A United Africa: The AFCTA Trade deal poise to change the world!

Details of the newly signed AfCTA trade deal

Written By. Sipho Sebele

Since the dawn of African independence, in the 1950s, African leaders and intellectuals have been touting the idea of trade among African nations. During that period, and largely still today African, nations traded more with the world than it did amongst itself. This was due to the colonial era design, Africa was only used for raw material extraction and not economic development such as manufacturing and processing.

“It is clear that we must find an African solution to our problems and that this can only be found in African unity. Divided we are weak; united, Africa could become one of the greatest forces for good in the world” Kwame Nkrumah, Ghana’s first president and one of the founders of the Organisation of African Unity which later became the African Union.

African Continental Free Trade Deal- Creating One AFRICAN MARKET

The realization of significant trade among African nations was largely held back for decades because:

• African nations got their independence at different intervals, from the 1950s till the 1990s.
• Newly independent African nations had onerous debt from the colonial era, huge social inequality and forming national identity among other challenges to deal with from the onset.

To solve these national problems it required African governments to look more inward than outward. Over the years, governments have realized the potential that lies in trading within the African continent. Although Africa has geographic groupings that have their own trade deals (SADC, ECOWAS, COMESA, EAC) it does not have a trade pact that unifies the entire continent.

The African Continental Free Trade Agreement (ACFTA) is an initiative by the African Union (AU) which officially started its planning for ACFTA in 2013. Its architects believed the agreement would:

• Create a free trade area for all 55 member states of the AU. In terms of members, it will be the world’s largest trade deal since the World Trade Organisation.
• Trigger the lowering of trade barriers for 90% of goods and services
• Allow the free movement of goods, services, and investments throughout the continent.
• Create a $3.4 trillion market, with 1.2 billion consumers.

As it stands:

• 54 nations have signed up to the agreement. This is the first step in showing intent on being part of the agreement and is done by cabinet or heads of state.
• Of the 54 nations, 27 nations have ratified the agreement. Ratification is done by parliament and binds the nation to the agreement.
• The only nation holding out is Eritrea, mostly due to geopolitical reasons which are dying down since the new administration in Ethiopia came into power.

It could only come into effect if 22 nations ratified the agreement, that hurdle was passed on 29 April 2019. So, in accordance with its Articles, the agreement launched into its operational phase on 30 May 2019. The AU is currently setting up new institutions as part of AfCFTA, these are the;

1. ACFTA secretariat
2. Assembly of the African Union Heads of State and Government
3. Council of Ministers responsible for trade
4. Committee of Senior Trade Officials
5. Dispute Settlement Body and
6. Committees

The AfDB released an outlook noting that the AfCFTA could add 4.5% to Africa’s GDP. To make a dent in its high unemployment levels, Africa needs growth of 4–6%. One of their scenarios had real income growth of 7%.

Intra-Africa trade is approximately 16% of total trade in Africa (that figure is 59% for Asia and 69% for Europe), after the agreement the UN’s Economic Commission of Africa estimates that trade between African nations could increase by 52%.

There are critics of the agreement. There are concerns that AfCFTA could have a real negative impact on Africa’s social, economic and political spheres. Here are some of the concerns regarding AfCFTA:

• Trade agreements generally benefit those with resources the most, so as it stands AfCFTA could increase Africa’s already wide wealth gap.
• The agreement is yet to clearly state how disputes will be handled between private companies and states. There are people calling for an Investor-State Dispute Settlement (ISDS), which allows private investors to take states to an international tribunal should the state’s actions and policies threaten it’s a profit-making business. This raises the question of sovereignty, something Africans fought very hard to get. Governments prefer a state to state investment dispute settlement.
• One of the biggest criticisms against free trade negotiations has been the lack of transparency of the deal along with the exclusion of civil society and labor unions. It was primarily for these reasons that Nigeria delayed signing up to the agreement.
• Agriculture is a major employer in Africa and provides food security for sparsely populated villages. Liberalization of agriculture favors those who can take advantage of economies of scale. Africa’s farmers are mostly small scale subsistence farmers, so they could easily be pushed out of the industry and this could cause socio-economic instability in the near future.
• Trade barriers play a critical role in nurturing infant industries and giving them the opportunity to grow into solid, stable economic players. Africa needs its young manufacturing businesses to be protected from liberalized markets to stand a chance of growth.

African unity promotes African growth

“Network infrastructure is needed to ensure easy facilitation of the movement of goods and people [across borders],” said Patrick Dlamini, CEO of the Development Bank of South Africa

Signing the agreement isn’t the only challenge that African nations will face, they have to make the agreement work. This will take a lot of effort from governments due to Africa’s development challenges. To make the AfCFTA work, nations must consider;

• Developing entrepreneurship; opportunities are only as good as the drive to take advantage of them. Entrepreneurs will, in turn, need access to capital and credit.
• Building infrastructure to support intra-Africa trade ranging from transport to telecommunications.
• Nurturing rule of law that is both fair and equal.

Countries don’t trade, companies trade. Companies will move the needle,” said Martyn Davies, Deloitte’s managing director of emerging markets.

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