Freer movement of goods, services and people within the continent will help businesses flourish and offer greater job opportunities to a young population.

Without much fanfare, Thursday, May 30, 2019 was a notable date in African economic history as the day the African Continental Free Trade Area agreement (AfCFTA) came into effect, after which it comes to market on July 7.

African Union leaders at ACFTA2018 meeting in Kigali, Rwanda. Photo credit: African Union

Africa ushered in the world’s largest free trade deal. It is a vital step in awakening the economic might of this vast, youthful continent.

The African Continental Free Trade Area agreement was the result of years of negotiation and was finally signed by 52 of the 55 African Union countries, including all of the North African Arab countries, leaving out only three countries that did not sign: the relatively small economy of Benin, the closed economy of Eritrea – and, unfortunately, Nigeria, the continent’s largest economy.

The agreement creates a single market for goods and services across the whole of the continent, meaning that in theory, it should be as easy for an Egyptian to buy products from neighboring Sudan as from Namibia, on the other side of the continent.

After so many years of divisions, and with a long, dark history of foreign exploitation, this free trade deal is a chance for Africa to put aside the barriers and borders – often created by outsiders, but upheld by Africans themselves – that have scarred the continent. African countries have been focused on trading with the outside world for many years. Now there is a chance to rediscover and trade directly with their neighbors.

Africa matters. With 60 per cent of its citizens under the age of 25, it is the world’s youngest continent and in just a few years, by 2025, according to the UN, Africans will make up the largest share of the world’s population collectively, more than China.

Billed as the largest free trade area in the world because it covers more countries than any other, the agreement covers a market of more than 1.3 billion people, with a combined GDP of more than $3.4 trillion.

Nigeria President, Muhammadu Buhari, is reportedly at the mercy of his country labor unions and powerful businessmen.

In a nutshell, it means a single market of goods and services for 1.2 billion people with an aggregate GDP of over $2 trillion. UNCTAD, the UN’s trade body, predicts reducing intra-African tariffs under AfCFTA “could bring $3.6 billion in welfare gains to the continent through a boost in production and cheaper goods.”

Yet trade between African countries is low, accounting for just 16 per cent of overall trade for the continent. By comparison, intra-European amounts to 70 per cent of the continent’s total trade and in Asia, it is 60 per cent, meaning both continents overwhelmingly do trade within their own boundaries.

The Chinese-operated port of Kribi in Cameroon. Photo credit: Adrienne Surprenant / Bloomberg

In Africa, the reverse is true. In some places, like in East Africa, a lot of trade is done with geographically close areas such as the Arabian Peninsula. But in most places, it is easier to export to Europe, North America or Asia than to sell to the country next door.

A legacy of colonialism has much to do with it.

A legacy of colonialism has much to do with it. Maps of major infrastructure on the continent, such as roads and railway lines, show more routes lead from the interior of countries to the ports than from one country to the next. Too often, the pathways of the continent have been laid down to take resources out of Africa.

That remains true even today, with the majority of Africa’s exports being raw materials – cotton, minerals, oil and food – that are then sent to other countries to be developed into products.

It is deficits such as these that the free trade agreement is meant to address.

Ideally, the deal should allow companies to expand easily across borders, selling their products in new African countries and sourcing products from new suppliers.

A particular focus is manufacturing, which remains relatively low at just 10 per cent of Africa’s economy. (As a comparison, other developing countries like Indonesia and Mexico are closer to 20 per cent.) A free trade deal should mean manufacturers can widen their customer base beyond their borders, allowing them to invest in creating better products, in the same way that China began manufacturing relatively cheap goods before moving on to more sophisticated products.

One of the more stark economic data points about Africa is just how little African countries trade with each other—just 16% of total continental trade in 2014. The UN Economic Commission for Africa thinks AfCFTA has the potential to raise intra-African trade by 15% to 25%, or $50 billion to $70 billion, by 2040.

Brookings’s analysts, Professor Landry Signe and Dr. Colette Van der Ven jointly estimates recently that if AfCFTA works effectively as intended, Africa will have a combined consumer and business spending of $6.7 trillion in 2030.

Signé and Van der Ven further notes the devil will be in the detail of ongoing complicated negotiations for implementation, stating some of the issues to be ironed out to include understanding how “most favored nation” (MFN) deals get worked out between all the countries given the near total reciprocity this deal would need.

Another sticking point will be the “rules of origin” issue which decides which products get the preferential tariffs depending on its classification. “Is a blouse made from Chinese silk, designed and stitched in China, but packaged in Kenya eligible to receive AfCFTA preferential tariff rates? What if it is made of imported Chinese silk, but stitched together in Kenya?” asked the Brookings analysts.

The continent’s largest economy Nigeria—alongside Eritrea and Benin Republic are yet to sign up.

But the more straightforward concern about the negotiations for AfCFTA implementation is that they might not be, well, straightforward. The concern is they could instead add complexity to existing agreements across regional bodies like ECOWAS in West Africa or EAC in East Africa.

And while many of the trade discussions are often about moving goods around the continent it’s worth noting exports of African services grew more than six times faster than merchandise exports between 1998 and 2015. Services could be expected to grow even faster across borders as more African startups gain traction offering everything from fintech services to online education as they disrupt traditional sectors.

It’s also worth remembering that the continent’s largest economy Nigeria—alongside Eritrea and Benin Republic are yet to sign up as the Buhari led government figure out how to salve the concerns of powerful labor unions and big business. And while many believe Africa’s largest oil producer could benefit, analysts believe more diversified large economies, led by South Africa and Egypt, would benefit much more.

Meanwhile, there are still enormous challenges, including the tricky problems of intellectual property and “rules of origin”, deciding where products made of components from different countries legally come from. There are also political issues like Nigeria refusal because its president, Muhammadu Buhari, is reportedly at the mercy of his country labor unions and powerful businessmen, who are resisting the deal. While many believe Africa’s largest oil producer could benefit, analysts believe more diversified large economies, led by South Africa and Egypt, would benefit much more.

But to really work, the deal needs to be backed by a second major change, fixing the lack of free movement across this vast continent.

According to a recent BBC report, African citizens need a visa to travel to more than half the countries on the continent. Africa’s richest man, Nigerian businessman and cement manufacturer Aliko Dangote, complained that he needed 38 visas to travel within the continent. Only the Seychelles offers visa-free travel to all Africans. Meanwhile citizens from European nations can travel to most African countries without needing a visa.

A vessel berths to discharge containers at Apapa port in Lagos, Nigeria

The African Union found on average, Africans could travel to less than one in four countries on the continent, despite plans to scrap all visa requirements by last year.

Visas are expensive, as are inter-African flights. It is often cheaper to go to an airport hub outside the continent first and re-enter Africa than to travel directly to countries on the continent.

Moussa Faki, the de facto head of the African Union, put it emotively: “We should ensure that Africans are no longer treated like foreigners on their own continent while others move about therein often freely.”

Greater trade could open up the possibility of freer movement. At the moment, countries don’t want worker migrants and the hardest countries for Africans to get into are also the richest. It is easier for citizens of richer non-African countries to get visas because governments want tourists, not workers.

Africa’s richest man, Nigerian businessman and cement manufacturer Aliko Dangote, complained that he needed 38 visas to travel within the continent.

Growing businesses, however, will increase the demand for workers – a requirement that countries will find easier to fulfill by allowing in other Africans.

Taken together, allowing African goods, services and people to cross borders freely could genuinely transform the world’s youngest continent.

One of the realities of implementing an agreement like AfCFTA therefore is that it requires not just the governments but crucially the input of African businesses and everyday Africans. And not many institutions are asking them, so Kasi Insight, which carries out consumer insight studies across some of Africa’s larger economies, did just this with consumers.

Among the key findings was that many respondents were skeptical about what AfCFTA represented or as Kasi describes it, “a significant indecisiveness.”  That said, it varied on a country spectrum, with respondents in Côte d’Ivoire much more positive (85%) than South Africans (45%), who were the least positive.

But the survey also found respondents weren’t so much skeptical about AfCFTA specifically as they were about benefiting from multi-country agreements overall given past or current regional agreements.

That said, when the question was asked in the context of a comparison with the benefits of European Union membership, those who understood how the EU works were much more positive about the potential of AfCFTA.

Bola-Ige Alabi-Efeshodiamhe

Bola-Ige Alabi-Efeshodiamhe is an investigative solution journalist and photographer.

Bola-Ige Alabi-Efeshodiamhe has 2 posts and counting. See all posts by Bola-Ige Alabi-Efeshodiamhe

Bola-Ige Alabi-Efeshodiamhe

One thought on “Africa’s Free Trade: 52 Signed, 3 Declined; What Next?

  • Stephen Saunders

    Thank you @Bola-Ige, could you give me a tip as how you set up the dark quotation boxes interspersed throughout your article? I am still learning to improve my articles. Thanks!

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