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Free trade area in danger of being a ‘paper tiger’

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Picture: Xinhua – Participants pose for group photo during a meeting of the Permanent Representatives Committee of the AU in Kigali, Rwanda, in March 17. An agreement to launch the African Continental Free Trade Area (AfCFTA) was signed here.

By Dr Sizo Nkala

It is now over two years since the African Continental Free Trade Area (AfCFTA) was launched to much fanfare in January 2021.

The new trade regime, which created the world’s largest free trade area bringing together 54 countries and 1.3 billion people, was intended to deepen regional integration and forge a single liberalised market for goods, services, capital, and labour.

Article 3 of the Agreement states that the general objectives of the AfCFTA include creating a single liberalised market for goods and services, contributing to the movement of capital, goods, and natural persons, and laying the foundation for the establishment of a Continental Customs Union in the future.It was hoped the AfCFTA would be a panacea to the low levels of intra-African trade, which stands at a mere 15% and economic stagnation in the region.

The World Bank estimated that the new free trade area would result in a 7% rise in income and almost 40 million people lifted out of poverty by 2035. This would be achieved through attracting investments and creating regional value chains, which would see more and more trade taking place within the continent. Thus far, 47 out of 54 countries (about 87% of the African Union member states) have ratified the AfCFTA Agreement, while all but Eritrea have signed it. The ratification of the agreement means that member-states are ready to incorporate the agreement into the domestic legislature, thus paving the way for its implementation.

However, agreeing to form a free trade is one thing, while bringing the free trade area into reality, especially that of the size of the AfCFTA, is a different ball game altogether. Significant progress has been made towards the implementation of the AfCFTA, including the finalisation of the rules of origin, tariff schedules, and the protocols on investment, competition, and intellectual property rights. These items form the core foundation of the free trade area. The AfCFTA Secretariat even launched the AfCFTA pilot programme at the end of 2022, which saw eight countries taking part, namely Kenya, Rwanda, Cameroon, Ghana, Tanzania, Mauritius, Egypt, and Tunisia. These countries have started trading about 96 products, including sugar, pasta, dried fruits, processed meat, and sisal fibre, among others, under the AfCFTA terms and conditions.

This initiative is a test drive for the free trade area to ascertain its viability and member-states’ ability to comply with the provisions of the AfCFTA. While 96 products are a far cry from the over 4 000 products that have been included in the AfCFTA’s tariff schedules, it is a step in the right direction. The Agreement intends to liberalise about 90% of the tariff lines in its schedules by 2030.

Nonetheless, the successful creation of a trade area involves way more than just finding consensus on tariff schedules and rules of origin. There are several factors that have the potential to undermine the successful realisation of the AfCFTA. Chief among them is the state of Africa’s infrastructure which has been one of the main reasons for the continent’s low levels of internal trade. Without adequate infrastructure such as roads, rails, airports, seaports, and telecommunications, the movement of people, goods, services, and information across borders, which is essential in creating a single market, the lack of connecting infrastructure between African countries fragments the African market and makes it expensive to move goods and people.

To make matters worse, Africa is struggling to raise enough funds to invest in infrastructure with an over $100 billion funding gap. This means that the continent does not have the means to build the infrastructure needed to turn Africa into a single market. Another challenge is that the implementation of the AfCFTA is the responsibility of the member-states.

This is a cause for concern, especially considering the dismal record African states have in implementing regional and continental initiatives. While some states simply do not have the capacity (particularly in terms of customs administration), most will not have the political will to implement the new free trade area. This happens in cases where some countries stand to benefit less than others from the implementation of the free trade area. Hence, it is important for the AU to come up with mechanisms for the equitable distribution of the benefits set to accrue from AfCFTA to incentivise its implementation at the state level.

Moreover, endemic instability and conflict has always hindered the regional integration. The flow of goods, people and capital cannot happen in the absence of peace and security. The emergence of conflicts in Sudan, the Democratic Republic of Congo, Mozambique, and Ethiopia, among other countries, is a further obstacle to the implementation and realisation of the AfCFTA. If these and other challenges are not addressed, the AfCFTA will become little more than a paper tiger.

*Dr Sizo Nkala is AResearch Fellow at the University of Johannesburg’s Centre for Africa-China Studies