[ NEWS ] African Continental Free Trade Agreement (AfCFTA) – Q&A

 


The operational phase of the African Continental Free Trade Agreement (AfCFTA) has been launched on Sunday 7th July 2019, in the 12th Extraordinary Session of the Assembly of African Union Heads of State and Government in Niamey, Niger Republic.

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What is African Continental Free Trade Agreement (AfCFTA) and What benefits will AfCFTA bring to us?

Let’s check it out!

The African ContinentalĀ FreeĀ TradeĀ Area (AfCFTA)Ā isĀ aĀ freeĀ tradeĀ area,Ā outlinedĀ inĀ theĀ AfricanĀ ContinentalĀ FreeĀ TradeĀ AgreementĀ amongĀ 54Ā ofĀ theĀ 55Ā AfricanĀ UnionĀ nations.Ā TheĀ free-tradeĀ areaĀ isĀ theĀ largestĀ inĀ theĀ worldĀ inĀ termsĀ ofĀ participating countriesĀ sinceĀ theĀ formation ofĀ theĀ WorldĀ Trade Organization.

1. How can the African Continental Free Trade Area provide business opportunities that will enhance industrialization in Africa in line with Agenda 2063: The Africa We Want?

  • The African Continental Free Trade Area (AfCFTA) will cover a market of 1.2 billion
    people and a gross domestic product (GDP) of $2.5 trillion, across all 55 member
    States of the African Union. In terms of numbers of participating countries,
    AfCFTA will be the worldā€™s largest free trade area since the formation of the
    World Trade Organization.
  • It is also a highly dynamic market. The population of Africa is projected to reach
    2.5 billion by 2050, at which point it will comprise 26 per cent of what is projected
    to be the worldā€™s working age population, with an economy that is estimated to
    grow twice as rapidly as that of the developed world.
  • 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.
  • Consolidating this continent into one trade area provides great opportunities
    for trading enterprises, businesses and consumers across Africa and the chance
    to support sustainable development in the worldā€™s least developed region. ECA
    estimates that AfCFTA has the potential both to boost intra-African trade by
    52.3 per cent by eliminating import duties, and to double this trade if non-tariff
    barriers are also reduced.

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2. Why does intra-African trade drive sustainable growth and jobs?

  • Africaā€™s industrial exports are forecast to benefit most from AfCFTA. This is
    important for diversifying Africaā€™s trade and encouraging a move away from
    extractive commodities, such as oil and minerals, which have traditionally
    accounted for most of Africaā€™s exports, towards a more balanced and sustainable
    export base. Over 75 per cent of Africaā€™s exports outside the continent were
    extractives from 2012 to 2014, while less than 40 per cent of intra-African trade
    were extractives in the same period.
  • The great risk with products like oil and minerals is their volatility. The fiscal and economic fate of too many African countries relies on the vicissitudes of these
    product prices. Using AfCFTA to pivot away from extractive exports will help
    to secure more sustainable and inclusive trade that is less dependent on the
    fluctuations of commodity prices.
  • Perhaps most importantly, AfCFTA will also produce more jobs for Africaā€™s bulging
    youth population. This is because extractive exports, on which Africaā€™s trade is
    currently based, are less labour-intensive than the manufactures and agricultural
    goods that will benefit most from AfCFTA. By promoting more labour-intensive
    trade, AfCFTA creates more employment.

 

3. 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 regionā€™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.
  • Another way in which small and medium-sized enterprises can benefit is by
    AfCFTA making it easier to supply inputs to larger regional companies, who
    then export. Before exporting cars overseas, for example, large automobile
    manufacturers in South Africa source inputs, including leather for seats from
    Botswana and fabrics from Lesotho, under the preferential Southern African
    Customs Union trading regime.

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4. Whatā€™s in AfCFTA for Africaā€™s women?

  • Analyses of the impact of AfCFTA at the household level suggest that the effect
    between male and female headed households is broadly quite balanced; both
    gain by differing degrees in different countries. However, women in particular
    can benefit from improvements to the challenges they face as informal crossborder
    traders.
  • Women are estimated to account for around 70 per cent of informal crossborder
    traders in Africa. When engaged in such an activity, women are
    particularly vulnerable to harassment, violence, confiscation of goods and even
    imprisonment. By reducing tariffs, AfCFTA makes it more affordable for informal
    traders to operate through formal channels, which offer more protection. This
    can be further enhanced by simplified trading regimes for small traders, such as
    the Simplified Trade Regime in the Common Market for Eastern and Southern
    Africa (COMESA), which provides a simplified clearing procedure alongside
    reduced import duties that provide particular help to small-scale traders.

 

5. Africa comprises a range of countries from those large and moreĀ developed, to those small and less developed. How can it be ensured thatĀ all benefit from a win-win AfCFTA?

African countries have a diversity of economic configurations and will be affected in
different ways by AfCFTA. Nevertheless, the benefits from AfCFTA are widespread.

  • While African countries that are relatively more industrialized are well placed to
    take advantage of the opportunities for manufactured goods, less-industrialized
    countries can benefit from linking into regional value chains. Regional value
    chains involve larger industries sourcing their supplies from smaller industries
    across borders. AfCFTA makes the formation of regional value chains easier by
    reducing trade costs and facilitating investment.
  • Agricultural countries can gain from satisfying Africaā€™s growing food security
    requirements. The perishable nature of many agricultural food products means
    that they are particularly responsive to improvements in customs clearance
    times and logistics that are expected of AfCFTA.
  • The majority of African countries are classified as resource rich. Tariffs on raw
    materials are already low and so AfCFTA can do little to further promote these
    exports. However, by lowering intra-African tariffs on intermediates and final
    goods, AfCFTA will create additional opportunities for adding value to natural
    resources and for diversifying into new business areas.
  • The cost of being landlocked includes higher costs of freight and unpredictable
    transit times. AfCFTA provides particular benefits to these countries: in addition
    to reducing tariffs, the AfCFTA is set to include provisions on trade facilitation,
    transit and customs cooperation.

It will nevertheless be vital that AfCFTA is supported with accompanying measures and
policies.

  • Less-industrialized countries can benefit from the implementation of the
    programme for the Accelerated Industrial Development of Africa; domestic
    investments in education and training can ensure the necessary complementary
    skills.
  • Implementation of the Africa Mining Vision can complement AfCFTA, by helping
    resource-based economies to strategically diversify their exports into other
    African markets.
  • The Boosting Intra-African Trade (BIAT) Action Plan is the principal accompanying
    measure for AfCFTA. It outlines the areas in which investments are required, such
    as trade information and access to finance, to ensure that all African countries
    can benefit from AfCFTA.

 

6. How can AfCFTA contribute to the achievement of the 2030 Agenda for Sustainable Development?

  • AfCFTA is a flagship project of Agenda 2063 of the African Union ā€” Africaā€™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 socioeconomic development and enhance confidence and the commitment
    of Africans as the owners and drivers of Agenda 2063.
  • The cumulative effect of AfCFTA is to contribute to the achievement of the United Nations 2030 Agenda, in particular, to the Sustainable Development Goals, from targets for decent work and economic growth (Goal 8) and the promotion of industry (Goal 9), to food security (Goal 2) and affordable access to health services (Goal 3).
  • By supporting African industrialization and economic development, AfCFTA can also help to reduce the continentā€™s reliance on external resources. This would allow Africa to better finance its own development, which is recognized under Goal 17.
  • Of utmost importance, however, is Goal 1 and keeping the pledge that ā€œno one will be left behindā€¦ starting with the furthest behind firstā€. For this, it is crucial that Governments across Africa implement measures to accompany AfCFTA, such as the African Unionā€™s Boosting Intra-African Trade Action Plan, but also that the African private sector step up to invest in, and take advantage of, the opportunities arising from AfCFTA.

 

7. What has been achieved in AfCFTA negotiations so far?

  • Negotiations were launched by the African Union Heads of State and
    Government in June 2015. By late 2017, the intensity of negotiations had
    escalated, culminating in the drafting of the agreement itself.
  • In early March 2018, the negotiating forum met for the tenth time to finalize
    outstanding matters and conclude legal scrubbing in preparation for the
    signature of the agreement on 21 March 2018. The outstanding matters included
    agreeing to a dispute settlement mechanism and finalizing several annexes
    to the protocol on goods. The negotiating forum also agreed a Transition and
    Implementation Work Programme to finalize offers for goods and services, and
    to prepare product-specific rules of origin, as part of the built-in agenda.
  • Thereafter, negotiations will progress to further deepening trade in Africa with
    ā€œPhase twoā€ negotiations expected to begin in late 2018. Phase two will focus
    on provisions for investment, competition and intellectual property rights. A
    facilitative environment for e-commerce is also being mooted as a possible
    additional phase-two topic.

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8. What does AfCFTA mean in concrete terms?

  • African businesses, traders and consumers will no longer pay tariffs on a large
    variety of goods that they trade between African countries;
  • Traders constrained by non-tariff barriers, including overly burdensome customs
    procedures or excessive paperwork, will have a mechanism through which to
    seek the removal of such burdens;
  • Cooperation between customs authorities over product standards and
    regulations, as well as trade transit and facilitation, will make it easier for goods
    to flow between Africaā€™s borders;
  • Through the progressive liberalization of services, service suppliers will have
    access to the markets of all African countries on terms no less favourable than
    domestic suppliers;
  • Mutual recognition of standards, licensing and certification of service suppliers
    will make it easier for businesses and individuals to satisfy the regulatory
    requirements of operating in each otherā€™s markets;
  • The easing of trade between African countries will facilitate the establishment
    of regional value chains in which inputs are sourced from different African
    countries to add value before exporting externally;
  • To protect against unanticipated trade surges, State Parties will have recourse
    to trade remedies to ensure that domestic industries can be safeguarded, if
    necessary;
  • A dispute settlement mechanism provides a rule-based avenue for the resolution
    of any disputes that may arise between State Parties in the application of the
    agreement;
  • Upon conclusion, the ā€œPhase twoā€ negotiations will provide a more conducive
    environment for recognizing African intellectual property rights, facilitating
    intra-African investment, and addressing anti-competitive challenges.

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9. What institutional arrangements are needed for the effective
implementation of AfCFTA?

  • Responsibility for coordinating the implementation of AfCFTA agreement
    will be with AfCFTA secretariat, which will form an autonomous institutional
    body within the African Union system with an independent legal personality,
    akin to an agency of the African Union. It shall work closely with the African
    Union Commission and its departments and the Commission shall provide the
    necessary transitional support until AfCFTA secretariat is fully operational. The
    funds of the secretariat shall come from the overall budget of the African Union,
    and its headquarters, structure, roles and responsibilities shall be determined by
    the Council of Ministers responsible for trade.
  • Complementary structures to AfCFTA will include the African Business Council,
    which will aggregate and articulate the views of the private sector, as well as a
    Trade Observatory, which will ensure effective monitoring and evaluation.
  • The Protocol on Rules and Procedures for Settlement of Disputes elaborates the
    institutional arrangements for the Dispute Settlement Body.
  • The regional economic communities (RECs) will remain important implementing
    partners and be represented in an AfCFTA Committee of Senior Trade Officials.
    Their role will include coordinating implementation and measures for resolving
    non-tariff barriers, harmonizing standards and monitoring implementation.
  • At the national level, it will be critical to have an AfCFTA strategy and dedicated
    institutional arrangements in place to carry out implementation and fully utilize
    the opportunities of AfCFTA.

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10. How can business shape the implementation of AfCFTA?
AfCFTA is a tool for private enterprise in Africa. It succeeds when it is leveraged by private businesses, traders and consumers to trade across the continent.

  • Awareness. Businesses need to be fully sensitized by government on the potential of AfCFTA. On this basis they can then establish new trade linkages or push their governments to negotiate for these opportunities if they are not already covered by the negotiated substance of the agreement.
  • Partnerships. Partnering with governments by business is essential to ensure and facilitate investment in the accompanying measures necessary to complement AfCFTA. This includes intra-African trade infrastructure as well as supplying trade finance, trade information and logistics services. Such provisions will help businesses recognize and realize the trading opportunities available through AfCFTA.
  • Private sector involvement. More active involvement of the private sector in terms of advocacy is required in order to ensure direct input into the AfCFTA negotiating institutions to ensure that AfCFTA is shaped to assist the business community to trade in Africa.

AfCFTA is an opportunity for development in Africa. But it must be wielded by private
enterprise. Through doing so, businesses can benefit from the great opportunities that
the continent has to offer, and contribute to its sustainable growth and development.

 

11. What next steps remain to bring AfCFTA agreement into effect?

  • State Parties must develop and submit schedules of concessions for trade in
    goods. These details, for each State Party or ā€“ as the case may be – customs union,
    the particular 90 per cent of products that are to be liberalized for each State
    Party, as well as the sensitive products that are to be liberalized over a longer
    time period and the excluded products that are to be temporarily exempted
    from liberalization.
  • A related complement to the schedules of concessions for trade in goods is the
    list of product-specific rules of origin which, alongside the general rules of origin,
    will enable the application of preferences under AfCFTA. The list of productspecific
    rules of origin is being developed as part of AfCFTA built-in agenda.
  • For trade in services, scheduling will call for a deep review of the regulatory
    framework of the identified sectors, in view of preparing, subsector by subsector,
    mode by mode, the initial market access offers, which will then be subject to
    negotiations.
  • AfCFTA will then enter into force after the deposition of the 22nd instrument of
    ratification with the Chairperson of the African Union Commission.
  • A conference of State Parties will meet to adopt the structure and organigram
    of AfCFTA secretariat, the staff rules and regulations, and the secretariat budget.
  • AfCFTA secretariat will be established in a host country to be decided and
    approved by the Assembly.
  • AfCFTA committees will then convene and begin facilitating the implementation
    of the agreement, including the provision of capacity-building to assist State
    Parties with domesticating implementation.

 

Compiled by the African Trade Policy Centre (ATPC)
of the Economic Commission for Africa (ECA)
in association with the African Union Commission


AfricaĀ IsĀ theĀ Future,Ā TheĀ FutureĀ IsĀ Africa.

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