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  >  Our Perspective   >  THE AFCFTA, COVID-19 AND THE FUTURE OF THE AFRICAN ECONOMY

THE AFCFTA, COVID-19 AND THE FUTURE OF THE AFRICAN ECONOMY

Introduction:

International commerce has driven much of Africa’s economic growth and financial integration.1 International/regional trade has a number of potential benefits that can promote development within the African continent. For instance, it creates comparative advantage, access to external finance and enables technology transfer. African economies are at different levels of development. This understanding has led to deliberations around regional/competitive economic growth amongst members of the African Union (AU) to find ways to boost business activities amongst member states and the continent, as well as reduce much reliance on importation of finished products and raw materials into the continent.2 Hence, the creation of the African Continental Free Trade Area (“AfCFTA” or the “Free Trade Area”).

The African Continental Free Trade Area (AfCFTA) was created by the African Continental Free Trade Agreement (“the Agreement”) which officially came into force on 30th May, 2019. The Agreement, signed by 54 out of 55 African countries and ratified by 38 of those countries3 was scheduled to enter into its operational phase in 1st July, 2020 (“Trading Date”) but suffered a postponement due to the disruptions created globally by the COVID-19 pandemic. The African Union (AU) summit which was to hold in May 2020, to finalise on trade tariffs was also postponed to 5th December, 2020, further extending the AfCFTA commencement date.4

Thankfully, an extra-ordinary meeting was held by the AU member-states in December, 2020 to officially herald the commencement of the regional trade arrangement from 1st January, 2021.

Following commencement of trade, hopes are still high that trading activities under the regional trade area will economically uplift participating African States and the Continent at large.

What is the AfCFTA ?

The African Continental Free Trade Agreement (“the Agreement”) is a trade deal designed to remove barriers to intra-Africa trade. It achieves this by bringing together 54 African countries (with a population of more than one (1) billion people and a combined GDP of over $3 trillion)5 into a single market for goods and services, allowing free movement of business travellers and investments, and creating a continental customs union to streamline trading rules and attract long-term investment.  The agreement is also primed to create more job opportunities for citizens of member states, promote industrialisation and improve the competitiveness of African Industries on the global stage. The World Bank estimates that, the launch of trading activities could lift tens of millions out of poverty by 2035.6 The implementation of the AfCFTA is expected to be the necessary stimuli the African continent needs to accelerate continental manufacturing, e-commerce, digitization and food security in the African region.

On the bright side, the postponement of the commencement date provided an opportunity for a further consensus on the Rules of Origin,7 as it allowed member nations more time to fashion a conducive trading environment within their territory and extended the time for ratification by other member states.

BENEFITS OF COMMENCEMENT

Following to the commencement of the Free Trade Area on the 1st January, 2021, some of its expected advantages are highlighted below:

Abolition of Tariffs.

Hitherto, member States imposed tariffs to generate revenue for their national treasuries. The imposition of tariffs on imported/exported goods negates one of the objectives of the AfCFTA which is to increase the value of intra-Africa exports by the removal of tariffs on such goods.8 Trading activities in the Free Trade Area having officially begun, the journey to duty-free trading is a welcome development for the African Continent.

Increase in Treaty Ratification

Treaty ratification in simple terms means parties consent to be bound by the provisions of a treaty.9 Prior to the AU States’ meeting of December 2020, only 30 (out of the 54 African countries that signed the AfCFTA Agreement) had ratified the AfCFTA Agreement; however, the numbers increased to 36 just before commencement of trading activities.

Ordinarily, delay in treaty ratification has a damaging effect if Member-States start nurturing fear that the treaty might suffer a setback. Also, suspicion that Members States might renege on a Treaty (although this would have been against the principle that treaty obligations must be fulfilled in good faith),10 will affect Member States’ confidence. With the commencement, more African countries will be confident and willing to ratify the Agreement.11 This will further help full implementation and resolution of issues around the Rules of Origin and trading policies.

Boost in Intra-African Trade

The Economic Outlook 2017 of the African Development Bank stated that trade between African countries has the greatest  potential for building sustainable economic development and integration within the continent.12 The implementation of the AfCFTA is projected to boost intra-Africa trade. The delay, caused by Covid-19 restrictions, posed a challenge in the way of such economic integration.

However, with the commencement, opportunity for increased economic integration exists for the continent to leverage upon, by ensuring that limiting factors such as low manufacturing and processing capacity, are curtailed and improved upon.

Foreign Direct Investments

As a result of trading activities, opportunities for foreign direct investments will be created and maximized within the participating countries. The unification of Member States under one market will provide opportunity for the sharing of factors of production. What a Member State lacks in infrastructure or in power supply can be augmented by another Member State.

OTHER OPPORTUNITIES FOR THE CONTINENT

Leveraging on Technology Innovations

The impact of COVID-19 has seen nations digitize, to a greater degree, their means of doing business. The African economy can leverage on technology to harmonize digital transactions in the trading area which would aid full participation in global digital trade.13 Digital trading can also lead to less inter-personal contact within the Free Trade Area.

Developing Infrastructure

Some African countries have been characterized as economies lacking critical infrastructure. With trading activities on full scale, such countries will make efforts to bolster their economy and implement critical policies to spur growth in the necessary sectors where those infrastructural deficits exist.14 For instance, provision of reliable transport infrastructure to facilitate movement of goods and development of manufacturing bases are necessary structures to support participation in the AfCFTA by Member States. Also, efforts at ensuring that there is adequate supply of water and electricity for cheaper production is expected to be top priority for Member States.

Conclusion

Although the COVID-19 pandemic saw national governments adopt temporary policies such as import/export restrictions, restriction of movement of goods and border closures which in effect discouraged trade integration, African countries should ensure that, following full implementation of the Free Trade Area, sustainable policies are in place to manage disruption, welcome investment and encourage trade integration and collaboration across the continent.15 Expectedly, the hallmark of the AfCFTA will be the trade in finished/manufactured goods which will provide opportunities and judicious use of the continent’s raw materials and natural resources.

 

REFERENCES:

  1.  Wikipedia, “Economy of Africa” available at https://en.wikipedia.org/wiki/Economy_of_Africa, accessed July, 22nd 2020.
  2. Wikipedia, “Economy of Africa supra note 1.
  3. Ratified as at 6th February, 2021
  4. Ronak Golpadas, “The AfCFTA’s momentum must be preserved to prevent nations using COVID-19 as a reason to renege” https://issafrica.org/iss-today/risks-of-delaying-africas-free-trade-deal accessed on 20th July, 2020.
  5. Virusa Subhan “AfCFTA to be Instrumental in Africa’s Resilience and Recovery Post COVID-19” Baker McKenzie, https://www.lexology.com/library/detail.aspx?g=9c0a4df2-1043-46f8-972d-cc369a50df43 accessed 20th July, 2020.
  6. Reuters Next-African Free Trade Tariff Rules Should Be Completed By July-Official, available at https://www.agriculture.com/markets/newswire/reuters-next-african-free-trade-tariff-rules-should-be-completed-by-july-official#:~:text=The%20AfCFTA%20aims%20to%20bring,out%20of%20poverty%20by%202035, accessed 20th January 2021.
  7. Duties and restrictions often depend on the source of imports. It is not easy to determine the origin of raw materials which has passed through inputs in more than one Country. Rules of origin are therefore the criteria needed to determine the national source of a product for purposes of implementing trade policy instruments like anti-dumping and countervailing duties, preferential treatment, origin marking, and other safeguard measures.
  8. United Nations Economic Commission for Africa, 2018, “An Empirical assessment of AfCFTA Modalities on Goods.”
  9. Eddy Pratomo, The Legal Status of Treaty/International Agreement and Ratification in the Indonesian Practice Within the Framework of the Development of the National Legal System”, Journal of Legal Ethics and Regulatory Issues, Vol 21, Issue 2, 2018
  10. known by the Latin phrase “pacta sunt servanda”. See I.I Lukashuk, “The Principle Pacta Sunt Servanda and the Nature of Obligation Under International Law”, The American Journal of International Law Vol. 83, No. 3 (Cambridge University Press: 1989) available at https://www.jstor.org/stable/2203309?read-now=1&seq=1#page_scan_tab_contents, accessed on 24th July, 2020.
  11. For example, the Federal Executive Council (FEC) of Nigeria announced the ratification of the country’s treaty on 11th November 2020.
  12. Intra-African trade is key to sustainable development – African Economic Outlook, available at https://www.afdb.org/fr/news-and-events/intra-african-trade-is-key-to-sustainable-development-african-economic-outlook-17022 accessed 22nd January 2021.
  13. Virusha Subhan supra.
  14. Adetayo, Adetuyi, The Implications of the Postponement of the Implementation of the African Continental Free Trade Area (AfCFTA) on Intra-African Trade”, available at https://brooksandknights.com/wp-content/uploads/2020/03/Considerations-for-the-Implementation-of-the-African-Continental-Free-Trade-Area-Agreement.pdf accessed July 21st 2020.
  15. World Bank 2020, “Do’s and Don’ts of Trade Policy in the Response to COVID-19”, Trade and COVID-19 Guidance Note; World Bank, Washington, DC. available at https://openknowledge.worldbank.org/handle/10986/33516, accessed 24th July, 2020.