In an international context mired in new trade wars, the African continent is looking to speak with a single voice and work towards multilateral goals.
With a marginal role in world trade – a share below 3% – the African continent is building unity at the Niamey summit to bolster intra-regional commerce. The twelfth African Union (AU) summit, which began on 4 July in Niamey, is launching a huge free trade area encompassing most countries of the continent, the African Continental Free Trade Area (AfCFTA). The creation of that single market for goods and services is a key element of the AU’s ambitious Agenda 2063.
The establishment of this zone is due to serve as a driving force for Africa’s development. The adoption of common standards and the progressive elimination of customs duties should promote the industrialisation of economies and increase regional trade. Currently, only 16% of African countries’ trade is with other countries on the continent, while intra-European trade is 65%.
In a report, the United Nations Conference on Trade and Development (UNCTAD) estimates that the AfCFTA will increase intra-African trade by 33% and generate $16.1bn in additional revenue. Nevertheless, the road ahead is long and winding, as one of the key negotiators and former executive secretary of the United Nations Economic Commission for Africa, Carlos Lopes, put it: “The summit will officially launch the AfCFTA, but this is only a starting point. It will take at least three years before the union really takes shape on the ground.”
The largest free trade area in the world
While 52 countries have signed the AfCFTA agreement since its creation in July 2018, it could only enter into effect after ratification by at least 22 countries. This figure has now been exceeded, with 25 signatory countries, including many of the continent’s economic drivers – such as South Africa, Egypt, Kenya and Ethiopia. These countries will be joined by the continent’s second-largest economic power, Nigeria, which announced its intention to join the AfCFTA at the Niamey summit through the Nigerian presidency’s Twitter account on 3 July 2019.
For a long time, Muhammadu Buhari, Nigeria’s president, refused to sign the agreement. Known for his protectionist policies, he is worried by the potential for dumping of goods and other problems. Under pressure from many sides, including Nigerian businessmen such as billionaire Aliko Dangote, Buhari finally decided to join the AfCFTA on the eve of the summit.
Comforted by the rallying of a country which accounts for 17% of African GDP, the signatories of the AfCFTA could create the world’s largest free trade area – with an internal market of 1.2bn people and a combined GDP of $2.5trn. Only Benin, which is highly dependent on the Nigerian economy, and Eritrea remain reluctant and have not joined the project.
Negotiating the details of the agreement
Although the creation of the continental free trade area has entered into force, the AfCFTA has a large number of challenges ahead of it. Many clarifications are still needed, while several challenges are due to be discussed at the Niamey summit. Here are the main negotiating points:
Designate the bodies to conduct negotiations
In order to ensure the progress of the talks, the summit will designate the host country for the headquarters of the permanent AfCFTA general secretariat. This authority will manage, among other things, the harmonisation of customs tariffs and the definition of rules of origin. Initially, seven states were candidates to host it: Egypt, Ethiopia, Kenya, Ghana, Senegal, Madagascar and Eswatini. Sources say that Senegal and Ethiopia have withdrawn from the race.
Also expected is the creation of the African Trade Observatory, which should be hosted in the same location as the secretariat. This body will ensure the respect of technical and legal aspects of the deal and may propose ideas to the secretariat about the harmonisation of business practices.
Negotiate tariff-free product lines
The AfCFTA aims to eliminate customs duties on products representing 90% of tariff lines within five to 10 years. For that, the negotiators must designate in Niamey the list of products covered by the exemptions from customs duties. To be exempt from customs duties, these goods will have to be stamped ‘Made in Africa”, i.e. covered by rules of origin, for which 90% of the negotiations have been completed.
In parallel, each country will have to list the products it wishes to exclude from liberalisation. Due to the complexity of these negotiations, the outcome may not be known until January or February 2020.
In addition to reducing customs tariffs on 90% of product lines, the AfCFTA also aims to establish a liberalised market for services. The negotiations could lead to a first agreement on the trade in services.
Agree on the rules of origin
The current AfCFTA members will have to agree on rules of origin. These criteria will determine what proportion of African inputs are needed for a product to be considered ‘Made in Africa’. A simple rule requiring 50% of the value added from Africa will probably be adopted, but it is not unanimously accepted.
Some, such as Roland Portella, president of the Coordination pour l’Afrique de Demain (CADE) non-governmental organisation, consider it too weak. They are that such a threshold is likely to benefit companies in non-African countries that have subsidiaries or simply distribution networks in Africa.
On the other hand, some consider this proportion too high, and say that it should not be the same for all products. Milasoa Chérel-Robson, an economist at UNCTAD, argues that Africa’s least developed countries cannot put in place rules as advanced as those in emerging countries.
Create a portal dedicated to non-tariff barriers
The summit should see the adoption of an online platform to deal with operator complaints about non-tariff barriers. It will be based on the one set up by the Tripartite Free Trade Area, which includes the Common Market for Eastern and Southern Africa, the Southern African Development Community and the East African Community. That online portal has registered nearly 600 complaints and resolved approximately 85% of problems since 2010.
In one study, Afreximbank estimates that AfCFTA’s gains – which would be $3.5bn if tariffs alone were eliminated – could be increased to $17bn if non-tariff barriers are also eliminated.
Establish a continental payment system
Many African countries have non-convertible currencies and are forced to use the US dollar and euro to finance their trade. Designed by Afreximbank, a future clearing house, which is due to be announced in Niamey, will facilitate international payments. Sellers and buyers will be able to use their own currencies in order to boost export and import opportunities, especially for SMEs.
Obstacles and optimism
The AU estimates that the implementation of the AfCFTA will increase intra-African trade by nearly 60% by 2022. However, critics of the project point to the lack of complementarity of African economies and fear that cheap imports will hurt small agricultural and industrial producers. Several organisations, such as the Third World Network Africa Network, CADE and the Committee for the Abolition of Illegitimate Debt say that the AfCFTA is likely to benefit primarily multinationals with subsidiaries on the continent and to increase inequality between African countries. But the AfCFTA’s backers are confident that the Niamey summit will demonstrate the willingness of African countries to work hand in hand to address the concerns of all of those around the negotiating table.