African Continental Free Trade Area (AfCFTA): The Engine Behind Accelerated Growth After the COVID-19 Economic Saga

Apungwa Cornelius Ntabe, Director, Political Economy Policy Lab[i]
cornelius@africacfsp.org¹

The disruptive impact of the COVID-19 pandemic has led to calls for greater market integration and industrialisation efforts. The African Union (AU) Secretary General cites the African Continental Free Trade Area (AfCFTA) as “the stimulus package” for Africa post-COVID. Yet, obstacles ranging from ubiquitous red tape, poor infrastructure, political unrest, excessive border bureaucracy and petty corruption to the entrenched protectionism of some of its members must first be overcome. This paper aims to provide policy recommendations on how African states could address these challenges and reap the best out of the AfCFTA Agreement.

Introduction

What began as a health crisis in the Chinese city of Wuhan has quickly transformed into an unprecedented economic crisis. COVID-19 has taken a toll on both developed and developing countries, inflicting a still-unfolding global economic downturn.² Although rates vary from country-to-country, prior to the pandemic, the African continent had already experienced a slowdown in growth and poverty reduction overall.³ The pandemic has exacerbated the economic situation, partly due to certain measures adopted by governments to curb the spread of the disease. Amongst others, these measures include border closure, travel bans, and lockdowns that directly hinder activities necessary for economic growth and development. They have resulted in a significant drop in demand for African commodities such as agricultural products (e.g., barley, palm oil, sugar, cocoa bean, cotton, and maize), industrial metals (e.g., copper, iron ore, nickel, led, aluminum, and zinc), precious metals (e.g., gold), and energy (e.g., natural gas, coal, and oil).⁴ The effect of the pandemic on African economies is expected to worsen as supply chains remain disrupted and the value of exports from the region reduces due to a drop in demand from international trade partners such as Asia and the United States.⁵

Behind this backdrop, the following question remains: what key elements can Africans capitalize on to rejuvenate their economies from this precarious situation? The launch of remedial activities of the AfCFTA on 1 January 2021 has been regarded as a source of hope.⁶ Headquartered in Accra, Ghana with Wamkele Mene (South African) serving as the first Secretary-General, the AfCFTA Secretariat will provide technical support to the overall implementation of the Agreement through strategic collaboration, stakeholder engagement, and resource mobilization.⁷ Currently, Africa accounts for just 2% of global trade and only 17% of African exports are intra-continental, compared with 59% for Asia and 68% for Europe.⁸ The potential for transformation across Africa is therefore significant.

Statement of the Problem

The African Continental Free Trade Agreement (AfCFTA) is an AU Agenda 2063 flagship initiative established to create an integrated continental market for goods and services and to support the movement of capital and natural persons.⁹ Agenda 2063 is a shared framework for inclusive growth and sustainable development designed to be realized in the next fifty years. It is a continuation of the centuries-long drive for unity, self-determination, freedom, progress, and collective prosperity pursued under Pan-Africanism and the African Renaissance. It builds on, and seeks to accelerate the implementation of, past and existing continental initiatives for growth and sustainable development. It was agreed upon by the African leaders in 2013 through the 50^th Anniversary Solemn Declaration during the commemoration of the 50^th Anniversary of the Organization of African Unity (OAU). In their 50^th Anniversary Solemn Declaration, the Heads of State and Government, while acknowledging past successes and challenges, rededicated themselves to the continent’s accelerated development and technological progress. They emphasized a guiding vision “to build an integrated, prosperous and peaceful Africa, driven and managed by its own citizens and representing a dynamic force in the international arena.”¹⁰ They further identified eight ideals to serve as pillars for the continent in the foreseeable future. Agenda 2063, as a people-driven initiative, serves to translate the ideals into concrete objectives, milestones, goals, targets, and actions.

Agenda 2063 is anchored to the AU’s vision. It is based on the seven aspirations derived from the consultations. Namely, these aspirations include: (1) a prosperous Africa based on inclusive growth and sustainable development; (2) an integrated continent, politically united, based on the ideals of Pan Africanism and the vision of Africa’s Renaissance; (3) an Africa of good governance, respect for human rights, justice and the rule of law; (4) a peaceful and secure Africa; (5) an Africa with a strong cultural identity, common heritage, values and ethics; (6) an Africa whose development is people-driven, relying on the potential of African people, especially its women and youth, and caring for children; and (7) Africa as a strong, united, resilient, and influential global player and partner.¹¹

The AfCFTA is expected to improve competitiveness, promote industrial development through diversification and regional value chain development, create jobs, and foster sustainable socio-economic development and structural transformation.¹² The AfCFTA, which has been signed by 54 of the 55 AU member nations,¹³ has been touted as an economic and globalization game changer because it has the potential to transform African economies and significantly raise Africa’s share of global trade, thereby positioning the region as an increasingly dynamic force in the international sphere.¹⁴ African countries that ratify the Agreement consent to liberalize 90% of tariff lines.¹⁵ This means that countries will reduce, and ultimately eliminate, tariffs on 90% of products traded under the AfCFTA.

The new market, created under the AfCFTA Agreement, is estimated to be as large as 1.3 billion people across Africa, with a combined gross domestic product (GDP) of $3.4 trillion. This market could help realize more than $84 billion in untapped intra-African exports, according to a new report by the African Export-Import Bank (Afreximbank).¹⁶ Additionally, the AfCFTA Agreement has the potential to increase intra-African trade by 52.3% by 2022.¹⁷ The AfCFTA is considered the second largest free trade area since the establishment of the World Trade Organization (WTO). The WTO has 164 members and is the world’s largest free trade area since the establishment of the General Agreement on Tariffs and Trade (GATT) more than 70 years ago.¹⁸ The World Bank expects that the Agreement will lift 68 million people out of moderate poverty and make Africa more competitive.¹⁹

However, to realize this potential, African countries must actively carry out complementary structural and policy reforms to foster long-term peace and security, address the supply-side constraints, and mitigate the short-term fiscal adjustment costs of the trade Agreement. This is required to set the continental trade-integration project on a successful implementation path for a win-win continental trade-integration outcome. The key question remains: amidst these challenges, how can the AfCFTA provide economic opportunities post-COVID to accelerate economic growth within Africa?

Analysis of the Problem

The impact of the COVID-19 pandemic has prompted calls for greater market integration and industrialisation efforts, with the AfCFTA being cited by the AU Secretary General as “the stimulus package” for Africa post-COVID.²⁰ As cases of COVID-19 rise, there is an attendant effect on world trade and the economy. Thus, the pandemic’s bearing on the implementation of the AfCFTA should be discussed. If the AfCFTA is to achieve its objectives of boosting intra-African trade and industrial competitiveness across the continent, African countries must not only conclude and ratify the AfCFTA Agreement, but also implement it.

At the core of the AfCFTA’s objectives is the free movement of people, goods, and services within the continent. Transportation is no doubt an essential factor for this free movement. With African countries declaring total or partial lockdowns on travel and movement, the transportation of necessary goods and services, medical supplies, and emergency supplies will be exclusively given priority. Additionally, factories, offices, malls, schools, movie theatres, museums, gyms, and anywhere there could be a gathering of people may be restricted. Without free movement of people, AfCFTA will face a serious implementation bottleneck.

Further, despite the significant long-term socio-economic benefits for African countries, Member States will face many challenges to fully implement and optimize this Agreement. These challenges include political barriers, dilapidated infrastructure for industrial transportation, the onerous task of moving commodities due to expensive and inefficient transport systems and corrupt customs officials, the lack of social welfare benefits to cushion the impact of competition, and industrialisation.²¹ Amongst these, political barriers are the most formidable hurdles to a free movement regime in Africa as a new trade bloc. These political barriers relate to an official mindset of suspicion, instability, and violent conflict.²²

Policy Recommendations

The AfCFTA is expected to facilitate trade in goods and services through free movement of persons to promote and expand economic integration in line with the AU Agenda 2063.²³ However, the pandemic has restricted travel around the globe, having a direct impact on economic integration and intra-Africa trade. Therefore, it is important for governments within the region to be prepared for the possible negative impact the virus will have on the implementation of the AfCFTA Agreement. It is imperative they seek out ways to convert the pandemic to opportunities for stronger economic and political integration. Below are some recommendations on how the AfCFTA could be implemented with success, free of any stumbling block:

African governments must henceforth avoid policy responses to the COVID-19 pandemic that may undermine the AfCFTA Agreement. It is important to avoid both import and export-restricting measures, in keeping with the spirit of the AfCFTA. Safe travel is key to facilitating the effective operation of the AfCFTA in the COVID-19 era. Goods must be distributed across a market of approximately 30 million square kilometres, which is the geographical size of all 55 AU member states.²⁴ Many countries in Africa have imposed import restrictions as part of their border closure policies to manage the virus outbreak. However, for the AfCFTA to be successful, it is important that governments remove these border bans and establish safe trade and travel corridors according to World Health Organization’s (WHO) guidelines.
Governments must address key regulatory barriers impeding intra-regional trade. Free trade areas are in principle based on lowering tariffs among trading partners. Several legal instruments (tariff schedules, annexes on rules of origin and on specific commitments for services sectors) must be formally adopted by all State Parties. African governments must work together to identify any existing or lacking policies that are hindering the successful lowering of tariffs from any member state and provide appropriate solutions.
Governance issues in sectors such as infrastructure and social welfare still need to be resolved for the AfCFTA to be successful. The poor overall quality of Africa’s physical infrastructure (roads, rail, and port facilities as well as telecommunications infrastructure) is a major impediment to intra-African trade. Promoting greater investment in Africa’s trade-related infrastructure, including through initiatives like the AU’s Programme for Infrastructure Development in Africa (PIDA), is therefore crucial to enabling intra-African trade and ensuring the success of the AfCFTA.
Governments must simplify and harmonize administrative procedures to reduce trade and transportation costs. Transportation costs in Africa account for more than half of marketing costs. ²⁵ Frequent roadblocks add to these mark-ups.²⁶ Lengthy procedures for obtaining export and import related certifications can further increase the time and costs of trade, which are estimated to be the highest in the world.²⁷
E-commerce trade must be taken seriously by member states. Digital trade has been crucial during this pandemic. The digitalisation of trade will allow member states to compete fairly and simplify cross-border and national trade. Bridging the technological infrastructure and literacy divide will determine the extent to which e-commerce will be adopted and ultimately enable intra-African trade. The Africa e-Trade Group has produced the Sokokuu Africa platform, while the United Nations Economic Commission for Africa, in collaboration with the African Export-Import Bank, is planning to roll out the African Trade Exchange Platform.²⁸ These two platforms will bring together buyers and sellers to transact electronically. In response to the COVID-19 pandemic, the AU has established the African Medical Supplies Platform.²⁹ This is an online marketplace providing supplies to fight the COVID-19 pandemic. For trade opportunities under the AfCFTA to be fully realised, the digital divides that exist between Africa and the rest of the world, as well as between and within African countries, need to be addressed.³⁰ Major investment in physical information and communication technology (ICT) and digital infrastructure is needed, as is an enabling regulatory environment like that being promoted through the Digital Free Trade Area (DFTA) initiative of the COMESA.³¹ Digital skills training is also required to ensure that Africa’s citizens are able to take advantage of digital trade opportunities.

Conclusion

The AfCFTA could be a major factor in mitigating the effects of the COVID-19 pandemic on Africa if the countries and supporting industries take advantage of the benefits offered under the act. A well-executed AfCFTA would go a long way in reducing Africa’s reliance on donor funds and external aid in a global or continental recession. With the birth of AfCFTA, a strong commitment and joint action by the continent’s leaders would undoubtedly benefit the fight against the pandemic and its economic consequences for Africa post-COVID.

To date, the AfCFTA has been focused on eliminating nontariff barriers. However, several other measures are essential. These necessary measures include mitigating short-term fiscal adjustment costs and reviving national development banks. To inject the patient capital needed to sustain the process of structural transformation and tackle supply-side bottlenecks, strengthening the security and development nexus to consistently optimize the allocation of scarce resources is essential for both structural transformation and long-term peace and security. Effectively carrying out these policy reforms is a precondition for success and will ensure that the AfCFTA delivers a win-win outcome throughout its implementation.

Trade integration has worked very well for other regions where it has set countries on an irreversible path toward export diversification and income convergence. Despite the fiscal and sovereign debt crisis that afflicted countries in southern Europe after the 2008-2009 global financial crisis, trade integration has been a driver of growth and income convergence within the European Union.³² The same argument can be made regarding the growth and development impact of regional integration in Asia, where it has contributed to a rapid expansion and an interconnection of regional value chains as well as a dramatic reduction in poverty. The process of regional integration promoted under the Association of Southern Asian Nations (ASEAN) also has narrowed the region’s technological gaps with advanced economies and accelerated the process of income convergence between Asian emerging market economies and advanced economies. In Africa, the benefits of trade integration are likely to be just as significant if the AfCFTA is successfully implemented. But obstacles – ranging from ubiquitous red tape, poor infrastructure, political unrest, excessive border bureaucracy and petty corruption to the entrenched protectionism of some of its members – must be overcome if the bloc is to reach its full potential.

Bibliography

ACCORD. (2020). Using the African Continental Free Trade Area to adapt and recover from the COVID-19 pandemic.

Amanda Shendruk. (2020). What is the African Continental Free Trade Area (AfCFTA)?

Apiko, P., Woolfrey, S., & Byiers, B. (2020). The promise of the African Continental Free Trade Area (AfCFTA).

Baboloki Semele. (2021). Continental Free Trade Area Kicks off, amid COVID 19 Pandemic.

Bank, W. (2017). Enabling the business of agriculture 2017: The World Bank.

Buti, M. (2020). Economic policy in the rough: A European journey. Policy Insight, 98.

Commission, A. U. (2015). Agenda 2063. Retrieved from

Commission, A. U. (2018). Agreement Establishing the African Continental Free Trade Area: Addis Ababa: AUC.

Fofack, H. (2020). Making the AfCFTA work for’The Africa We Want’.

Franck Kuwonu. (2021). Africa’s free trade area opens for business.

Guest Blogger for John Campbell. (2019). African Continental Free Trade Area: A New Horizon For Trade in Africa.

Ighobor, K. (2020). AfCFTA: Implementing Africa’s free trade pact the best stimulus for post-COVID-19 economies. African Renewal.

Iroulo Lynda. (2018). Free Trade Area: Africa May be Moving Faster than its Shadow. Orders Beyond Borders.

Maliszewska, M., & Ruta, M. (2020). The African Continental Free Trade Area: Economic and Distributional Effects: World Bank Group.

Mehari Taddele Maru. (2019). Barriers to free movement in Africa: How to remove them?

Morsy, H., Balma, L., & Mukasa, A. N. (2020). ” Not a Good Time”: Economic Impact of COVID-19 in Africa: African Development Bank.

OECD. (2020). COVID-19 in Africa:Regional socio-economic implications and policy priorities.

Oyedele, T. (2021). COVID-19 And The Africa Continental Free Trade Area (AfCFTA) – Key Considerations.

Pannhausen, C., & Untied, B. (2010). Regional agricultural trade for economic development and food security in Sub-Saharan Africa: conceptual background and fields of action for development cooperation.

Ramutsindela, M., & Mickler, D. (2020). Africa and the sustainable development goals: Springer.

UNCTAD. (2019). Facts & Figures – Economic Development in Africa Report 2019: Made in Africa: Rules of origin for enhanced intra-African trade. Retrieved from https://unctad.org/press-material/facts-figures-0

Wonder Godzo. (2020). African Continental Free Trade Area Launched.

Please Share this Article