The African Continental Free Trade Area will test the capacity for African leadership to build consensus in translating policy to practice, according to Dr Njeri Mwagiru, senior Futurist for Africa at the Institute for Futures Research.
The Institute for Futures (IFR) is a strategic foresight and advisory institute of Stellenbosch University.
While the African Continental Free Trade Area (AfCTFA) is geared to lower the costs and enhance the ease of doing business in Africa - the issue of migration, borders and customs will demand delicate negotiation and resolution, says Mwagiru.
"At social levels, while the slogan of one Africa is catching within the political economy, at community level issues of xenophobia, ethnic rivalry and anti-migrant sentiments continue to be rife.
"Social animosity tends to intersect with economic relations, and competitive rivalry between groups can hamper economic integration, with defensive stances interfering with conducive business interactions," she says.
That is why she feels the narrative of cooperation implied in AfCFTA will require deeper rooting within diverse social and economic relations. Furthermore, other critical limiting aspects, are the gaps in continental infrastructure - a key cornerstone of fluid systems of trade, according to Mwagiru.
Fin24 previously reported that the agreement to implement AfCFTA was only reached in July 2019, following Nigeria's decision to join. If it is fully implemented, 90% of tariffs should be be eliminated in five years. There could be a delay of up to 10 years for least-developed countries. Intra-African trade accounts for only 18% of total African trade. The UN Economic Commission for Africa estimates that AfCFTA's implementation could double intra-African trade by 2030.
Delegates at the World Economic Forum on Africa in September 2019 also heard that, when it comes to successfully implementing a free trade plan across Africa, it will take more than just having heads of state sign an agreement.
The first commitments to the agreement were already made by some African countries in March of 2018. At the time President Cyril Ramaphosa said the free trade plan would preset an opportunity to generate growth through trade.
"The potential for businesses, economies and societies to benefit from this emerging policy environment is exciting, and equally, the challenges remain stark," says Mwagiru.
"The road to combined prosperity heralded by this historical agreement, is riddled with policy potholes, probable political diversions, and operational blind spots that may present notable risks for the journey towards economic integration."
That is why she regards the AfCFTA as an ambitious initiative to unite African economic potential on a joint path towards prosperity, since the aim is to consolidate a market of over 1 billion people, across 55 African states, with a combined GDP of over US$2 tr.
"The next steps will involve among others, building the policy implementation frameworks, and institutionalising the norms, procedures, and rules of the continental free trade area," says Mwagiru.
"In loosening historical shackles that have tied African economies to benefitting imperialist relations, the AfCFTA is a commendable commitment of African states to boost intra-continental trade and African market growth."
At the same time, she points out that the wide spectrum of economic performance levels across African states is a further challenge on the free trade road, "with hints that more mature economies will have an advantage over those that are small and less diversified".
"The mapped road is riddled with challenges and is not straightforward or smooth. The unfolding steps will reveal whether opportunity can be translated into shared prosperity," says Mwagiru.
Andrew Skipper, head of Africa and Thomas Kendra, a partner at Hogan Lovells, regards AfCFTA as an ambitious project and say the existing picture is further complicated by a huge number of Bilateral Investment Treaties (BITs) between states, both intra-African and with third party states.
"While economic integration via bilateral and regional agreements is in many ways a sign of progress, observers have raised concerns regarding the fragmentation of the continent's trading system into exclusive blocs, especially in the context of relatively low intra regional trade," says Skipper.
"For this reason, the AfCFTA agreement is the next logical step in the continent's journey to economic integration. At this stage, the investment protection implications of the AfCFTA are unknown..."
Kendra said that, following in the footsteps of recent BITs and regional agreements, and in light of a prevailing trend towards balancing investor and state obligations, one could expect to see a compromise between encouraging investment by creating a stable legal and economic environment, while also reflecting member states' concerns regarding the impact of traditional investment protections.
It is also not yet clear whether one would see investor state dispute settlement in its traditional form of international arbitration, or another institutional setup – perhaps leaning towards African dispute resolution institutions.
* The 12th annual Africa Energy Indaba will be hosted on March 3 and 4, 2020 at the Cape Town International Convention Centre to facilitate networking for stakeholders in Africa’s energy arena, to deliberate the status of critical projects, identify lucrative investment and development opportunities and to establish how best to capitalise on those prospects as well as to share industry best practice.
According to Liz Hart, managing director of the Africa Energy Indaba, developing renewable energy resources to address the demand for energy in Africa, will be in the spotlight. The conference will discuss the AfCFTA and how investors and energy project developers can benefit from the agreement and how this can catalyse the development of renewable energy projects.