After years of careful negotiations, the Agreement on the African Continental Free Trade Area (AfCFTA) entered into force on May 30th. Yet major obstacles remain as African leaders iron out intergovernmental agreement legislation and build the infrastructure needed to grow regional trade.
The first phase of Africa’s continent-wide free trade agreement, which 44 African countries signed in Rwanda in March 2018, was finally concluded last week.
The agreement, which aims to expand regional trade by 54% by reducing tariffs to 90% of goods traded on the continent to zero, will now enter the implementation phase at an upcoming African Union conference in July.
One of the architects of the agreement, Carlos Lopes, described May 30 as “potentially the most important step towards regional integration in Africa since the end of colonialism”.
Today, May 30, 2019, the #AfCFTA comes into force. Possibly the most important step towards regional integration in Africa since the end of colonialism. Not less. pic.twitter.com/LRca6E3xwL
– Carlos Lopes (@LopesInsights) May 29, 2019
However, it could take at least three years to fully implement the deal as heads of state and government adapt legislation in their individual countries to new intergovernmental agreements, Lopes said in a recent interview with the Financial Times.
the next steps
In the second phase of the agreement, which is to be initiated at the summit of the African Union on July 7, 2019, the internal market will be fully functional.
At this stage, Member States also negotiate protocols on cooperation in the fields of competition, intellectual property rights and investment.
While protocols on trade in goods, services and dispute resolution were negotiated in the first phase, Trudi Hartzenberg, Executive Director of the African Trade Law Center (Tralac) and Gerhard Erasmus, founder of Tralac and professor emeritus (Faculty of Law) at Stellenbosch University wrote in a recently published article Items.
“The last three protocols will be finalized in the second phase, negotiations on which will begin soon,” they said.
Enable regional trade
While the AfCFTA offers an ambitious vision of intra-African free trade, proponents say it requires billions in cross-border infrastructure investments to become a reality.
From shabby roads to non-existent power grids to patchy flight connections, many countries are ill-equipped to facilitate trade flows even if governments remove tariffs and legal barriers.
In order to make such important infrastructure investments and to exploit the full potential of the AfCFTA, the African Development Bank (AFDB) has launched a new regional integration strategy by 2025.
Khaled Sherif, vice president of regional development, integration and business conduct at AFDB, says the new strategy will set ambitious, measurable goals to strengthen infrastructure and enable countries to integrate across borders.
“I think it’s a lot more specific than ever. We are trying to facilitate the construction of 9000 km of cross-border transmission lines, to improve the construction or to rehabilitate around 16,400 km of cross-border roads, to support the construction of railway lines and transport corridors, to improve transport connections whenever possible and to make use of investments in infrastructure one possibility To establish market links.
“Our main purpose is to help all of our countries to improve the level of trade and investment among themselves to create an economic zone very similar to the blocs in North America, Europe and Asia.”
The ambitious and far-reaching strategy is to increase air travel to 13.5 million passengers, support ICT projects to increase African internet connectivity to 30% and ensure that financial services account for more than 5% of Africa’s GDP. These are all goals that the strategy aims to achieve by 2025.
According to the AFDB, achieving these goals will increase intra-African trade to between 20% and 23% of all goods traded by 2025.
But how realistic are the goals given the major challenges?
According to Sherif, a wise focus on improving basic infrastructure is critical to realizing the other benefits.
According to 2016 data, Africa has only 204 km of roads per 1,000 km², of which only a quarter is paved, compared to the global average of 944 km per 1,000 km², more than half of which are paved.
Without major advances in transport and electricity, large investors should not be induced to support more complex projects.
“Of course we have to find a way to make it easier to build road networks so that goods can move freely.
“The same would be true of transmission lines – there are countries that have an abundance of energy and others that are still in the dark.
“You won’t get a lot of cross-border or regional investment if you don’t have roads or electricity.”
Sherif says the AFDB will target infrastructure projects that enable trade to lower the continent’s huge food import bill – valued at around $ 35 billion a year.
“Our strategy this time around is to be very specific about which parts of the continent are worth investing in immediately to reduce Africa’s food imports by creating corridors for the continent to feed itself,” he says.
“Part of our regional integration strategy is to effectively create a business environment in which investors are empowered to invest through various vehicles, make long-term investments and work with governments.
“To achieve this, every government needs a PPP law, every country has to be uniform in the way it works with the private sector, it has to allow repatriation like its neighbors do.
“This legal framework is now beginning to shape to allow the kind of investments you are talking about.”
While progress has been made, some countries such as Nigeria and Morocco still need to be persuaded of greater regional integration.
Nigeria, Africa’s largest economy, remains an AfCFTA pillar under the protectionist presidency of Muhammadu Buhari, who introduced import controls during his tenure. But Sherif believes Nigeria will be won at some point when the financial gains become apparent.
“The whole goal is to make sure that AfCFTA becomes something that everyone can ratify.
It is also only a matter of time before another major regional player, Morocco, ratifies the free trade agreement, Zouhair Chorfi, Morocco’s secretary general of the Ministry of Economy and Finance, recently told African Business.
“The AfCFTA has passed, but the government must take action and parliament cannot enforce the hand of the legislature.
“Morocco has a role to play in enforcing the AfCFTA, but there won’t be much of a difference as 70% of Moroccan trade in Africa is currently through free trade agreements and is therefore already duty-free,” he said.