Africa Continental Free Trade Area
In late March, heads of state from 44 African countries met in Kigali, Rwanda to sign the framework agreement forming a new African Continental Free Trade Area (AfCFTA) . If the agreement is ratified by all 55 member states of the African Union, the AfCFTA would establish one of the largest free trade areas in the world, covering over 1.2 billion people and $2.5 trillion in GDP.
Under the AfCFTA, African leaders aim to create a single continental market for goods and services, as well as a single customs union similar to that of the EU. It is hoped that these efforts will harmonize trade liberalization at the sub-regional and continental level, thus driving employment and boosting African economies.
Signatory countries will commit to removing tariffs on 90 percent of goods. According to research from Antoine Bouët, Lionel Cosnard, and David Laborde of IFPRI, Africa remains the least open continent in the world in terms of overall import duties, with average tariffs on agricultural goods reaching as high as 19.58 percent and tariffs on non-agricultural goods averaging 8.3 percent. African countries also continue to impose high duties on trade with each other – overall intracontinental import tariffs on both agricultural and non-agricultural goods average 8.62 percent, the highest intracontinental trade tariff in the world.
The UN Economic Commission on Africa (UNECA) has estimated that by removing intra-continental tariffs, the AfCFTA could increase intra-continental trade by 52 percent. This growth in trade may help the region’s manufacturing sector become more competitive, promoting economic diversification and accelerating industrial development.
Increased intra-regional trade, particularly of agricultural goods and services, formed a major cornerstone of the 2014 Malabo Declaration, which set a goal to triple agricultural trade within the region by 2025. Many African countries already belong to regional economic communities (RECs), such as the East Africa Community and the Economic Community of West African States, which aim to integrate economies and liberalize trade at the sub-regional level.
However, many RECs face low levels of compliance with trade policies by member states, as well as other challenges, and have not been able to fulfill their goals of economic integration. In addition, many countries are members of multiple RECs, sometimes with overlapping or conflicting targets and policies, which limits these organizations’ effectiveness. It is hoped that a more comprehensive, continent-wide agreement will accelerate the region’s trade integration.
While important, “tariffs only paint part of the picture of trade in Africa,” Laborde points out. Other non-tariff factors also impede trade liberalization in the region, including export restrictions, onerous border and customs requirements, and sanitary and phytosanitary standards. In DR Congo, for example, meeting border and documentary compliance requirements can take agricultural exporters as many as 50 days – the equivalent of an ad valorem export tax of more than 156 percent for their products.
These high barriers to trade have two important consequences in Africa. First, many individual traders cross the borders at official custom posts with quantities of goods so small that custom officers do not control this flow. This type of trade represents a significant proportion of official trade in the region. In Uganda, the Bureau of Statistics has concluded that between 2005 and 2015, these informal exports made up between 14.1% and 34.5% of total Ugandan exports. Reports on underinvoicing, underpricing, or misclassifying trade across borders are also numerous.
Second, smuggling (i.e. firms or individuals intentionally evading trade regulations and border duties by avoiding official border crossing posts) poses a significant problem in the region. A survey in 2011 by ECENE in Benin concluded that smuggled products from Benin to Nigeria were estimated to be five times higher than officially recorded exports. Thus, full or partial evasion of custom officers at international borders in Africa is widespread. An important action of the AfCFTA, if effective, would simply be to formalize and regularize this informal and/or illegal trade.
African countries also face domestic barriers in the form of harassment of traders in transit. This often takes the form of checkpoints implemented by police, army, or custom officers that increase the cost of international and domestic trade. CILSS (Permanent Interstate Committee for Drought Control in the Sahel) found that in June 2017, along the livestock corridor between Mauritania and Senegal, recorded average illegal payments implemented by police, army or custom officers per 100 km were US$24 and time delays caused by road harassment averaged 231 minutes per 100 kilometers.
Thus, to be effective, the AfCFTA will need to address all of these multiple barriers to trade. If the agreement does reduce such barriers, UNECA estimates that intra-regional trade could as much as double.
The signing of the AfCFTA framework signifies a major step forward in Africa’s economic development. However, several significant challenges remain to be overcome before the agreement goes into effect. Nigeria, one of Africa’s largest economies, has not yet signed the agreement, citing the need for more time to review the potential impact on the country’s manufacturing and small business sector.
In addition, the agreement will cover a wide range of national and regional actors with varying, and potentially divergent, interests; gaining cooperation and agreement among all of these actors will take time and political will. Indeed, while many trade agreements exist among African countries, most of them have been poorly enforced or have faced delays in implemented .
“The Tripartite Free Trade Area negotiations brought together 26 countries from COMESA, EAC and SADC,” Laborde explains. “But while 22 countries signed the TFTA agreement, two years later, only two countries – Uganda and Egypt – have ratified the agreement. The agreement needs 14 ratifications to be implemented.”
As a next step, at least 22 member states of the African Union need to ratify the framework agreement in their national parliaments. Countries and existing RECs will also need to come to agreement on issues including intellectual property rights and investments, as well as to establish a dispute-resolution mechanism, a regulatory framework for service-trade liberalization, and a tariff concession schedule for trade in goods. Signatory countries will also need to establish the proper set of rules of origin to inform consumers regarding the source of products and services. Finally, member states will also need to continue negotiations regarding AfCFTA’s proposed free-movement protocol, which would guarantee the free movement of people, the right of residence, and the right of establishment.
Despite these remaining challenges, however, African leaders are optimistic. South Africa’s Minister of Trade Rob Davies released a press statement saying, “The conclusion of the CFTA will be a significant milestone in Africa’s integration process and the CFTA should promote industrial development and the development of regional value chains.”
By: Sara Gustafson, IFPRI