What Are the Implications of the African Free Trade Agreement?

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SEATTLE — Forty-four African heads of state met on March 21 in Kigali, Rwanda to discuss the African Continental Free Trade Area (AfCFTA). If enacted by all 55 African nations, it will be one of the largest free trade areas in the world, encompassing 1.2 billion people and over $4 trillion in spending.

While this is an exciting prospect for Africans and investors alike, there are still a lot of questions to be answered: what are the minutiae; what is the likelihood of the African free trade agreement coming to fruition; and if implemented, what can people expect for the long-term?

What Is the African Free Trade Agreement?

The agreement may seem sudden, but discussions started in 2012, with eight negotiations between 2015 and 2017. Despite frequent talks, the details of the African free trade agreement are simple. Africa will become a single economic market and a customs union that will allow the free movement of business travelers and capital.

The African Union hopes this deal will simplify much of the bureaucracy created by numerous regional trade agreements like the East African Community (EAC) or the Economic Community of West African States (ECOWAS) that lead to an inefficient system.

South Africa and Nigeria’s Apprehensions

The prospect of improving their economic situation excites most countries. However, Africa’s two largest economies, Nigeria and South Africa, have publicly undermined the African free trade agreement.

The two nations wield considerable power in the continent, so their support is crucial to the AfCFTA’s success. South African President Cyril Rhamaphosa tweeted his support for the deal but did not attend the talks in Rwanda, and South Africa did not sign the agreement in March.

Nigeria also was positive about the AfCFTA. In fact, the first discussions of a unified African economic community took place in the Nigerian capital, Abuja, in 1991, leading trade experts to call the AfCFTA the Abuja roadmap. Still, President Muhammadu Buhari was conspicuously absent from the conference, with local reports stating this was because private sector organizations voiced concerns shortly before the Rwanda conference.

Despite deflections, Nigeria’s intentions may be transparent. It has long been a benefactor of South Africa’s exports. Simultaneously, Nigeria strongly opposed Morocco’s bid to join ECOWAS, citing potential detriment to local businesses back home. These decisions seem to imply that Nigeria and South Africa’s primary concerns lie in maintaining their status and are using their power to yield more favorable terms in later negotiations.

Implications for the Continent

Trade experts resolutely disagree with South Africa and Nigeria’s decision. They believe that the agreement will benefit all nations involved, and more prosperous countries actually stand to gain even more. The head of the United Nations Economic Commission for Africa, Carlos Lopes, stated his belief that Nigeria will come around and that it squandered a historic opportunity by not signing.

Not everyone shares this optimism, however. Critics are skeptical because 11 nations did not join and because the countries have yet to agree on which goods and services tariffs will remain. These same critics question the desire of the countries to make the tough decisions necessary to determine what goods and services will be tariff-free.

The Council on Foreign Relations notes that the African Union has a precedent for making lofty plans and not following through. Much of this is due to infrastructure issues that run rampant throughout the continent, leading to a lack of confidence in regional governments’ abilities to enforce such a deal.

Africa suffers from a general mistrust of civil servants, and due to financiers’ demands and an inability to plan long-term, many local public servants receive their positions from nepotistic sources, only furthering the doubt critics believe will keep the AfCFTA from getting off the ground.

Potential Going Forward

Enthusiasm has been muted, but with 22 countries already enacting the treaty, there is reason to be optimistic about the potential of an African free trade agreement.

The African Union’s most apparent goal is the increase in intra-African trade throughout the entire continent, as opposed to the RECs that slow commerce. The U.N. Economic Commission on Africa believes that intra-African trade will increase by as much as 52.3 percent under the AfCFTA and possibly double with the removal of trade barriers on the final 10 percent of sensitive goods and services.

There are still questions about the distribution of this newfound wealth. According to the Brookings Institute, the increase in trade will lead to a more competitive manufacturing sector that will trigger job growth. Considering that 70 percent of Africans live on less than $2 a day, this job growth could go a long way towards alleviating poverty in the continent.

Coupled with this potential for poverty relief is the possibility that by 2030, Africa’s consumer market could reach $2.5 trillion, with business-to-business consumption approaching $4.2 trillion. As a result, nations like Egypt, South Africa and Kenya, which already have extensive manufacturing infrastructures, will see benefits the soonest.

Many caveats remain. Frameworks on critical issues such as competition, dispute resolution, regulation and resolutions on the exact items that will be exempt from tariffs still need determination. Nevertheless, the results could be as extensive as a single currency within the free trade area.

Evidence suggests that optimists should not get ahead of themselves, as not every country has subscribed yet. But the progress towards unlocking Africa’s economic potential, establishing unprecedented intra-continental cooperation and unburdening individuals and nations that endure some of the highest rates of poverty in the world is something to look forward to.

– David Jaques

Photo: Flickr

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