The signing of the African Continental Free Trade Area (AfCFTA) will be particularly sweet for African Union chairman Rwandan President Paul Kagame, who is pushing reforms and the integration of the continent's economies.
The agreement, however, still has outstanding issues on finalising the details of protocol, including reciprocation of tariffs and dispute resolution.
Leaders will also have to navigate how to win political buy-in through ratification of the agreement by individual countries.
The African private sector expects the AfCFTA to address tariff and non-tariff barriers that they face when selling goods across borders, hindering their competitiveness against their peers from the developed world.
“It is good for business on the continent only if the local market players are empowered and educated on the role they can play in nation building. If well executed, it could help rejuvenate most of our economies,” said Ephraim Rwamwenge, chief executive of Rwa Group, a Rwandan soft commodities trading company that deals in sugar and wheat flour.
At an average of 6.1 per cent, businesses face higher tariffs when they export within Africa than when they export outside the continent, according to the United Nations Economic Commission for Africa (Uneca).
Uneca estimates that the pact could boost intra-African trade by 53.3 per cent by the elimination of import duties and non-tariff barriers, as well as excessive documentation and delays at borders.
“The concept of one-stop-border posts has to apply across Africa,” Vincent Muyeshyaka, Rwanda’s Minister of Trade and Industry told The EastAfrican, underscoring that the AfCFTA will create efficiencies to boost trade.
Jamie Alexander MacLeod, a trade specialist at Uneca, said AfCFTA should be complemented by a “sister policy,” the Boosting Intra-African Trade action plan, which aims to increase production capacity, regional infrastructure and payment systems.
“National AfCFTA strategies should also be developed to identify and fully utilise the opportunities of the agreement,” Mr MacLeod said.
Among the regional blocs across the continent, the East African Community is leading in addressing non-tariff barriers through one-stop-border posts, largely financed by development partners, to ease trade through seamless documentation. The idea is to replicate the initiative across the continent.
There is concern that larger economies like Nigeria, South Africa and Egypt that stand to benefit more from the pact are reluctant to open their domestic markets. A compensation mechanism for smaller economies that could lose revenue as a result of the free trade is yet to be agreed on.
The continent is expected to incur losses in tariff revenues of $4 billion. However, if the AfCFTA is effectively implemented, the benefits could be significant through lower prices of consumer goods.
Hosting the secretariat
Moreover, countries are yet to agree on the host country and structure of the independent and autonomous secretariat within the AU system that will spearhead implementation of the agreement. The EastAfrican has learnt that Nigeria and Ghana are in the running to host the secretariat.
The African Union Commission will manage the transition arrangements towards the establishment of the secretariat.
The CFTA targets to move beyond reducing tariffs to liberalise trade services through mutual recognition of standards, licensing and certification of suppliers, and progressive liberalisation of services sectors to ease doing business across the continent.
“The easing of trade between African countries will facilitate the establishment of regional value chains in which inputs are sourced from different African countries to add value before exporting externally, “said Mr MacLeod.
Boosting intra-Africa trade will result in longer-term growth, higher foreign investments and will contribute to the continent’s industrialisation.
But the AfCFTA comes at a time when Africa is facing several headwinds — the uncertainty of the multilateral trading system, declining commodity prices, and the restructuring of global value chains. These issues could undermine the effectiveness of the agreement if not addressed.
“The crisis of the multilateral trading system means that Africa’s priority issues are unlikely to be addressed in the short-term at the multilateral level,” said Judith Fessehaie, the manager of the trade and development programme at the Geneva-based think tank, International Centre for Trade and Sustainable Development (ICTSD).
In an article published in ICTSD’s publication Bridges Africa, Ms Fessehaie highlights the absence of political goodwill at the World Trade Organisation’s 11th ministerial conference in Buenos Aires last December.
At the conference, ministers failed to find a common ground on key issues affecting Africa and least developed countries (LDCs) such as agriculture, special and differential treatment, and fisheries.
“There is no roadmap to continue advancing development issues in these negotiations, and the largest players are now focusing on whether and how to revive multilateral negotiations rather than addressing LDCs or Africa-specific issues,” Ms Fessehaie said.
“With these rather grim prospects for substantial outcomes at the multilateral level, most countries will pursue their trade objectives through plurilateral, regional, and possibly mega-regional initiatives, to which Africa is largely not party to.”
The AfCFTA will offer the continent a way of strengthening endogenous development by reducing internal trade and other barriers amongst African countries.
The challenge would be to do so in a way that contributes competitiveness: this will not happen if Africa simply lowers internal barriers to trade and investment while raising external barriers.
Africa will for example need access to technology and low cost productive inputs that can be accessed in a cost effective manner from abroad. Africa will also need external markets. The AfCFTA should be a mechanism not for isolating Africa but for transforming and adding value to African production and output.