By Judith Ameso & Jacquiline Pimer

Africa has the second lowest rate of intra-regional trade, UNCTAD facts and figures show that intra-African trade in 2017 was 16.6 percent of its total exports. The share of exports from Africa to the rest of the world ranges from 80to 90 percent. This means that Africa trades more with the rest of the world than nearly any other continent. As a comparison as at 2017, intra-European trade was 68.1 percent, followed by intra-Asian trade at 59.4 percent, the Americas with 55 percent, andleaving Oceania at 7 percent. These figures for Africa are worrying especially considering the size of the continent[i].

Trade is one of the main indicators of growth and development. At continental level, one of the objectives of the African Union’s Agenda 2063 is to increase the trade within its Member States in order to boost economic growth and prosperity[ii].  The African Continental Free Trade Area (AfCFTA) presents immense opportunities for boosting intra-African trade, and benefits for African producers, exporters, consumers and governments.

The Agreement Establishing the AfCFTA was signed in Kigali, in March 2018. To date, a total of 30 countries have ratified the Agreement, and African countries are now preparing to start trading under the AfCFTA on 1^stJanuary 2021. As estimated by the United Nations Economic Commission for Africa (ECA), there is a potential market of 1.3 billion people across the 55 Member States of the African Union, and a combined GDP of US$2.5 trillion that African businesses will have access to. This will be within reach because African traders will pay less and less, and eventually, no tariffs on the bulk of goods they trade with other African countries. African countries have agreed to liberalize 90 percent of tariff lines (over a period of 10years for LDCs and 5years for non-LDCs); a further 7 percent of tariff lines, identified as sensitive products (over a period of 13years for LDCs, and 10years for non-LDCs); while 3 percent of tariff lines will be excluded from tariff reduction.

Accompanying the reduction and ultimate elimination of tariffs is the establishment of the continental mechanism to report, monitor and resolve non-tariff barriers (NTBs), which are increasingly being used to hinder trade. The NTB mechanism was launched as part of the operational phase of the AfCFTA, alongside other auxiliary instruments that include the online portal for exchange of tariff offers, the pan-African payment and settlement system, and the African trade observatory.

With regards to services trade, a more open services economy means that African suppliers of services will not be discriminated against, on the basis of treatment no less favourable than domestic suppliers. They will be able to provide services across borders with much ease, acquiring visas and work permits as well as registering business in other African jurisdiction is expected to be easier than non-Africans.

For consumers, the benefit of the AfCFTAis having a wide array of products and services available to them from the African continent, moreover at cheaper prices given the little to no tariffs paid on imported African products. This however raises the question of how domestic infant industries can survive in the face of competition from other African products. Infant industries can invoke the provisions of the Agreement that allow for their protection, and furthermore, they will have recourse to trade remedies to ensure that domestic industries can be safeguarded, if necessary.

A major concern for African countries has been the impact of liberalizing under the AfCFTA on their economies. Indeed, there will likely be some potentially disadvantageous short-run outcomes such as reduction in government revenue, employment and output, the loss of industry-specific and firm-specific human capital, and macroeconomic instability resulting from balance of payments difficulties. However, these can, not only be mitigated, but offset by the increasing volume of trade that will result from implementing the AfCFTA. Furthermore, the AfCFTA presents opportunities for the development and establishment of regional value chains. Taking cognisance of the different levels of development and industrialization among African countries, the less industrialized countries can provide raw materials/inputs for the industrialized countries. African producers and exporters must however be prepared to supply quality products in sufficient quantities, and position themselves to take advantage of the AfCFTA.

The writers specialize in trade, integration and investment in Africa. They are founders of Protrade Africa Consulting.

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[i]UNCTAD facts and figures: UNCTAD/PRESS/IN/2019/2/Rev.1https://unctad.org/press-material/facts-figures-0 (last accessed 16th November 2020)

[ii] The African Union Agenda 2063 at page 31