AfCFTA entered into force on 30th May 2019 and will cover a market of 1.2 billion people and a combined gross domestic product of $2.5 trillion — making Africa the world’s largest free trade area since the formation of the World Trade Organization seven decades ago.
Ahead of the 7th July launch of the operational phase of AFCFTA at the 12th AU Extraordinary Summit in Niamey, Niger where the African Union and African Ministers of Trade are expected to finalize work on supporting instruments to facilitate the launch of AfCFTA, here are a few things startups and businesses in Africa should know about AFCTA.
What does AfCFTA mean in concrete terms?
- African businesses, traders and consumers will no longer pay tariffs on a large variety of goods that they trade between African countries;
- Traders constrained by non-tariff barriers, including overly burdensome customs procedures or excessive paperwork, will have a mechanism through which to seek the removal of such burdens;
- Cooperation between customs authorities over product standards and
regulations, as well as trade transit and facilitation, will make it easier for goods to flow between Africa’s borders; - Through the progressive liberalization of services, service suppliers will have access to the markets of all African countries on terms no less favorable than domestic suppliers;
- Mutual recognition of standards, licensing and certification of service suppliers will make it easier for businesses and individuals to satisfy the regulatory requirements of operating in each other’s markets;
- The easing of trade between African countries will facilitate the establishment of regional value chains in which inputs are sourced from different African countries to add value before exporting externally;
- To protect against unanticipated trade surges, State Parties will have recourse to trade remedies to ensure that domestic industries can be safeguarded, if necessary;
- A dispute settlement mechanism provides a rule-based avenue for the resolution of any disputes that may arise between State Parties in the application of the agreement;
- Upon conclusion, the “Phase two” negotiations will provide a more conducive environment for recognizing African intellectual property rights, facilitating intra-African investment, and addressing anti-competitive challenges. How does AfCFTA benefit small and medium-sized enterprises?
- Small and medium-sized enterprises are key to growth in Africa. They account for around 80 percent of the region’s businesses. These businesses usually struggle to penetrate more advanced overseas markets, but are well positioned to tap into regional export destinations and can use regional markets as stepping stones for expanding into overseas markets at a later point.
- Another way in which small and medium-sized enterprises can benefit is by AfCFTA making it easier to supply inputs to larger regional companies, who then export.
- Before exporting cars overseas, for example, large automobile
manufacturers in South Africa source inputs, including leather for seats from Botswana and fabrics from Lesotho, under the preferential Southern African Customs Union trading regime.
Africa comprises a range of countries from those large and more
developed, to those small and less developed. How can it be ensured that all benefit from a win-win AfCFTA?
- African countries have a diversity of economic configurations and will be affected in different ways by AfCFTA. Nevertheless, the benefits of AfCFTA are widespread.
- While African countries that are relatively more industrialized are well placed to take advantage of the opportunities for manufactured goods, less-industrialized countries can benefit from linking into regional value chains.
- Regional value chains involve larger industries sourcing their supplies from smaller industries across borders. AfCFTA makes the formation of regional value chains easier by reducing trade costs and facilitating investment.
- Agricultural countries can gain from satisfying Africa’s growing food security requirements. The perishable nature of many agricultural food products means that they are particularly responsive to improvements in customs clearance times and logistics that are expected of AfCFTA.
- The majority of African countries are classified as resource-rich. Tariffs on raw materials are already low and so AfCFTA can do little to further promote these exports. However, by lowering intra-African tariffs on intermediates and final goods, AfCFTA will create additional opportunities for adding value to natural resources and for diversifying into new business areas.
- The cost of being landlocked includes higher costs of freight and unpredictable transit times. AfCFTA provides particular benefits to these countries: in addition to reducing tariffs, the AfCFTA is set to include provisions on trade facilitation, transit, and customs cooperation.
It will nevertheless be vital that AfCFTA is supported with accompanying measures and
policies. - Less-industrialized countries can benefit from the implementation of the
program for the Accelerated Industrial Development of Africa; domestic investments in education and training can ensure the necessary complementary skills. - Implementation of the Africa Mining Vision can complement AfCFTA, by helping resource-based economies to strategically diversify their exports into other African markets.
- The Boosting Intra-African Trade (BIAT) Action Plan is the principal accompanying measure for AfCFTA. It outlines the areas in which investments are required, such as trade information and access to finance, to ensure that all African countries can benefit from AfCFTA.
SEE ALSO: More Revealing Facts About The African Free Trade Agreement And Why Nigeria Is Out
Why does intra-African trade drive sustainable growth and jobs?
- Africa’s industrial exports are forecast to benefit most from AfCFTA. This is important for diversifying Africa’s trade and encouraging a move away from extractive commodities, such as oil and minerals, which have traditionally accounted for most of Africa’s exports, towards a more balanced and sustainable export base.
- Over 75 percent of Africa’s exports outside the continent were extractives from 2012 to 2014, while less than 40 percent of intra-African trade
were extractives in the same period. - The great risk with products like oil and minerals is their volatility. The fiscal and economic fate of too many African countries relies on the vicissitudes of these product prices.
- Using AfCFTA to pivot away from extractive exports will help to secure a more sustainable and inclusive trade that is less dependent on the
fluctuations of commodity prices. - Perhaps most importantly, AfCFTA will also produce more jobs for Africa’s bulging youth population. This is because extractive exports, on which Africa’s trade is currently based, are less labor-intensive than the manufactures and agricultural goods that will benefit most from AfCFTA. By promoting more labor-intensive trade, AfCFTA creates more employment.
What has been achieved in AfCFTA negotiations so far?
- Negotiations were launched by the African Union Heads of State and
The government in June 2015. By late 2017, the intensity of negotiations had
escalated, culminating in the drafting of the agreement itself. In early March 2018, the negotiating forum met for the tenth time to finalize outstanding matters and conclude legal scrubbing in preparation for the signature of the agreement on 21 March 2018. - The outstanding matters included agreeing to a dispute settlement mechanism and finalizing several annexes to the protocol on goods. The negotiating forum also agreed on a Transition and Implementation Work Programme to finalize offers for goods and services and to prepare product-specific rules of origin, as part of the built-in agenda.
- Thereafter, negotiations will progress to further deepening trade in Africa with “Phase two” negotiations expected to begin in late 2018. Phase two will focus on provisions for investment, competition and intellectual property rights. A facilitative environment for e-commerce is also being mooted as a possible additional phase-two topic.
How can the African Continental Free Trade Area provide business
opportunities that will enhance industrialization in Africa in line with Agenda 2063:
- The African Continental Free Trade Area (AfCFTA) will cover a market of 1.2 billion people and a gross domestic product (GDP) of $2.5 trillion, across all 55 member States of the African Union.
- In terms of numbers of participating countries, AfCFTA will be the world’s largest free trade area since the formation of the World Trade Organization.
- It is also a highly dynamic market. The population of Africa is projected to reach 2.5 billion by 2050, at which point it will comprise 26 percent of what is projected to be the world’s working age population, with an economy that is estimated to grow twice as rapidly as that of the developed world.
- With average tariffs of 6.1 percent, businesses currently face higher tariffs when they export within Africa than when they export outside it. AfCFTA will progressively eliminate tariffs on intra-African trade, making it easier for African businesses to trade within the continent and cater to and benefit from the growing African market.
- Consolidating this continent into one trade area provides great opportunities for trading enterprises, businesses, and consumers across Africa and the chance to support sustainable development in the world’s least developed region.
- ECA estimates that AfCFTA has the potential both to boost intra-African trade by 52.3 percent by eliminating import duties and to double this trade if non-tariff barriers are also reduced.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.