area.

Graphic: African Trade Policy Center.