Can world’s biggest trade bloc wean Africa off expensive aid?
Kampala, Uganda | RONALD MUSOKE | On Aug.17, Nana Akufo-Addo, the Ghanaian president, launched the Permanent Secretariat of the African Continental Free Trade Area (AfCFTA) four months ahead of the day African countries are expected to start trading in goods and services.
Ghana was selected to host the headquarters by African leaders during a summit of AU Heads of state in the Nigerien capital, Niamey, in July last year. The secretariat will be headed by South African, Wamkele Mene— the first Secretary General of the AfCFTA. Currently, 54 states have signed onto AfCFTA, out of which 28 have ratified.
“We are today handing over a fully furnished and befitting office space, in a secured and easily accessible location within the business centre of Accra, as the permanent secretariat of the AfCFTA,” Nana-Akufo said.
Flanked by Moussa Faki Mahamat, the chairperson of the AU Commission and Secretary General Mene, Akufo-Addo reiterated the importance of the trade bloc to the continent’s economic transformation agenda.
“The economic integration of Africa will lay strong foundations for an Africa beyond aid. Africa’s new sense of urgency and aspiration of true self-reliance will be amply demonstrated by today’s ceremony,” he said.
The AfCFTA is now the world’s largest free trade area since the formation of the World Trade Organization covering a market of 1.2bn people, with a combined GDP of US$ 3 trillion, across 54 member states. The trade bloc is expected to provide the vehicle for Africans to trade among themselves in “a more modern and sophisticated manner.”
Faki Mahamat said the opening of the secretariat marked a milestone in the vision of Africa’s founders for continental integration while Mene said the agreement offered an opportunity for Africa to confront the significant trade and economic development challenges which according to him include; market fragmentation, small national economies, over-reliance on primary commodity exports, narrow export base, lack of export specialization, under-developed regional value chains and high regulatory and tariff barriers to trade.
Free trade to start Jan.1, 2021
The trade pact should have come into effect in July, this year, but the COVID-19 pandemic has delayed the process. However, Nana-Akufo said the pandemic has only heightened the importance of the success of the AfCFTA.
“The destruction of global supply chains has reinforced the necessity for closer integration amongst us so that we can boost our mutual self-sufficiency, strengthen our economies and reduce our dependence on external sources,” he said.
Last month, the World Bank noted in a report that the AfCFTA represents a major opportunity for African countries to boost growth, reduce poverty, and broaden economic inclusion.
“If implemented fully, the trade pact could boost regional income by 7% or US$450bn, speed up wage growth for women, and lift 30 million people out of extreme poverty by 2035,” the World Bank said.
Senior officials at the World Bank said that achieving these gains will be particularly important given the economic damage caused by the COVID-19, which is expected to cause up to US$79 billion in output losses in Africa in 2020. The pandemic has already caused major disruptions to trade across the continent, including in critical goods such as medical supplies and food.
“The African Continental Free Trade Area has the potential to increase employment opportunities and incomes, helping to expand opportunities for all Africans,” said Albert Zeufack, the World Bank’s Chief Economist for Africa.
“The AfCFTA is expected to lift around 68 million people out of moderate poverty and make African countries more competitive,” Zeufack said, “But successful implementation will be key, including careful monitoring of impacts on all workers –women and men, skilled and unskilled—across all countries and sectors, ensuring the agreement’s full benefit.”
According to the World Bank, most of AfCFTA’s income gains are likely to come from measures that cut red tape and simplify customs procedures. Tariff liberalization accompanied by a reduction in non-tariff barriers—such as quotas and rules of origin—would boost income by 2.4%, or about $153bn.
The remainder (US$292bn) would come from trade-facilitation measures that reduce red tape, lower compliance costs for businesses engaged in trade, and make it easier for African businesses to integrate into global supply chains.
According to the World Bank report, the agreement would reshape markets and economies across the region, leading to the creation of new industries and the expansion of key sectors. But the Bank said, overall, economic gains would vary, with the largest gains going to countries that currently have high trade costs.
Ivory Coast and Zimbabwe for instance—where trade costs are among the region’s highest—would see the biggest gains, with each increasing income by 14%. AfCFTA would also significantly boost African trade, particularly intraregional trade in manufacturing.
Implementation of the agreement, the World Bank noted, would also spur larger wage gains for women (an increase of 10.5% by 2035 than for men 9.9%). It would also boost wages for skilled and unskilled workers alike—10.3% for unskilled workers and 9.8% for skilled workers.
Successful implementation of AfCFTA would help cushion the negative effects of COVID-19 on economic growth by supporting regional trade and value chains through the reduction of trade costs.
In the longer term, AfCFTA would provide a path for integration and growth-enhancing reforms for African countries. By replacing the patchwork of regional agreements, streamlining border procedures, and prioritizing trade reforms, AfCFTA could help African countries increase their resiliency in the face of future economic shocks.
Going forward, Yaw Afful the executive director of the AfCFTA Policy Network—the lead international non-profit whose focus is to oversee the implementation of the AfCFTA told the BBC’s Focus on Africa programme on Aug.17 that in order for African states to benefit from the trade bloc, technocrats should be working to rethink their economic models.
“This is the time to look at the economic models from dependence on primary products to value addition,” he said adding that, “The innovations and start-ups going on around the continent should be keenly looked at to spur growth but also tip the export-import balance.”
The World Bank noted in its July report that creating a continent-wide market will require a determined effort to reduce all trade costs. But also, the World Bank said, deliberate legislation that enables the free flow of goods, capital and information across borders is needed to attract foreign direct investment and increase competition to boost productivity and innovation by domestic firms.
President Akufo-Addo appealed to member states that have not yet ratified the continental agreement to do so before the next AU summit in December, “to pave the way for the smooth commencement of trading from Jan.1, next year.” More than 30 countries had at the end of May 30 this year ratified the AfCFTA agreements including Uganda, Kenya, Rwanda, Ghana, Mali, Mauritania and South Africa.