African Continental Free Trade Area Agreement (AfCFTA) is expected to significantly drive up intra-Africa trade by about 52 per cent, officials from the United Nations Economic Commission for Africa have said.
Currently, intra-African trade stands at about 16 per cent with a section of experts blaming it on tariff and non-tariff barriers.
Jamie Alexander MacLeod, a fellow at the African Trade Policy Centre of United Nations Economic Commission for Africa (UNECA), says that removing tariffs through implementation of the agreement can increase intra-African trade by 52 per cent.
Additional reduction of non-tariff barriers could further drive up trade, he observed in an interview with The New Times at the weekend.
With average tariffs of about 6.1 per cent, African businesses currently face higher import duties when they export within Africa than when they export outside the continent, multiple indexes have shown.
Trade within the continent could be boosted through the elimination of tariffs, thus making it easier for African businesses to trade within the continent, cater for and benefit from the growing African market.
MacLeod said that intra-African exports are more diversified and useful to Africa’s development, than the continent’s external trade.
Africa’s external trade mostly comprises of extractive products such as fuel and minerals which are easily affected by commodity prices and economic shocks.
Boosting intra-Africa trade, he said, will result in longer-term growth, higher foreign investments and contribute to the continent’s industrialisation ambitions.
Explaining the projections, Stephen Karingi, the Director of Capacity Development Division at UNECA, told The New Times that the projections were made based on 2010 intra-Africa trade levels which were about 11 per cent at the time.
Of importance, he said, is that majority of the expected growth is on manufactured goods which will lead to the creation of more jobs and economic growth.
About two thirds of the growth is on manufactured goods as the continent tends to trade more in value added goods.
“When you have growth in trade with most of it in value added goods, there is always growth in quality of jobs when you have manufacturing sector doing well. Among the sectors to benefit most is the agriculture sector,” Karingi said.
With service sector being significant in most economies, he noted that the sector is going to be among the top opportunities generator especially further leading to inclusion of youth and women in development.
“Most of the economies in Africa are comprised of the services sector. By opening up the services sector, you are creating opportunities for young people and women. Some of the SMEs are into the services sector. The private sector will have a chance to grow, create jobs and have a multiplier effect,” he said.
The agreement’s implementation is further expected to lead to the creation of more jobs for the continent’s growing population by enabling growth of manufacturing sectors, and reducing reliance on extractive exports.
Extractive exports, on which Africa’s trade is currently based, are less labour intensive than the manufactured and agricultural goods that will benefit most.
Small and Medium Enterprises are also among the top potential beneficiaries. SMEs account for around 80 per cent of the region’s businesses.
Most of these businesses have been said to face hardships penetrating more advanced markets, but could largely be better positioned to tap into regional export destinations through the agreement.
The SMEs could also benefit by making it easier to supply inputs to larger regional companies.
Experts have allayed fears of the negative impacts of the agreement, saying that the benefits far outweigh any negative consequences.
Implementation of the agreement is expected to see losses in terms of tariff revenues of an estimated U$4 billion for the continent. The benefits, experts say, will however be over four times higher especially through lower prices of consumer goods.
Karingi explained that the implementation of the CFTA will give countries a chance to review their tax administration and tax policy in a bid to make room for new revenue streams as economies grow.
“For us as ECA, we see the implementation of CFTA as an opportunity to address some of our public finance issues. If you are going to lose some revenue because of opening up, it gives you an opportunity to look at the architecture of tax administration and your tax policy. As long as there is trade growth and economic growth, you will have new revenue streams over time that are likely to generate way more revenues,” he explained.
About 35 countries have so far confirmed attendance of the Extraordinary African Union Summit in Kigali where the agreement will be signed on Wednesday.
The African Continental Free Trade Area (AfCFTA) will cover a market of 1.2 billion people and a gross domestic product (GDP) of $2.5trillion, 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 Organisation.
With average tariffs of 6.1 per cent, 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.
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 labour-intensive than the manufactures and agricultural goods that will benefit most from AfCFTA.
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 per cent 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.
AfCFTA makes it more affordable for informal traders to operate through formal channels, which offer more protection.
AfCFTA is a flagship project of Agenda 2063 of the African Union – Africa’s own development vision. It was approved by the African Union Summit as an urgent initiative whose immediate implementation would provide quick wins, impact on socio-economic development and enhance confidence and the commitment of Africans as the owners and drivers of Agenda 2063.