The African Continental Free Trade Area and Borderlands: Avoiding Pitfalls and Unlocking Potential

Avoiding Pitfalls and Unlocking Potential

The African Continental Free Trade Area and Borderlands: Avoiding Pitfalls and Unlocking Potential

Michael Keen, Research Fellow, African Political Economy Policy Lab¹
mkeen@africacfsp.org

The African Continental Free Trade Area (AfCFTA) represents a once-in-a-generation opportunity to boost trade across Africa and lift millions of Africans out of poverty. However, like all free trade deals, the AfCFTA will inflict short-term economic pain on certain individuals and communities while creating new opportunities for others. These disruptions will be most acute in borderland regions across the continent. To minimize the AfCFTA’s adverse short-term effects on borderland communities, African governments should invest in border communities, prioritize extending state services into borderland regions, and eventually devolve political power and resources to local and regional governments to spur cross-border cooperation and unlock the AfCFTA’s full potential.

The African Continental Free Trade Area (AfCFTA) aims to create a common market comprising 1.3 billion people across 54 African countries with an estimated combined GDP of $3.4 trillion. Thus far, 54 of the 55 member countries of the African Union have signed the agreement, and 36 countries have formally ratified it.² The AfCFTA is intended to be accompanied by a Protocol Relating to Free Movement of Persons, which 32 countries have signed.³ Although trading under the AfCFTA formally began on January 1, 2021, the process of each country bringing its national laws and regulations into compliance with the AfCFTA is expected to take several years.

According to the World Bank, the AfCFTA harbors the enormous potential to lift 30 million people out of extreme poverty and boost the incomes of tens of millions more.⁴ However, as an old adage goes, free trade creates many winners and a few losers, and the AfCFTA is no exception. Although its overall impact will likely be overwhelmingly positive, the AfCFTA will make life harder for select individuals and communities, especially in the short term. Some of those most vulnerable to socioeconomic disruptions created by the AfCFTA reside in rural border regions in West Africa, the Horn of Africa, and elsewhere across the continent. This policy brief outlines how and why members of border communities may face adverse effects from the AfCFTA. It then discusses how governments of African countries can take steps to avoid these pitfalls and allow the AfCFTA to realize its potential to unlock national economies and improve the lives of those living in Africa’s rural borderlands.

Common Characteristics of African Borderlands

Rural border regions across Africa, while obviously differing in localized conditions, share two major characteristics. First, almost by definition, rural border regions experience lower levels of state penetration than do urban areas due to border regions’ physical remoteness from government resources and institutions.⁵ In many cases, lower levels of state penetration mean that residents of border regions are both less able to access state services and more vulnerable to abusive state officials. These areas are frequently politically and socially marginalized as a result.⁶ Furthermore, given the weakness of state institutions in border regions relative to other parts of the country, traditional social and religious institutions often play a much greater role in managing day-to-day social affairs than they do in urban areas. For example, in the borderlands of northern Mali, Burkina Faso, and Niger, tribal and clan leaders are vital local power brokers, and local elections are often contested along tribal lines.⁷

Second, residents of border regions often depend on cross-border activities for their livelihoods. Cross-border trading, much of which occurs outside the formal economy, is particularly vital. The United Nations estimates that informal cross-border trade (ICBT) represents fully 40% of all trade within Africa on average.⁸ Within the broader category of ICBT, further nuances exist. The majority of ICBT consists of goods and services that are not necessarily illegal by nature. Instead, this trade is informal simply because it does not conform to customs regulations.⁹ Cross-border trade in basic foodstuffs, textiles, electronics, fuel, and other consumer goods fall into this category. Traders moving these types of licit goods and services are typically small local operators, and as many as 70-80% of them are believed to be women.¹⁰ However, informal cross-border trade also includes trafficking in illicit cargoes such as weapons, people, and narcotics. This trade is usually more profitable, is dominated by men, requires at least some contact with larger transnational networks, and is accompanied by a higher degree of violence.¹¹ However, especially at the community level, the distinction between these two forms of ICBT can be blurred. For example, capital raised through illicit trafficking is often laundered through more mundane cross-border trade or funds local private infrastructure development that benefits whole communities (sometimes at the expense of others).¹²

The AfCFTA Meets the Borderlands: Limitations and Pitfalls

The AfCFTA represents a promising opportunity to boost growth across Africa. Nevertheless, the AfCFTA does possess its limitations. First, the implementation of the AfCFTA is in its very early stages. Full implementation will take years and require that individual African governments commit sufficient resources and political will to make the AfCFTA a de facto, not just de jure, reality. Second, especially in more remote areas, the AfCFTA will not magically solve decades-old issues of state capacity and geography, meaning attendant issues with border control, and therefore transnational trade and movement, will continue. For example, the AfCFTA will not singlehandedly give Sahelian countries the capacity to regulate their long, sparsely populated desert borders fully. Third, the AfCFTA will not ensure that all borders between all African countries are open to trade all the time. Even before the COVID-19 pandemic closed borders around the world, borders have been occasionally closed or had movement across them restricted for reasons ostensibly unrelated to economics. For instance, in 2019, the governments of Sudan, Kenya, and Rwanda all temporarily barred travel across some of their land borders for security or public health reasons.¹³ The AfCFTA will not necessarily prevent such non-economic closures in the future, and these closures will continue to adversely impact citizens of borderland regions.

Moreover, because rural African border regions are typically peripheral to global and even national capital flows, economies in border regions tend to operate at lower capital levels than do other areas; a greater proportion of citizens living in border regions face extreme poverty and rely on subsistence agriculture and pastoralism.¹⁴ Nevertheless, as is the case in economies around the world, the more lucrative sectors of borderland economies, such as fuel smuggling, require higher levels of initial and operating capital and proximity to sociopolitical power than do less lucrative sectors.¹⁵ The AfCFTA will ideally lower capital levels required to enter into transnational business at every level by smoothing regulatory obstacles and cutting bureaucratic red tape. However, capital barriers will remain, and those who had capital prior to the AfCFTA will be well-positioned to capture the bulk of growth opportunities delivered by the AfCFTA. As a result, while the AfCFTA should deliver economic growth, it will not necessarily reduce economic inequality and may well exacerbate it, considering the robust historical relationship between increasing wealth and increasing inequality.¹⁶

Even if the AfCFTA is fully implemented in a timely fashion, pitfalls remain. Under the AfCFTA, most ICBT will be formalized and brought within a streamlined customs system. However, even the most streamlined customs system will still require informal traders to go through a bureaucratic process of some sort. This process will inevitably continue to exclude some merchants, especially the most marginalized, such as women and those living in extreme poverty.¹⁷ After all, the regional free trade zones on which the AfCFTA builds, such as ECOWAS and the East African Community, have not completely removed barriers to cross-border trade facing marginalized communities.¹⁸

Additionally, the very fact that the AfCFTA will create new and easier ways for citizens and businesses to trade goods and services across borders means the agreement will potentially threaten those individuals and communities whose livelihoods depend on exploiting closed borders and the resulting price differentials. For example, until recently, Nigeria maintained tariffs and import duties on a wide variety of consumer goods, from cigarettes to used cars.¹⁹ In response, Benin-based traders imported these goods from around the world, then exported them into Nigeria via informal networks. So vast was this trade that the World Bank estimated that a majority of traffic into Cotonou, Benin’s main port, was ultimately destined for Nigeria.²⁰ If the AfCFTA is successful in permanently dismantling Nigeria’s tariff regime, there will no longer be a price differential between Nigeria and Benin, and many of the informal traders who support themselves trading across the border will need to adjust their practices to maintain profitability.

Fortunately, African leaders need not fly blind when it comes to anticipating the AfCFTA’s immediate negative effects. Other parts of the world have adopted free trade agreements similar to the AfCFTA, and the consequences of these agreements on border communities can shed light on what may be in store for Africa. For example, in Europe, Euskadi, or the Basque Country, spans the border of France and Spain. In the past, many residents of Basque border towns took advantage of the price differential between France and Spain and their ethnic ties with Basques across the border to engage in cross-border commerce, both formal and informal. In 1993, Spain entered the Schengen Area, which France had already joined, thereby dismantling all border checks between France and Spain and allowing for the free movement of goods and people. According to an estimate by the Centre for International Borders Research, half of locals working in border-related jobs promptly found themselves unemployed, dealing a sharp blow to the local economy.²¹ Other visitors to the area write of shops standing shuttered and empty years later.²² However, it would be a mistake to see the Schengen Agreement as wholly destructive to Basque border communities, as overall cross-border trade soon increased in volume, thus compensating for the immediate economic downturn, and a majority of Basques in both France and Spain continue to support European integration, including the open border.²³ The AfCFTA will likely have a similar effect in Africa’s border regions: short-term economic pain falling unevenly on specific segments of the population, followed by long-term economic growth and increased opportunity for broad swathes of the population. With the AfCFTA’s full implementation several years away, African governments should have ample time to take measures to ameliorate the short-term pain and maximize the long-term benefits brought by the agreement.

Policy recommendations:

Governments across Africa, especially those with substantial populations supporting themselves through cross-border trade, should take steps in the short, medium, and long term to minimize the negative effects of the AfCFTA and maximize its benefits to the residents of rural border regions. In the short term, governments should be prepared to invest in rural border regions to ensure that the people and communities who relied on arbitraging price differentials have the opportunity to pivot towards other ventures, be they formal cross-border trade or something else entirely. If governments fail to do this, the fallout from the AfCFTA’s short-term disruption may not be solely economic. Indeed, in many border areas, especially those where tribal ties are most significant and government penetration least apparent, economic shakeups can prompt broader reshuffles of social ties and hierarchies, and violence can break out as a result. For example, in northern Mali, violence around the turn of the century in the so-called Kunta War and prior to the Anéfis Accords in 2015 can be partially traced back to local, inter-communal economic issues.²⁴

In the medium term, governments should build on the institutional processes needed to implement the AfCFTA to prioritize a broader extension of state services, from law enforcement and justice to infrastructure, education, and health care, to the residents of rural border regions. The AfCFTA cannot function well without border controls, even if the whole point of the agreement is to make border controls less onerous for those seeking to do business across the border. At the same time, an approach to state governance that prioritizes security over all other developmental goals will be inevitably ineffective, unpopular, and self-defeating. Moreover, because rural borderland regions are often marginalized in their countries – not just economically but also socially and politically – borderlands will not be able to realize sustainable economic growth without political and social factors being addressed as well. States alone have the resources to tackle many of the challenges facing rural borderland regions. The AfCFTA will accomplish much, but state investment will be needed to unlock its full potential.

Finally, African states should spur cross-border economic, social, and political cooperation and mutual development in the long term. They can achieve such cooperation and development by devolving some degree of political power and the accompanying resources to regional and local governments, which are better able to launch initiatives attuned to local conditions. The experiences of other free trade zones elsewhere around the world (for example, the case of Basque Country) have demonstrated that regional and local governments, not national governments, are most effective at fostering localized cross-border economic and social cooperation of the type the AfCFTA hopes to promote.²⁵ However, this will be a long-term process because governing capacity must be built before it can be effectively devolved. Otherwise, local authorities risk assuming responsibility for issues they lack the resources to handle effectively, undermining public confidence in government institutions and the integrity of those institutions themselves. However, in the long run, empowering local authorities who are responsive to their immediate constituents is the best way to improve borderland economies and end their political and social marginalization and the violence that accompanies it. The AfCFTA can help national governments take the next step down this road.

Free market capitalism is built on the notion of creative destruction: the old makes way for the new, and society benefits as a whole.²⁶ The AfCFTA, like all free trade agreements, aims to grease the wheels of creative destruction by expanding market diversity and broadening competition. The agreement has been met with wide acclaim both within Africa and around the world, and rightly so—its potential to improve lives is vast indeed. But policymakers must remember that destruction is part of creative destruction, and the AfCFTA will unavoidably harm some people even as it benefits many. In Africa’s rural borderlands, the creative destruction wrought by the AfCFTA will play out in ways both overt and subtle. If policymakers take well-considered, forward-looking action, the AfCFTA can be transformative for the citizens of rural borderland areas. Without appropriate action, though, the AfCFTA risks becoming a missed opportunity.

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