Africa takes bold step forward with free-trade agreement

Integrating more effectively into the global economy is vital for advancing Africa’s economic development and capacity

Source: BusinessDay
04 APRIL 2018 – 05:59 TRUDI HARTZENBERG AND GERHARD ERASMUS

Targeting of new markets: Workers at the Alltex clothing factory near Nairobi, Kenya. The African Continental Free Trade Area agreement will help boost intra-African trade. Picture: REUTERS

At the extraordinary summit of the AU that convened in Kigali on March 21, 44 of the 55 member states signed the text of a new African free-trade agreement called the African Continental Free Trade Area (AfCFTA). The complete package of legal instruments includes a founding agreement, protocols on trade in goods and services, with annexes on trade-related rules and procedures, and a dispute settlement mechanism.

What does this development signal and what could change? An objective of the AfCFTA is to boost intra-African trade. It is designed to do so by forging a single continental legal regime for all relevant trade disciplines.

This will include lower tariffs, simplified rules of origin and customs procedures, regulations for trade in services and remedies available to affected private parties.

This is a bold vision but vital for advancing Africa’s economic development and capacity to integrate more effectively into the global economy.

There is still a lot of work to be done before the full arrangement will be in place, but it is an important step in the right direction. Protocols on investment, competition and intellectual property are to be negotiated in the second phase of this initiative. Institutions, including a secretariat, are to be established before ratifications of the agreement can be deposited.

The agreement will enter into force once 22 states have ratified it. The summit hinted that entry into force may happen within a year. It is too early to count tangible benefits to Africa’s exporters, freighters, investors and consumers. If the participating governments implement the obligations agreed on, the Kigali summit will have produced a milestone event.

What are the prospects?

The record regarding intra-African trade and the settlement of trade disputes is not impressive. Integrating unequal partners is difficult. Some are concerned about the loss of tariff revenue and have limited options for growing their local tax base. Intra-Africa trade is a small share of the continent’s total trade. For 2016, intra-trade was 17.6% of Africa’s total trade.

PROTOCOLS ON INVESTMENT, COMPETITION AND INTELLECTUAL PROPERTY ARE STILL TO BE NEGOTIATED.

But what does Africa trade with the rest of the world? Most of that is commodity trade, agricultural products, metals, minerals and other primary products. These commodities are processed in complex value chain arrangements at various global locations. They feed into the early stages of value chains, meaning that most value addition to these exports from Africa accrues to other players in the global economy.

This makes it important for complementary and support initiatives to reduce the costs of doing business and cross-border trade, to improve governance, and expand and diversify Africa’s industrial base. The AU’s initiatives to boost intra-Africa trade — the Programme for Infrastructure Development in Africa and the Accelerated Industrial Development for Africa — are essential to realise the benefits of the AfCFTA.

The fact that the AfCFTA will be the first continent-wide African trade arrangement offers another potential advantage: tackling the complications and duplication that characterise the overlapping memberships of the existing eight regional economic communities, which include the Southern African Development Community and the East African Community. Matters could now be simplified and standardised for rules of origin, tariffs and standards for the same goods. Private parties will then face less fragmented sets of rules when doing business across borders.

It will, however, be unrealistic to expect a sudden leap forward. Improvements will be incremental. That will already be significant. Judged by the statements delivered by the heads of state and government at this occasion, there does seem to be a new resolve to put intra-African trade on a sound footing. Sceptics will counter by pointing out that international agreements do not create trade. However, their adoption and implementation are vital for making rules-based trade and investment possible and to provide for certainty and predictability.

Governments do not trade but they shape and control the rules of the game. A new trade agreement about how governments, and officials, exercise jurisdiction and improve trade governance is a necessary first step to a thriving rules-based trade environment for Africa.

There were also important political developments in Kigali involving Africa’s two biggest economies. Nigeria had been a supporter of the trade vision and a driving force in the negotiations. But at the last moment Nigerian President Muhammadu Buhari cancelled his trip to Kigali to deal with complaints by local business that their interests are not accommodated. Nigeria’s absence at the talks was an embarrassment.

SA, on the other hand, was a constructive voice. President Cyril Ramaphosa appeared in person, supported the new vision and promised that Pretoria would sign the AfCFTA as soon as domestic legal requirements had been attended to. Trade and Industry Minister Rob Davies subsequently confirmed that “SA is very much part of this process. We don’t have reservations or differences.”

Pretoria’s support for the AfCFTA is a positive sign. It could boost SA’s position as the major African exporter of goods and services to the continent.

• Hartzenberg is executive director at the Trade Law Centre and Erasmus is an associate at the centre.