African nations sign landmark continent-wide trade agreement

By Jehron Muhammad -Contributing Writer- | Last updated: Apr 4, 2018 - 3:23:45 PM

Over 40 African Heads of State signed an agreement March 21 establishing the African Continental Free Trade Area in Kigali, Rwanda. Photo: Twitter

According to published reports, at least 44 African nations signed a landmark trade agreement to eliminate tariffs on “90 percent of all goods traded within the continent.”

The fact that current trade patterns historically have been scripted into colonial policies is telling and their aim has always been to foster exports of raw materials to Europe and import industrial goods back to African colonies.

The March 21 introduction of a potentially new global trading juggernaut, the result of the signing of framework of the African Continental Free Trade Area (AfCFTA), has resulted in the largest free trade agreement since the creation of the World Trade Organization.

African heads of state initially agreed to establish a continental free trade area in 2012 and started negotiations in 2015.

The object of AfCFTA is to create a single market for goods and services in Africa. By 2030 the market size, reported Quartz-Africa “is expected to include 1.7 billion people with over $6.7 trillion of cumulative consumer and business spending.” This is if all 55 members of the African Union sign on. While 44 countries signed the AfCFTA during the 18th Extraordinary Session of African Union Summit, in Kigali, Rwanda, hosted by President Paul Kagame, who is also chairman of the AU, 50 signed either the agreement or the Kigali Declaration underscoring their commitment to the agreement.

David Luke, coordinator of the African Trade Policy Center at the United Nations Economic Commission for Africa, hopes the free trade area will correct an “historical anomaly,” he told Al Jazeera.

According to Luke, “Colonialism created a situation where neighbors stopped trading with each other. The main trading route was between African countries and European countries and between African countries and the U.S.”

Removing these historical barriers is expected to not just grow trade within the continent, Luke said, but will also grow “the kind of trade this continent needs.”

UNECA reported that between 2010 and 2015, fuel represented more than half of Africa’s exports to non-African countries, while manufactured goods made up only 18 percent of exports to the rest of the world.

Luke said, the export of commodities tends to be capital rather than labor- intensive.

“When you have this kind of economy, your young people cannot find jobs. And when they cannot find jobs, you see them trying to get to Europe and drowning in the Mediterranean,” Luke said.

In addition, the coordinator of the African Trade Policy Center said, “If you are making the basic things that everybody consumes, then you are creating jobs.”

He hopes the free trade area will also make Africa more competitive outwardly.

“If you can move further up the supply chain, you are better placed in a global context as well,” he emphasized.

Addressing the Summit AU chair Kagame said, “The stakes are enormous for Africa, but also for the entire global economy, to which Africa will contribute an ever-greater share in the decades ahead.” In addition he declared, “The advantage we gain by creating one African market will also benefit our trading partners around the world. And that is a good thing. At the same time, we will be in a better position to leverage our growing strength and unity to secure Africa’s rightful interest in (the) international arena. This is not just a signing ceremony. Today’s deliberations are critically important as we chart the next steps on our journal towards the Africa we want.”

Next steps include getting non signatories like Nigeria to sign.

Nigerian President Muhammadu Buhari, after getting the go ahead from his administration, was on his way to Kigali to participate at the Summit when he got a call that “more consultations at home” were needed.

A message on the president’s twitter feed read: “Minister of Foreign Affairs: The decision for President @MBuhari to not attend the #AfCFTA signing ceremony was taken because we realized more inclusive (domestic) consultations needed to take place before Nigeria signs.”

It appears, according to published reports, since President Buhari may be seeking another term in office— elections are in 2019—he has to shore up support before he signs the AfCFTA.

An interesting note is the published misinformation that South Africa hadn’t signed on. Dispelling the false report, France media News24 reported that President “Ramaphosa returns to South Africa … following the adoption of the agreement by the African Union.” The new South Africa president said, “This is an opportunity that is going to yield great benefits for all countries on the continent as well as big business, small companies and micro- traders.” Ramaphosa spoke following the conclusion of his working visit to Rwanda.

In addition, Ramaphosa, reported News24, in his capacity as the chair of the Southern African Development Community (SADC) said the trade focused summit was a “forward step in the arduous journey to translate the African Continent Free Trade Area legal instruments into an effective conduit for increased trade and investment across the continent.”

Barriers to the agreement, reported the Economist, which are almost a given with the diversity of Africa’s trade relations and includes “standards and licenses … different across Africa.” Also “red tape also slows things down.” The Trade Law Center, a South African think-tank, “looked at the time taken for customs and port handling in Africa and in Singapore, and then imagined closing the gap by a fifth. The economic gains would be roughly double those expected from eliminating tariffs.” The agreement will try to eliminate these obstacles, even though there is little “EU-style machinery (currently in place) that makes Europe’s single market work.”

But the agreement on its own won’t deliver results. The African Union must help its member states put in place policies that drive industrial development, particularly manufacturing.

Five key points, reported Quartz- Africa, stand out:

• Human capital: A strong manufacturing sector needs capable, healthy, and skilled workers. Policymakers should adjust curriculum to ensure that skills are adapted to the market. And there must be a special focus on young people. Curriculum must focus on skills and building capacity for entrepreneurship and self employment. This should involve business training at an early age and skills upgrading at an advanced one. This should go hand in hand with promoting science, technology, engineering, entrepreneurship and mathematics as well as vocational and on-the-job training. Policymakers should also favor the migration of highly skilled workers across the continent.

• Cost: Policymakers must bring down the cost of doing business. The barriers include energy, access to roads and ports, security, financing, bureaucratic restrictions, corruption, dispute settlement and property rights.

• Supply network: Industries are more likely to evolve if competitive networks exist. Policymakers should ease trade restrictions and integrate regional trade networks. In particular, barriers for small and medium-size businesses should be lifted.

• Domestic demand: Policymakers should offer tax incentives to firms to unlock job creation, and to increase individual and household incomes. Higher purchasing power for households will increase the size of the domestic market.

• Resources: Manufacturing requires heavy investment. This should be driven by the private sector. Policymakers should facilitate access to finance, especially for small and medium enterprises. And to attract foreign direct investment, policymakers should address perceptions of poor risk perception. This invariably scares off potential investors or sets excessive returns expectations.

After the legal framework signing that took place on March 21, AfCFTA will come into force when it has been ratified by either 15 or 22 individual countries, through their domestic processes.

Countries still on the sideline include Botswana, Lesotho, Namibia, Zambia, Burundi, Eritrea, Benin, Sierra Leone and Guinea Bissau.

The Final Call