The African Continental Free Trade Agreement, signed by 44 African countries in Kigali, Rwanda, in March 2018, promises to be a game changer for future trade and development on the continent.
Although the agreement has the potential to become the precursor of a unifying economic vision for Africa, challenges remain, and effective implementation will be crucial for success.
The agreement is meant to create a tariff-free continent that can grow local businesses, boost intra-African trade, encourage industrialisation and create jobs, while creating a single continental market for goods and services. Countries joining the agreement must commit to removing tariffs on at least 90% of the goods they produce as well as establishing a customs union with free movement of capital and business travellers.
Implications for African trade
Ronak Gopaldas, director at Signal Risk told a Gordon Institute of Business Science forum that the agreement is significant because of its potential size and scale: If all 55 African countries join the free trade area, it will be the world’s largest by number of countries, covering more than 1.2 billion people with a combined GDP of $2.5 trillion (about R36 trillion).
“It is an African solution to an African problem and would dramatically lower the cost of doing business in Africa and improve the ease of doing business on the continent. The agreement is also significant because it comes at a time when the benefits of global trade are being contested,” he added.
Researcher at the South African Institute of International Affairs, Asmita Parshotam, said the agreement was a “massive show of political will, the extent of which has not been seen previously”.
The African Continental Free Trade Agreement would bring African countries together to create a framework for an agreement, and a support structure for business.
“It is important to see the implementation of the agreement against measures of international protectionism and continued uncertainty for global trade. African countries can compete globally, integrate into value chains and participate,” she said.
Head of coverage for Africa at Rand Merchant Bank, Tshepidi Moremong, took a more cynical view of the agreement: “As a continent, we always have grandiose plans, whereas the regional trading blocs have been more successful than we give them credit for.”
Moremong said the continental free trade agreement was an “aspirational plan, agreed to by technocrats and policy makers. Doing business in Africa is difficult because basic infrastructure such as roads are often still lacking in many countries. It takes more than creating agreements,” she added.
Parshotam conceded the agreement was an incomplete vision, which had the potential for good, but that “not everyone is going to be a winner”.
Issues that required resolution before the agreement could reach the implementation phase included labour consensus, including the free movement of people, and rules of product origin, which need to be finalised.
President of Olam International, Ramesh Moochikal, said African entrepreneurs and small and medium enterprises with ambition could use the agreement to their advantage: “There is no need to think Pan African all the time. Small businesses will be able to step across the border of one or two countries and expand their markets.”
Moremong said the main beneficiaries of the agreement in its current form would be Africa’s more diversified economies, especially those that are manufacturing based.
Land-locked countries would also benefit, as would those driving technology, because it was easier to move across borders.
Moochikal pointed out that Nigeria, the only country to have engaged in consultation with its business sector, had chosen not to sign up to the agreement. The panel was in agreement that the African Continental Free Trade Agreement was unlikely to be credible without Nigeria’s involvement, but Parshotam said this presented an opportunity for a second tier of political leadership to emerge. The opinions of the regional economic powerhouses of South Africa, Kenya and Nigeria usually dominated trade discussions, she explained, and there was an opportunity for countries such as Rwanda, Egypt, Ethiopia and Ghana to come to the fore.
Towards a unifying economic vision for Africa
Partner at Brunswick Group South Africa, Itumeleng Mahabane said the number of African countries ratifying the agreement is encouraging, but that there is a lot of work remaining. He argued that a unifying economic narrative or shared vision of Africa’s future is needed to “bring people on board and encourage them to remain on board when things get difficult.”
“We see the low trade numbers and we see the opportunities. However, we don’t have a vision of shared imperatives which will continue the momentum,” he added.
Africa had to create 30 million jobs every year for the next 30 years if the continent was to avoid a youth crisis, Mahabane said.
“Our demographic opportunity is more of a threat and special interests will stand in the way if we haven’t identified shared imperatives which can in turn be transformed into narratives for people to see the benefits of cooperation.”
Mahabane explained that the driver of successful regional agreements such as the European Union and the Asia-Pacific Trade Agreement had often been regional peace and security, which had then promoted economic integration through trade.
“It is important to remember that these agreements have evolved over years and even decades into harmonised consensus. We mustn’t be unrealistic but must begin by creating a framework to start negotiations.”
Africa was full of entrepreneurial energy and success stories, Moochikal concluded.
“A shared vision that leadership must believe in and sell will determine whether the agreement succeeds or not,” he said.