AfCFTA: Africa set for major trade revolution

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The extraordinary Summit of Heads of State and Government of the African Union, AU, in Niger’s capital, Niamey from July 7 to July 8, is billed to discuss the effective implementation of the African Continental Free Trade Area, AfCFTA, which is the largest regional free trade market in the world and approve the July 2020 take off of the market, which will, hopefully revolutionise the economic landscape of the region 

By Goddy Ikeh

THE landmark African free trade zone is expected to be ceremonially inaugurated at the Niger Summit this weekend and may take effect from July 2020, the African Union, AU, trade commissioner, Albert Muchanga, was quoted by AFP as saying on Friday, July 5, that July 1, 2020, was recommendedto the Summit as the actual date of trading.

“It is not yet definitive, the summit has to consider that recommendation,” Muchanga said, adding that “the ministers of trade have accepted, so naturally, you would expect that the Head of States will.”

There is no doubt that the birth of the regional free trade zone has been welcomed with optimism and passion because of the opportunities it presents to the continent.

Although the idea of regional integration, which includes free trade zone was muted by Nigeria as far back as 1962, the launch of the African Continental Free Trade Area, AfCFTA, has taken about 17 years to materialize.

Nigeria is expected to signal its endorsement of the AfCFTA during the Niger Summit. According to the Special Adviser to the Nigerian President on New Media, Bashir Ahmed,

Buhari
Buhari

President Muhammadu Buhari will, on behalf of Nigeria, sign the agreement establishing the African Continental Free Trade Area, AfCFTA, at the upcoming Extraordinary Summit of the AU in Niamey, Niger.

Ahmed recalled that the Presidential Committee on the Impact and Readiness Assessment of the Agreement Establishing the AfCFTA submitted its report to President Buhari, Thursday, June 27, in which it recommended that Nigeria should sign the treaty.

The African leaders are hopeful that the single continental market for goods and services will enhance free movement of business professionals and investments and accelerate the establishment of the Continental Customs Union and the African customs union. 

According to the United Nations Conference on Trade and Development, UNCTAD, the AfCFTA will expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation across Regional Economic Communities (RECs) and across Africa.

It will also resolve the challenges of multiple and overlapping memberships and expedite the integration processes as well as enhance competitiveness at the industry and enterprise level by exploiting opportunities for scale production, continental market access and better reallocation of resources.

On the benefits of the regional single market, UNCTAD says that it offers many opportunities for sustainable development and economic growth in the African economies. It, however, noted that not all countries will benefit to the same extent, and the gain of welfare benefits also implicates relevant costs and commitments.

According to the UNCTAD report, most of the benefits of further trade integration (i.e. welfare benefits from lower import prices, production efficiency and increase in outputs,  higher value-added jobs and exports, technological specialization, etc.) will materialize in the long term, while most of the associated costs of adjustment and integration (i.e. loss in trade tariff revenue, local SME’s vanishing in front of stronger competition, adjusting unemployment, required investment in infrastructure, political and regulatory reforms, etc.) will be incurred in the short term.

However, UNCTAD simulations estimate a welfare gain of US$ 10.7 billion in the long term. Tariff revenue losses are expected at US$ 3.2 billion (representing 7.2% of current tariff revenues). GDP and employment growth are expected to grow by 0.66% and 0.82% respectively. Intra-African trade is expected to grow by 24%, while, Africa’s trade deficit only shrinks by 3.8%.

In the same vein, the AU says the single market will progressively phase out duties on 97 percent of goods traded between African countries and will be a spur for growth.

“The biggest benefit is you are removing the fragmentation of Africa,” Muchanga said, predicting an influx of foreign capital that would create jobs and prosperity.

According to the AU, the zone, bringing together Africa’s 1.2 billion people into the world’s largest trade bloc, could increase intra-African trade by 60 per cent by 2022.

However, there are fears that cheaper imports will hit small manufacturers and countries that rely heavily on agriculture, but the AU official said that some countries would face a short-term hit to revenues, but that competition would drive innovation.

Already, a billion US dollars in credit has been earmarked by the African Import and Export Bank for countries requiring support for adjustment costs.  In April 2019, the Board of the African Development Bank, AfDB, approved an institutional support grant of $4.8 million to the African Union, AU, to accelerate the momentum of the African Continental Free Trade Area Agreement (AfCFTA), which received its 22nd ratification on 2 April, bringing the agreement into force.

The continental bank believes that the AfCFTA is a major force for continental integration and that it will expand intra-African trade by up to $35 billion per year and usher in freedom of movement for goods, services and people across the continent’s internal borders, with a regime of reduced tariffs and non-tariff barriers to cut the cost of doing business on the continent. It will also boost agriculture and industrial exports by up to $66 billion per year.

AfCFTA
AfCFTA

The Bank says that its grant is targeted at laying the institutional foundations for the AfCFTA implementation secretariat and the roll out of the implementation programmes.

“The momentum is now in full swing”, said Andoh Mensah, Manager, Trade and Investment Climate Division at the African Development Bank, “It is now crucial to establish a robust, efficient, purpose-driven secretariat, capable of addressing improved stakeholder engagement, inclusiveness and ownership in the AfCFTA implementation”.

The grant will also assist efforts towards full ratification of the agreement by all AU member states including the application of tariff reductions and related commitments, while generating stakeholder support for the AfCFTA to ensure inclusiveness and common ownership.

According to him, this is a decisive response to the call by African political leaders for the Bank and other partners to support the AU Commission and work assiduously towards the realisation of AfCFTA objectives.

Although the gains of the regional free trade are enormous, efforts should be made to ensure that the gains from the trade agreement are distributed as fairly as possible so that no country will feel marginalized. Hopefully, if there is the needed political will on the part of the African leaders to drive this project, the AfCFTA will become a catalyst for sustainable economic development for the continent.

– July 6, 2019 @ 12:17 GMT |

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