Afrikan Heroes

Following last minute decisions by Sierra Leone and the Saharawi Republic to ratify the African Continental Free Trade Agreement (AfCFTA), the AfCFTA Agreement has met the minimum threshold of ratifications required under Article 23 of the AfCFTA Agreement for it to enter into force.

The AfCFTA Agreement which will enter into force on 30th May, 2019, 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.

All that is now left is for the African Union and African Ministers of Trade to finalize work on supporting instruments to facilitate the launch of the operational phase of the AfCFTA during an Extra-Ordinary heads of state and government summit billed for 7th July 2019.

 Here are The Key Points You Should Know About the AfCFTA Agreement:

• The CFTA is a free trade agreement among African countries, who are signatories to the Agreement. The CFTA is consistent with the World Trade Organisation rules relating to Free Trade Agreements. A free-trade agreement is an agreement among a group of two or more countries whereby the duties and other restrictive regulations of commerce are eliminated on substantially all the trade between the countries in products originating from the countries.

The Key Targets Of The Agreement

• The Agreement wants to create a single market for goods and services in Africa and to permit more people to move around any country in Africa with minimum visa requirements.
• It also seeks to create a market that is less free from custom duty and tariffs.
• It seeks to make movement of money and capital across African countries freer.
• The Agreement also hopes that, if it ever becomes successful, there would be established a Continental Customs Union that would be make issues of customs duty and levy less demanding in Africa.
• The Agreement seeks better ways of bringing more industries to Africa as well as opening up its agricultural and food sectors.

What The Agreement Intends To Disrupt for African Businesses

Free Up Trade 

The Agreement, when it comes it force in July, 2019, would finally put an end to tariffs charged on goods imported from African countries that have signed the Agreement. Therefore, countries that have signed the Agreement are required to set out the products or goods that they are willing to forfeit tariffs on. They are also expected to list out the import duties to be charged on products or goods that they are not ready to fully forfeit tariffs or import duties on.

The Agreement, in other words, would allow the signatory countries to offer preferential treatment to goods imported from other African countries that are also signatories to the Agreement.However, the Agreement has listed some steps to be followed in making sure that this preferential treatment fully benefits any signatory country. In any case, this preferential treatment would not be applied where the goods or products in question are meant to remedy any defect in trade.

The Agreement Makes It Impossible for Signatory Countries to Give Limit to the Number of Goods or Products That Would be Subjected to Free Tariffs

That is, you cannot say only 30% of imported goods from signatory countries would benefit from free tariffs, while the rest of 70% would not be subject to tariff. Hence, the Agreement enjoins State Parties not to impose quota restrictions on imported goods, except where relevant World Trade Organisation agreements as well as the provisions of the AfCTA can be invoked. However, signatory countries can impose export duties on goods that are exported out of their countries provided that they notify the AfCFTA Secretariat.

Rules of Origin

Under the Rules of Origin, businesses know the benefits that they may obtain under any preferential trade agreements. The intention of the Agreement is to make it possible for businesses in signatory countries to know how much they can benefit from the Agreement. The aim is to ensure that companies that are not within the signatory countries do not ship their products or goods to countries that are signatories to the Agreement in order to benefit from the Agreement.

Thus, for the goods or products of these companies to benefit from the Agreement, they must be completely produced in any of the signatory countries or sufficiently processed in any of the signatory countries. So, if you you merely wash, paint, peel vegetables etc, you may not benefit from the Agreement. The only exceptions to this rule are that, if the goods or products involve your personal effects or belongings which are below a certain amount; or the goods are imported only for display at Fairs or Exhibitions and under the control of the Customs Authority; or the goods are shipped through another signatory country’s territory —  that is, the goods are still in transit not having arrived their final destinations.

A Major Emphasis of The AfCFTA Is On National Treatment

Under this, all signatory countries to the AfCFTA must treat products imported from other signatory countries in the same way as they treat products produced domestically. What this means is that none of the signatory countries should discriminate against imported products in the domestic market simply because they are imported. In simple terms, if the goods are imported from Ghana into Kenya (the two countries being part of the Agreement), the imported goods in Kenya would be seen as Kenyan goods, nothing less.

Using Trade Remedies To Create A Balance

What trade remedies do is that they enable the signatory countries to prevent much of the effect of over-importation of foreign goods which may damage the country’s local market. Hence, trade remedies are invoked to address serious disruptions to domestic industries arising from predatory pricing by companies in partner countries, or illegal subsidies in those countries, or generalized surges in imports. Where any of these fears happen, the Agreement mandates the appropriate authority to investigate the claims by signatory countries in order to find out the level of injury to domestic producers.

Accordingly, the Agreement sets out the circumstances in which such measures can be taken and the processes that govern their application. The Agreement still relies on the provisions of the World Trade Organisation’s agreements governing trade remedies. This is a sort of a big relief to import-competing companies, who may feel a measure of relief is available to them regarding ‘unfair competition’. However, much still depends on how the agreements are interpreted and applied, and the efficiencies thereof.

What The Agreement Intends To Do In The Long Run

• Non-discrimination:

The Agreement also looks (in conjunction with other AU agreements and protocols) at allowing free entry to signatory countries’ citizens. However, the right to move freely or stay is permitted for a maximum of 90 days from the date of entry, although individual signatory countries may grant a further period.

Again, there are no provisions on intention to abolish visa requirements. Instead, signatory countries are enjoined to issue valid travel documents to their nationals to facilitate free movement. In addition, signatory countries are to adopt a travel document called an ‘African Passport’ .

Also See: How International Organisations Are Helping Startups In Africa

• Work Permit: Signatory parties are also required to issue residence permits, work permits or other appropriate permits and passes as required by the host state. Again, nationals of a signatory country shall have the right to seek and accept employment without discrimination in any other signatory country. Such nationals may be accompanied by their spouse and dependants.
• Right of Residence and Right of Establishment: By this, nationals of a signatory country shall have the right of residence and the right of establishment in accordance with the laws and policies of the host country. The right of establishment shall include the right to set up a business, trade, profession, vocation or an economic activity as a self-employed person.

• Mutual Recognition of Qualifications: 

Again, in the long run, and if the Abuja Protocol is fully complied with, signatory countries shall, individually or through bilateral, multilateral or regional arrangements, mutually recognize academic, professional and technical qualifications of their nationals’, and ‘establish a continental qualifications framework’.

Signatory Countries: 

Algeria;Angola; Central African Republic; Chad ; Comoros; Djibouti Equatorial Guinea; Eswatini; Gabon; Gambia; Ghana; Ivory Coast; Kenya; Mauritania; Morocco; Mozambique; Niger; Republic of the Congo; Rwanda; Sahrawi Arab Democratic Republic; Senegal; Seychelles; Sudan; Zimbabwe, etc

Analysis And Future Projections From The Agreement. 

According to the United Nations Conference on Trade and Development (UNCTAD), the Agreement is economically significant to Africa for the following reasons:

• Trade between African countries remain low, at around 10 per cent of total trade of Africa in 2010. Such trade is limited by a relatively high applied tariff protection rate, at about 8.7 per cent, with heterogeneous tariff structures that range much higher in many cases. UNCTAD’s recent data shows intra-African trade share rising from about 9 per cent in 2000–2005 to 14 per cent in 2010 and reaching 18 per cent in 2015. This data is significant and gives hope that with the changes to be introduced the CFTA, the volume of trade would further increase.
• The CFTA would add US$ 17.6 billion (2.8 per cent) to Africa’s overall trade with the world (compared to a 2022 baseline scenario without it), stimulating Africa’s exports by US$ 25.3 billion (or 4 per cent), according to the UNCTAD. The sectors that would benefit the most would be agriculture and food, with a projected growth of 9.4 per cent over the 2022 baseline scenario. Industrial exports would see a boost of US$ 21.1 billion, a very respectable 4.7 per cent higher than the 2022 baseline.
• Again, trade between African countries is expected to rise by US$ 34.6 billion (52.3 per cent above the 2022 baseline), if agriculture/food, industrial goods and services are included, with the highest impact being in industrial goods (at US$ 27.9 billion, or 52.3 per cent above the baseline), when this CFTA comes in force.
• Intra-African trade in agricultural and food products would increase by US$ 5.7 billion (53.3 per cent over the baseline), with services rising by US$ 1 billion (31.9 per cent over the baseline). Overall, intra-African trade would rise from 10.2 per cent of total trade in 2010 to 15.5 per cent by 2022. Although a positive overall outlook, it still short of the stated goal of doubling the trade within 10 years. 
• Market diversification, both for exports and imports, is very limited, due to a relatively small number of export items (mostly primary products). However, for those economies on the continent that have a more diversified production base, the “local” (African) market for manufactured products is more important in their overall trade.
• If improvement in commerce is realized within the CFTA, a further US$ 85 billion would be added to intra-African trade. This would represent a significant 128.4 per cent increase over the 2022 baseline. That would certainly achieve a more-than-doubling of intra-African trade in 10 years, rising to 21.9 per cent of Africa’s global trade by 2022. 
• Given the current level of intra-African trade share at about 18 per cent of total African goods exports, the expected doubling of intraAfrican trade could raise it even up to or beyond 30 per cent. 
• The significance of the findings is that tariff liberalization in goods will lead to only partial expansion in intra-African trade. Realizing a larger impact on boosting intra-African trade requires tariff liberalization of goods trade to be accompanied by the removal of non-tariff barriers, reform of services sector and improvement of trade facilitation measures. With a holistic reform of market access and entry conditions among African countries through the CFTA, the continent can expect to see the share of intra-African trade in total trade of Africa to rise significantly, doubling within 10 years.
• Customs clearance procedures and SPS and TBT requirements more than triple the number of days goods stay at customs (both as exports and imports), compared to the OECD average of 10.6 days. The CFTA may finally help to resolve this.

Why Some Countries Have Refused to Sign The Agreement.

Some of the fears of the Agreement are that:

• A CFTA implementation would negatively impact customs revenue resources of most countries since there may be reduction in tarriffs on goods from signatory African countries. However, according to the UNCTDA, this would augment real income for Africa by US$ 296.7 million (or 0.2 per cent) as a result of stimulated exports. Once this happens, the real wages for African workers would rise too over the 2022 baseline, with unskilled agricultural workers seeing the largest rise since the focus is largely on Agriculture.
• Dumping of Goods
• Threat To Local Economies.

Charles Rapulu Udoh

Charles Rapulu Udoh 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 organisations 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.