“There is a need for a different kind of Pan-Africanism, an economic Pan-Africanism. Economics is what is going to make Africa truly one of the great continents of the world”, United Nations Economic Commission for Africa (UNECA) Executive Secretary Vera Songwe said at the #2018COM. #AfCFTA event in Addis Ababa, Ethiopia. Assistant Editor NDUKA CHIEJINA examines the issues promoting the Africa Continental Free Trade Area (AfCFTA) and the push for its ratification with Nigeria leading some strong countries against the immediate ratification of the AfCFTA.
THE quiet economic storm brewing in Africa has unsettled some heavy weights on the continent who are uncomfortable about the development.
It all started at the 18th Extraordinary Session of the African Union (AU) Summit in Kigali in March, where 44 countries signed the AfCFTA agreement.
Fifty countries signed either the agreement or the Kigali declaration, underscoring their commitment to the agreement targeted at doubling intra-African trade by removing non-tariff and tariff barriers on goods and services.
Twenty-seven countries also signed the separate AU Protocol on Free Movement of People to complement the AfCFTA with the provision of visa-free travel, the right of residency and the right of business or professional establishment, for citizens of the member nations.
AfCFTA is the culmination of a vision seen about 40 years ago in the Lagos plan of action. It was adopted in 1980 for a continent-wide market.
What is required of the countries is the ratification and implementation of the legal instruments of the agreement that would create a trade bloc with a combined gross domestic product of more than $3 trillion with an additional 300,000 direct and two million indirect jobs, according to the AU.
The conference of Ministers of Finance and Trade organised by UNECA in Addis Ababa, Ethiopia, was to discuss ‘real’ issues affecting the continent. At the heart of the debates was the AfCFTA.
There was a consensus that AfCFTA’s success would be determined by a concerted and common approach to advance trade facilitation. The ministers also recognised the central role of the private sector in pushing forward the AfCFTA project.
The finance ministers and policy makers from across the continent reaffirmed their commitment to the AfCFTA at the close of the high-level meeting on May 15. They agreed that governments must make policies and investments necessary to capture the economic benefits of the proposed trading bloc.
A ministerial statement from the 51st Session of the Council of Ministers recognised the potential of the AfCTA to advance industrialisation, economic diversification and development to foster prosperity for all.
It, however, acknowledged the challenges, including concerns over the impact upon the tax base, arising from a single continental market for goods and services.
But it was agreed: “The short-term impact is likely to be minimal and will be outweighed in the medium and long term by the positive impacts of revenue from other sources of taxes.”
These new sources would arise from economic growth and diversification from trading in a bloc of 1.2 billion consumers.
“Simplified trade regimes for informal cross-border traders and upgrading trans-boundary infrastructure to assist firms keen to penetrate the new markets opened up by the agreement,” the ministers said.
It would also be essential for businesses to partner with governments to develop innovative financing solutions to tackle health, education, infrastructure and environmental challenges that could hold back Africa from effectively operating and benefitting from the bold economic plan.
Dr. Robert Nantchouang, Senior Knowledge Management Expert from the African Capacity Building Foundation, noted: “It was a timely and opportune moment for African countries to gather around a common issue that was embraced by all participants.”
ECA’s Executive Secretary Vera Songwe reaffirmed the commitment of her organisation to support the push for economic integration through its convening, thought process and operational functions.
She recognised the preeminent role of human and institutional capacity building that would enable the AfCFTA to meet many of the continent’s development needs.
The ECA chief said: “Africa is waiting. Our challenges are huge, but we are on the way to solving them through the AfCFTA.”
Capacity building
Following the historic signing of the AfCFTA in Kigali, Rwanda, in March, the African Capacity Building Foundation (ACBF) called on nations to bolster their capacities in readiness for the implementation of the ambitious plan.
Speaking at a panel event during the UNECA’s 51st Conference of Ministers, in Addis Ababa, Ethiopia, ACBF Executive Secretary Prof Emmanuel Nnadozie underscored the importance of enhancing skills necessary for the actualisation of AfCFTA.
He explained “Capacity is central and is the very heart of implementing, actualising and maximizing the AfCFTA. The agreement is a game changer if it is properly implemented.”
According to models and scenarios presented by the ECA, the continent will become the world’s largest trade bloc with a market of 1.2 billion people.
During conference, Albert Muchanga, the AU’s Trade & Industry Commissioner, asked ACBF to assist his organisation in designing a model that would make member countries unlock significant revenue following the removal of obstacles to intra-African commerce.
“Through cross-border trade within our continent, the AfCFTA stands to unlock some $60 billion if it is implemented well,”Muchanga said.
David Luke, Head of ECA Africa Trade Policy Centre, argued that business between Africa’s 54 states would increase if the AfCFTA is implemented by all governments.
His words: “The AfCFTA has the potential to boost intra-African trade by more than 52 per cent through the elimination of import duties alone. We estimate that the benefits will double if combined with trade facilitation measures to further reduce non-tariff barriers.”
Reiterating on the need to prioritise capacity enhancement and skills transfer, Prof Nnadozie said that it is imperative for Africa’s public sector to engage in continuous up-skilling to address the challenges posed by the agreement.
Nnadozie noted: “In Africa, we do very well when it comes to conceptualising, designing and even signing agreements and policies aimed at transforming our lifestyles.
“We, however, miss the mark when the actual work of implementing comes. This is where we are insisting that preparing African men and women for actualizing the AfCFTA strategycannot be overlooked.
“It is a cross cutting task that needs to be felt across the public and private sectors and even within the academia and civil society all the way to the grassroots.”
According to Zemedeneh Negatu, the Global Chairman of Fairfax Africa Fund LLC in the United States (U.S.), the involvement of the private sector with the incorporation of skill sets among diaspora Africans, should be utilised to give AfCFTA the much-needed public ‘buy-in’.
He explained: “The active participation of the private sector and Diaspora Africans are crucial in making AfCFTA a reality because they are a source of talent and can often possess the skills and hard-earned experience related to international trade matters.”
Cautioning on the need to ensure that nations comply with the plan’s implementation, Nnadozie said: “Capacity is at the centre of the problem and recommended that robust institutional arrangements, appropriate regulatory changes and private sector involvement would ensure the AfCFTA is implemented in an expeditious manner.
“So far, Ghana, Niger, Kenya and Rwanda have ratified the AfCFTA which was signed by 44 African states. The treaty needs to be ratified by 22 states to take effect.
AfCFTA as victory for Africa
Ethiopia’s Prime Minister Abiyi Ahmed urged the finance ministers and policy makers to use their ‘collective vision’ to create the right atmosphere and commit the necessary resources for the creation of the world’s largest trading bloc.
Dr. Ahmed, who pledged his government’s readiness to ratify the AfCFTA deal and deposit its instruments to the AU said: “Let us finance our own development. There are no losers with the AfCFTA. We are all winners.”
He also stated that the AfCFTA must create ‘inclusive prosperity’ for all Africans, including marginalised and vulnerable communities.
Talking on the AfCFTA theme: “Creating fiscal space for jobs and economic diversification”, the prime minister addressed specific concerns in relation to falling tax revenues arising from the free movement of goods. According to the ECA, however, the ratio of tax revenue to Gross Domestic Product (GDP) is already low in African countries.
He noted that the ratio for many of them falls below 15 per cent, widely considered the minimum threshold for a state to function efficiently.
Ireland’s Central Bank Governor Philip Lane drew upon his country’s experience within the European Union (EU) trading bloc to explain how such structures can offer economies sustained growth.
Addressing the opportunities arising from such a bloc, he remarked: “A large export base provides stability, diversification of markets and economic transformation through free trade. The resulting growth in prosperity leads to the tax base broadening, especially for small states whose ‘home market’ grows as cross-border trade expands to embrace other countries.”
Infrastructure and logistics
The importance of infrastructure and logistics for the AfCFTA was a major focus at the meeting. Songwe, emphasised the importance of ensuring that trading takes place in a ‘seamless’ way along the vital corridors of the continent.
“If we provide the infrastructure and border reforms necessary through the AfCFTA we can create jobs and growth,” she observed.
Breaking the barrier
For 40 years, Africa had been toying with the AfCFTA idea but the alleged manipulations by the western world which compromised some African countries from acceding to the agreement and the failure to be convinced of the benefits of international conventions and agreements on trade facilitation was identified as reason African countries are reluctant to sign, ratify or implement international conventions and agreements on trade facilitation, even at regional and sub-regional levels.
Speaking at the Seventh Joint Annual Meetings of the ECA Conference of African Ministers of Finance, Planning & Economic Development of the AU Conference of Ministers of Economy and Finance in Abuja, ECA’s Deputy Executive Secretary Dr. Abdalla Hamdok, noted that most African countries “have not undertaken any assessment of their potential impacts.”
To remedy this, he said that the ECA has been “working in close collaboration with the African Union Conference (AUC) to study the impact of introducing trade facilitation measures aimed at simplifying customs procedures and clearance times for intra-African trade in the context of the African Continental Free Trade Area (CFTA).”
Developments relating to trade facilitation measures for the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern Africa Development Community (SADC) Tripartite Free Trade Area (T-FTA), he said, have been very encouraging.
By strengthening transport corridors, he said the ECA “is spearheading the establishment of the Africa Corridor Management Alliance, which brings together major corridor management organizations in Africa.”
With regards to the Millenium Development Goals (MDGs), Hamdok said Africa has made progress on some of its key social development challenges but that such progress “is too tardy to meet its social development goals by 2015, including the targets embodied in the MDGs.
Hamdok said: “This is not for want of effort but rather the fact that our starting point was lower than that of many other parts of the world.”
He also stated that Africa’s natural resource wealth has been a major driver of the continent’s positive economic growth performance since the dawn of the century.
However, Africa’s low level of industrial development and carbon emission as well as its endowment of significant reserves of natural resources, offers the continent “a great opportunity to adopt green growth as an economic development model to reduce wasteful use of its natural resources, create wealth and employment for Africa’s growing youthful population, while reducing vulnerability to climate change impacts and socioeconomic risks.”
Hamdok said: “It has become imperative that the continent chart a new development path that is anchored on sustainable natural resource management, and that avoids over-reliance on traditional fossil-fuel based energy sources.”
Such an approach, he noted, requires early adaptation and adoption of requisite technologies to avoid a costly switch of production from existing plants.
In the area of agriculture, he lamented that Africa has around 600 million hectares of uncultivated arable land, roughly 60 per cent of the global total.
However, 80 per cent of Africa’s agriculture, he said, “is rain-fed, and outdated technologies continue to rob farmers of opportunities to overcome poverty for good, while Agricultural productivity can be leveraged by industrial policy, as an additional essential component of structural transformation in Africa.
“Africa needs to unlock the potential of smallholder agriculture in order to increase food production, achieve food security and reduce poverty while creating jobs on a large scale.”
Signing the AfCFTA was considered a giant stride forward for the development of Africa.
Ms. Songwe argued: “With the signature of the Kigali Declaration for the launch of the AfCFTA, Africa makes a giant stride forward in continental integration, in the pan-African vision, and in the development of our continent”.
Speaking at the signing in Kigali, Ms. Songwe noted: “This historical moment shows the resolve of African leaders to bring the continent’s diversity together and make the flagship project of the African Union Agenda 2063 a reality.”
She thanked all UN agencies for their support and said that the ECA was “honoured to be associated with this great and historic moment”.
AU Chairman and Rwanda’s President Paul Kagame recognised the preeminent role of the regional economic communities in fostering African integration.
In his remarks at the historical signing, attended by 19 heads of state and some prime ministers and foreign ministers, Moussa Faki Mahamat, Chairperson of the African Union Commission (AUC), thanked the ECA for its support during the more than two years of negotiations.
He said: “Africa is a sleeping giant that can’t wake up if the continent is divided. It’s time to accelerate the pace of integration, as international competition leaves no room for the weak.”
Mahamat called on member states to also sign the Protocol on the free movement of persons, enabling the creation of an African passport.
The ECA chief said the signing of AfCFTA marked the end of the first phase of its negotiations, insisting on the need for effective implementation.
The AfCFTA Country Business Index launched by the ECA at the summit will be one of the tools to keep track of implementation, through periodic surveys of business opinions on the real impact of the agreement on trade.
Ms. Songwe reaffirmed the necessity to leave no one behind, as defined in the SDGs, by making sure everyone benefits from the new opportunities created by the AfCFTA.
AfCFTA without Nigeria, others
With Nigeria and some economically-strong nations not endorsing the AfCFTA, the ECA has urged member states to promptly ratify the AfCFTA.
Forty-four countries excluding Nigeria and South Africa signed the AfCFTA, which aims at doubling intra-African trade by removing non-tariff and tariff barriers on goods and services.
The Federal Government, led by President Muhammadu Buhari, sited security challenges as its major reason for not signing the agreement.
President Buhari expressed fears that endorsing the policy might turn Nigeria to a dumping ground for goods.
Ms. Songwe, who made the appeal, reminded member countries that “the agreement will only enter into force once a sufficient number of countries have ratified the agreement.
“This historical moment shows the resolve of African leaders to bring the continent’s diversity together and make the flagship project of the African Union Agenda 2063 a reality.”
She added that the AfCFTA Country Business Index launched by the ECA during the summit “will be one of the tools to keep track of implementation, through periodic surveys of business opinions on the real impact of the agreement on trade.”
Ms. Songwe reaffirmed the necessity to leave no one behind, as defined in the SDGs, by making sure everyone benefits from the new opportunities created by the AfCFTA.
According to the ECA, among the key beneficiaries will be small and medium scale entreprises, accounting for 80 per cent of the region’s businesses; women, who represent 70 per cent of the informal cross-border traders; and the youth, who will be able to find new employment opportunities.
ECA estimates that AfCFTA has the potential 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.
Boost for policy
The African Export-Import Bank (Afreximbank) has offered to disburse about $25 billion dollars in support of intra-African trade during the five years ending in 2021 under an Intra-African Trade Strategy it launched in 2016 in anticipation of the AfCFTA.
Announcing the gesture in Kigali, the Rwandan capital of Rwanda, the bank’s President, Dr. Benedict Oramah, told heads of states and delegates who witnessed the signing that the strategy drew inspiration from the AU action plan for boosting intra-African trade and the action plan for accelerated industrial development in Africa.
He announced that, as part of the intra-African trade strategy, Afreximbank opened credit lines amounting to $800 million to 55 banks across Africa to facilitate the confirmation of Letters of Credit in support of intra-African trade.
The bank’s goal was to extend such lines to at least 500 banks in across the continent by 2021 as part of moves to significantly reduce the cost of intra-African trade finance and to counter the constraints posed by country risks.
“It sought to contribute to providing end-to-end and comprehensive solutions to smoothen the conduct of cross-border trade and investment activities across Africa.” Oramah said.
“Afreximbank is, therefore, prepared, willing and able to play its role to make sure that opportunities created by the history-making step taken by African leaders are fully realised,” the bank chief explained.
He added that the inaugural Intra-African Trade Fair, which the bank is packaging in collaboration with the AU in Cairo from December 11 to 17, would attract more than 1,000 exhibitors and bring in some 70,000 visitors.