Can Africa’s new free trade treaty boost business on the continent?
Aljazeera | 16th February 2024
By Shola Lawal
African leaders will this weekend gather in Addis Ababa for the annual summit of the African Union (AU) to discuss key business issues, including plans to make Africa a global economic powerhouse.
In the spotlight during the two-day high-level meeting, starting on February 17, is a treaty that the AU says will revolutionise trade on a continent where country-to-country trade levels are dismal, with most imports coming from countries like China.
Ratified by a majority of African countries, the African Continental Free Trade Area (AfCFTA) agreement will merge 55 economies into a single, competitive mega market of more than a billion people, making it one of the biggest free trade areas in the world.
The AU estimates that the agreement will boost revenue and lift 30 million of Africa’s extremely poor from poverty. However, despite the big buzz around the treaty, real action has been delayed, moving back potential benefits and casting doubts on the AU’s capacity to properly pull off the plan. Here’s a breakdown of the AfCFTA agreement and what it has achieved so far:
What is the AfCFTA and what are its major promises?
First agreed in July 2019, the AfCFTA is a key pillar of the AU’s 50-year strategy to boost Africa’s economic growth.
Its primary aims are to deepen economic integration in Africa by increasing the easy, cheap flow of goods and services between countries, boosting cross-country investments, removing trade barriers, and advancing open visa policies. The AU also wants to leverage the plan to increase local manufacturing and fight for more influence in global trade where Africa currently contributes only 3 percent.
All 55 AU member states have signed the agreement – save for Eritrea – and will be represented through the eight recognised regional economic blocs, including the South African Development Community (SADC) and the Economic Community of West African States (ECOWAS). The treaty became operational in January 2021.
Combined, the agreement represents a united African market of 1.3 billion people that is worth about $3 trillion – approximately the gross domestic product (GDP) of India.
The AU plans to reduce or eliminate tariffs on 90 percent of products and earn Africa an additional $450bn in revenues by 2035. If the agreement goes according to plan, the AU estimates Africa’s economy will expand to $29 trillion by 2050.
What’s the current trade outlook in Africa?
African governments have often created trade barriers to protect their markets from regional competition. At present, intra-continental trade tariffs mean that it is 6.1 percent more expensive to import goods from within Africa than to import from outside the continent. Due to that markup, countries barely trade with each other, with total intra-African exports hovering at about 14 percent of total African trade, compared with 55 percent in Asia, 49 percent in North America and 63 percent in the European Union.
Meanwhile, one-fifth of sub-Saharan Africa’s raw materials like crude oil, metal and copper are exported to China, the region’s single biggest trade partner. China is also one of the biggest exporters to Africa, meaning it is easier to find “Made in China” goods than “Made in Africa” products in markets across the continent.
One main reason for the trade imbalance, said Olabisi Akinkugbe of Canada’s Dalhousie University, is that despite being resource-rich, African countries are not manufacturing enough, with many economies depending on countries outside the continent to add value to their raw materials.
Oil-rich Nigeria has only about two working refineries, for example, meaning it had to export crude oil worth about 8 billion naira ($5m) in the second half of 2023 and import finished products like petrol worth 2.5 billion naira ($1.7m).
“We need to be thinking big as a continent,” Akinkugbe told Al Jazeera. “We continue to be seen as a raw material provider, meaning we are at the bottom of the value chain,” he added, pointing out that the AfCFTA fails to properly address how African countries can use their minerals to tap into the ongoing global transition to green energy. Mandating green product companies like electric car maker Tesla – which sources minerals from the Democratic Republic of the Congo (DRC) – to manufacture on the continent, for example, would boost African pockets and create much-needed jobs.
Another issue limiting intra-Africa trade is poor connectivity. Prices of intra-Africa flights are often high and flight routes complicated. The AU’s Single African Air Transport Market (SAATM), launched in 2022 to ease travel across the continent, has seen slow progress. “It is easier to fly to Europe than to fly to some African countries,” Akinkugbe said.
Add to that, several countries require visas for other Africans that sometimes take months to obtain. Only Benin, The Gambia, Rwanda and Seychelles operate visa-free policies for all Africans, according to the Visa Openness Index. Libya, Sudan, Equatorial Guinea and Eritrea are the least open, requiring nationals from at least 51 African countries to get a visa.
What has happened so far under the AfCFTA?
Although official trading kicked off in January 2021, there was no real action until several months later as COVID-19 sent Africa into lockdown.
In 2022, the AU launched a pilot programme called the AfCFTA Guided Trade Initiative. Eight countries – Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania and Tunisia – were eligible to participate because they had finalised legal agreements and put up product offers.
Some 96 products were approved for trade in the pilot programme. In late 2022, Kenya and Rwanda shipped goods like batteries and coffee to Ghana, marking the first-ever shipments under the AfCFTA. It was the first time countries used the AfCFTA Rules of Origin certificate – a document and mechanism that certifies that a product has been manufactured using Africa-sourced materials, thus making it eligible for lower customs fees.
In January, South Africa joined the approved exporters club when it sent refrigerators, home appliances, and mining equipment to unnamed neighbours.
It is unclear just how much the goods traded so far under AfCFTA are worth in total, or how much lower the tariffs were for all three exporting parties – South Africa, Kenya and Rwanda.
What challenges face the AfCFTA?
Traders already face issues regarding information sharing between countries. One business owner in Rwanda who was part of the pilot programme told a local newspaper that the customs officers in Ghana were not familiar with the proper tariffs to use. She also complained both countries had to test and approve the coffee for consumption because certifications were not transferable between Rwanda and Ghana.
Experts also say the AfCFTA shuns informal trade on the continent, meaning that existing small businesses that make up the bulk of trade on the continent, especially those in border areas, might be excluded from the framework.
Then there is the AU’s continuity problem. A promised common passport that will allow holders access to all African countries was supposed to be available in 2022, but is still not forthcoming. Getting past delays and other barriers would require the AU to empower itself to put members in line, said Max Mendez-Parra of the Overseas Development Institute (ODI), a London-based think tank providing research and technical support to the AfCFTA secretariat.
“The overcoming of trade barriers is a continuous process,” Mendez-Parra said. “It is hard, and progress needs to be monitored and actors held to account.”
Global politics, as well as locally disruptive events, like a current surge in military coups in Africa, might also affect the agreement, Akinkugbe of Dalhousie University said.
“See what Russia is doing, pitching Francophone countries against France even as Russian companies are gaining interest in the extractives sector in Africa,” he said, referring to Russia’s increasing influence in French-speaking African countries, at the same time that the United States and China are seeking more African allies.
What next?
At the AU summit, member states will debate on some of the different protocols comprising the treaty.
While the key trading agreement and agreements on how to settle arising disputes are now in force, separate protocols on how to handle issues of intellectual property rights, how to include women, and how to manage cross-country investment and digital trade are still pending and might be approved at the summit.
“Negotiations concluded some time ago, but now the political process must begin and the AU giving the nod will mean that states can now move towards ratification,” Mendez-Parra of ODI said.
“The last summit in 2023 recognised that the AfCFTA must be complemented by other initiatives, like the African passport, the movement of people and so on. It will be interesting to see the outcomes of the 37th AU summit in terms of the future steer it will provide.”
