From Friday last week, the beginning of 2021, African governments were under a formal agreement to establish tariff-free trade among themselves and reduce trade barriers.  The African Continental Free Trade Area (AfCFTA) agreement comes with commitments and plans and could give a spark to African growth and development. The aim of AfCFTA is the creation of single market for goods and services and the movement of persons as well as laying the foundation for a Continental Customs Union.

While the agreement has come into effect, it does not mean that African free trade has begun. Negotiations are still underway on the progressive elimination of 90 percent of tariff lines from intra-African trade as well as non-tariff barriers. Once that negotiation round is done, the poorest countries will have ten years in which to drop the required number of tariff lines, and the other African countries five years in which to do so.

Rules of origin

Rules of origin to prevent goods from outside the continent from gaining free access are also being discussed. One fear has been that China, as well as other countries, might take immense advantage of the new free trade area, without the proper enforcement of rules of origin. Many African countries do not currently have customs agencies that are able to enforce rules of origin, which means overall improved trade management will have to be a big part of any progress on a free trade area.

The sheer geographic scale and a population of 1.2 billion of the proposed African free trade area, as well as the enormous gains for growth from the deal, has attracted great attention. According to the World Bank, if implementation takes place, the agreement has the potential to lift 30 million out of extreme poverty and 68 million from moderate poverty by 2035, when the accord is supposed to be fully in effect.

Is Africa ready?

Despite the great interest and pressures for action, Africa is far from ready to implement continental free trade. The Secretary General of the African Continental Free Trade Area Secretariat, Wamkele Mene, told the Financial Times, “It’s going to take us a very long time” to implement the objective of the agreement.  There are a host of problems including bad roads, poor customs administration, and much else that is needed to facilitate free trade. Many countries have not issued up to date books with their latest tariffs for a number of years.

The benefits of trade in inducing greater competition, rises in productivity, faster economic growth, and development is equivalent in economics to the law of gravity in physics. The success of China and East Asia, as well as that of post-war Germany and Japan is due in large measure to the growth of their export industries.

While many hard-line Brexiteers were prepared to leave the European Union (EU) without a free trade deal, in the end London was almost begging Brussels for a trade deal to allow tariff free access to the EU. A Brexit without access to the EU would have meant sizeable long-term costs to the British economy. As it is now outside the EU, the United Kingdom will have no say in the rules that the EU make on trade.

Little intra-African trade

By comparison with other regions around the world, there is very little intra-African trade. Free trade can help remedy this, but is only a necessary but not sufficient conditions as policy changes and better trade governance are also important.

African countries are mainly commodity exporters and for most, excepting South Africa and a few others, pushes towards industrialisation have been full of false starts. With mostly small individual country markets and not much demand for their goods from their neighbours, the continent’s exports to other African countries are only about 15 percent of their total exports.  These are mostly manufactured goods and South Africa accounts for a sizeable share of them. By contrast, the share of European total exports to other European countries is nearly 70 percent and that of Asia, nearly 60 percent. The aim of the African free trade agreement is for intra-African trade to reach 60 percent of total exports.

Trudi Hartzenberg, the Executive Director of the Trade Law Centre, says that while there has been much emphasis on the tariff reduction dimensions of the deal, more important is the push the deal can give to better trade governance. This includes improving customs and border management to ensure waiting times at borders are cut. It also covers the harmonisation of various regulations that affect trade.

As much as a continental free trade area is desirable the questions has to arise of whether this project is yet another African Union, AU, initiative to show imagined political unity rather than one grounded in reality.

After many years Africa’s 13 Regional Economic Communities are at various stages of transformation into free trade areas or customs union. Only five of the Southern African Development Community’s 16 members are members of the Southern African Customs Union.

The free trade agreement’s objectives are a long way off, but they might well not be too far-fetched. Importantly, a number of drivers are at work that might bring about success.

Private interest

There is a strong interest in the initiative from private investors. While Africa’s turn at massive industrialisation must come as it has elsewhere in the world, getting there will have to involve the creation of far larger unified markets.  The minute economic size in global terms of most African countries and the trade restrictions in place in most cases mean that substantial economies of scale for investing in manufacturing are not widely present in Africa. The deal could change that as domestically produced goods would have tariff free access to larger markets. That alone could be the big game changer in African development.  Investors are always on the lookout for a good story to justify expansion in new markets.

African governments may not be too resistant to dropping tariffs in many items in which they do not anyway trade. That means they would not lose customs revenue. But there are certain products such as garments, which are regarded as sensitive by some countries and the treaty allows these to be excluded from liberalisation as it allows exclusion of three percent of tariff lines. Further, there is pressure from the private sector to improve overall customs governance, including speed of processing at border crossings. Trucks being held up at borders for days, if not weeks, mean enormous losses, for business.

Gerhard Erasmus, an Emeritus Professor at Stellenbosch who specialises in trade law and has written about the legal aspects of the free trade agreement, says there are good reasons to be open-minded about the chances for success. One important factor is that it is not being driven by a supranational body which gives orders, but by the members themselves. There will have to be bottom-up buy-in at every step which will greatly help with implementation.

With the enormous upside, this is a chance the continent cannot afford to drop. 

The views of the writer are not necessarily the views of the Daily Friend or the IRR

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Image by Jefferson Rusali from Pixabay

16 COMMENTS

  1. It will be good for southern Africa country short term except for SouthAfrica. We have extra tax, BEE regulations as well as its BBBEEE. Heave fuel, electric ,water and labour cost and companies will move out of SA

    It will just be cheaper and in the long run bad for Southern Africa as SA will collapse

    • It depends. I’m not sure I get the basics of this free trade area and I must admit that I’m immediately out of knee-jerk pessimistic. Granted that all the provisions and ifs and buts mentioned above are true, then it will be good for South Africa. Why? Because we’ll be formalising trade relationships that before were informal. We will be able to set up manufacturing in member states, and this may be cheaper. Of course this means sorry, no jobs created in South Africa itself, and I do not really see how a couple of weak, failed states clubbing together can suddenly miraculously become a larger, successful state with secure trading terms and strong institutes to underscore trade relations.

  2. Thanks Jonathan.
    I don’t see this happening, ever. Reminds me of the EU, which appears to be taking on water, and starting to list. The chaos associated with travel between neighbours on this continent is but one example.

  3. China is entrenched in few countries, I have feeling they are behind this deal, so they can have access to countries that are not willing or not capable to accommodate their expansion needs.

    I doubt this will happen across the continent, maybe between some countries, but has huge potential to spark wars between many.

  4. If we can get this off the ground one can only see the lights coming on for our semi dark continent. Massive challenges however as infrastructure development and improvement in governance just don’t seem to hit the spot for most African governments (ours included). Hope to live to see this happen anyway, this can really be an African game changer.

  5. You will find that Chinese made imports will be rebadged/branded as local and sold duty free into other countries.

      • Dont believe the ANC has the skill to organise something like this,all their plans come to nought,just talk a lot amongst members,nothing ever happens.Think if they could loot from the idea they might succeed.

  6. Could the subeditor not have thought of a more hopeful headline for this piece? Reality can grow out of a worthwhile vision.

    Research and writing from the perspective of classical liberalism could contribute much to improving and saving South Africa. But the message must be positive if it is to count among those whose voting instincts keep the ANC in power and those who may have influence. I think the IRR-label has brought about the negativity and constant criticism. Go back to the Institute’s full name or, if you like, devise another that will keep the focus on probably the most crucial subject in South Africa. It was crucial under the regimes of yesteryear and will be even more so in the future as an untransformed ANC kicks up racial dust to hide incompetence, corruption and the implementation of an unworkable ideology. It would be a pity to lose what your research shows has been gained since 24 August 1985.

  7. A harmonized monetary and tax regime are important elements of a free trade agreement to ease up transactions. do the region comply?

    • IF a RSA business delivers anything to any African country , how will it get there ? Via Beitbridge , Maputo , or any other means of transport? How will this business get paid for & how long after delivery , and if it doesn’t get it, what then? The judiciary in the RSA hasn’t even got a hope in hell to sort out our own corruption with miniscule detail of the State Capture monstrosity? Dream on!!

  8. I think that even had they remained in the EU the UK would have had no meaningful say in decisions, which is why they left.

    • Exactly, and things are still looking up for Brexit. The remaining nations are quibbling all the time and I will not be surprised if more nations leave. Worth reading is a piece by Milton Friedman on the European Union: The Euro: Monetary Unity to Political Disunity? (1997) We’ve seen basically all of his predictions and concerns raised come to pass.

      I for one do not see how this can work. In a sense it already works, given that in most of Africa people trade in Greenbacks, but since most of the African economy appears to be informal (by nature it’s hard to make or believe estimates), this seems like a misguided attempt to formalise it somewhat and I’m not sure what the monetary unit will be. If it’s just a case of dropping tariffs and regulations to improve trade, well that makes one wonder exactly how much of a barrier those tariffs were in the first place given that most people avoided them anyway and opted for the informal side of things.

  9. Dont believe the ANC has the skill to organise something like this,all their plans come to nought,just talk a lot amongst members,nothing ever happens.Think if they could loot from the idea they might succeed.

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