Countries moving to ratify the African Continental Free Trade Area, that was launched last week will be insured from revenue losses under a $1 billion adjustment facility.
The funding from the African Export-Import Bank (Afreximbank) hopes to smoothen the phasedown of tariffs from next year once an African Union taskforce completes pending work on rules of origin, a regular deal-breaker in free trade.
“This facility will help countries to accelerate the ratification of the AfCFTA. This movement is now unstoppable,” Afreximbank President Benedict Oramah told the Africa business symposium on the sidelines of the AfCFTA launch in Niamey, Niger.
Working with the African Union, the trade enabler said it would also establish a digital platform — the Pan African Payment and Settlement System through which transactions between countries would be settled in local currencies, reducing dependence on hard currencies.
“Making cross-border payments easier, cheaper and safer is an obvious critical step in creating an Africa we want. Our goal is to reduce, significantly, the foreign currency content of intra-African trade payments,” Mr Oramah said.
Mr Oramah said the platform would domesticate, intra-regional payments and save the continent more than $5 billion in payment transaction costs per annum.
“It is a system that will formalise a significant proportion of the estimated $50 billion of informal intra-African trade, and above all, contribute in boosting intra-African trade,” Mr Oramah added.
The agreement has already been ratified by 27 of Africa’s 55 countries, with Eritrea the only one yet to sign.
The AfCFTA was launched during the 12 Extra-ordinary summit of African Union Heads of State at the Mahatma Gandhi Conventional Centre in Niamey, together with a dashboard for monitoring of elimination of non-tariff barriers.
The agreement seeks to remove tariffs on more than 90 per cent of goods traded within the continent by 2025.
However, adoption will be staggered to cushion countries whose industries are at risk of being overwhelmed by duty-free imports.
A market of 1.2 billion people will be created with a GDP of $3 trillion. Its target is to raise the level of intra-Africa trade from 16 per cent to 52 per cent over time compared with 69 per cent in Europe and 59 per cent in Asia.
Early adopters will operationalise the free trade deal in July next year but the vulnerable countries will have up to 2035 to do so. It is expected that removing tariffs will bolster net income by $2.8 billion per annum.
Countries on a United Nations list of “Least Developed Countries” will have 10 years to cut tariffs, while a group of six countries — including Niger and Malawi — will have at least 15 years, according to Malawi’s Director of Trade Christina Chatima.
In the first basket are expected to be Africa’s wealthiest countries by GDP including Nigeria, South Africa, Egypt, Angola, Algeria, Morocco, Sudan, Ethiopia, Kenya and Tanzania. These are ranked as low or upper middle income by the World Bank but some could opt to join at different stages out of national considerations.
Among the pending issues are an agreement on a common criteria for rules of origin for some sectors such as textiles and automotive sectors for which the AU is supposed to draw up proposals for discussion.