After years of painstaking negotiations, the African Continental Free Trade Area (AfCFTA) agreement finally came into effect on May 30. Yet huge obstacles remain as African leaders iron out legislation on inter-state agreements and build the infrastructure needed to enable regional trade. In a major boost to the regional integration agenda, the first phase of the Africa’s continent-wide free trade agreement, signed by 44 African countries in Rwanda in March 2018, was finally completed last week.
The agreement, which plans to boost regional trade by 54% by cutting tariffs to zero on 90% of goods traded across the continent, will now enter the implementation phase at an upcoming African Union conference in July.
One of the agreement’s architects Carlos Lopes hailed May 30th as “Potentially the most important move towards Africa’s regional integration since the end of colonialism.” But the deal could take at least 3 years to be fully implemented as leaders fine tune legislation in their individual countries to reflect inter-state agreements, Lopes told the Financial Times in a recent interview.
The next steps
The second phase of the agreement is set to be launched at the Africa Union summit on 7 July 2019, the date set for the single market to officially become operational. This also signals the launch of phase 2 of the project where protocols in co-operation in competition, intellectual property rights and investment will be negotiated, experts say. During phase one negotiations of protocols on trade in goods, services and dispute settlements were concluded, Trudi Hartzenberg, the Executive Director Africa’s Trade Law Centre (tralac) and Gerhard Erasmus, founder of tralac and Professor Emeritus (Law Faculty), University of Stellenbosch wrote in a recent article. “The last three protocols will be concluded during phase two, the negotiations for which will kick off soon,” they said.
Enabling regional trade
Yet while the AfCFTA offers an ambitious vision of intra-African free trade, proponents say that Africa will require billions of dollars in cross border infrastructure investment to become a reality. From decrepit roads to non-existent power networks and patchy airline connections, many countries are ill-equipped to enable trade flows, even if governments tear down tariffs and legal barriers.
In a bid to crowd in such vital infrastructure investment and unlock the full potential of the AfCFTA, the African Development Bank (AFDB) has launched a new regional integration strategy until 2025. Khaled Sherif, vice president of regional development, integration and business delivery at the AFDB, says that the new strategy will set ambitious, measurable targets to boost infrastructure and allow countries to pursue cross-border integration. “I think its much more specific that it ever was. We’re trying to facilitate the construction of 9000km of cross-border transmission lines, enhance construction or rehabilitate about 16,400km of cross-border roads, support construction of rail lines and transport corridors, increase transport links wherever possible and use investments in infrastructure as a way of creating market linkages.
“Our main purpose is to help all of our countries enhance the level of trade and investment amongst each other to create an economic zone that is very much like the blocs that exist in North America, Europe and Asia.” The ambitious and wide-ranging strategy involves increasing air travel to 13.5m passengers, supporting ICT projects to increase African internet connectivity to 30% and ensuring that financial services are greater than 5% of African GDP. These are all objectives that the strategy aims to push through by 2025.
Reaching these targets will boost intra-African trade to between 20% and 23% of all traded merchandise by 2025, according to the AFDB. But given the huge challenges, how realistic are the goals? Sherif says that a shrewd focus on improving basic infrastructure is crucial to unlocking the other benefits. According to 2016 data, Africa has just 204km of roads per 1,000sq km of which only one quarter are paved, compared to the world average of 944km per 1,000sq km, of which more than half are paved. Without major progress on transport and electricity, major investors are unlikely to be persuaded to back more complex projects.
“Obviously we have to find a way of facilitating the construction of road networks to allow goods to move freely. “The same thing would apply to transmission lines – there are countries where there is an abundance of energy and others that are still in the dark. “You’re not going to get much cross border or regional investment if you don’t have roads or electricity.” Sherif says that the AFDB will target infrastructure projects which enable trade as a means to bringing down the continent’s vast food import bill – estimated at some $35bn annually.
“Our strategy this time is to be very specific as to what parts of the continent are worth investing in for immediate effect to try and bring down Africa’s food imports by creating corridors by which the continent can sustain itself,” he says. “Part of our regional integration strategy is to effectively create a business environment through which investors have the ability to go in, make long term investments and partner with governments through different vehicles. “To make that happen every government needs a PPP law, every country needs to be uniform in the way it interfaces with the private sector, it needs to allow repatriation in the way its neighbours do.
“That legal framework is now beginning to mould itself in a way that is going to allow the kinds of investments you’re talking about.” Indeed, while progress is evident, some countries such as Nigeria and Morocco still need to be persuaded of the case for greater regional integration. Nigeria, Africa’s largest economy, remains an AfCFTA holdout under the protectionist presidency of Muhammadu Buhari, who has imposed import controls during his time in office. But Sherif believes that Nigeria will eventually be won round.
“The whole objective is to make sure AfCFTA becomes something everyone ratifies. “The 22nd ratification happened in April, and the agreement will go into force in July. I actually am very optimistic that not only will that happen, but that there will be be a domino effect where you will see one country after another coming on board, especially when you begin to see the economic gains being made. “If Africa does not become a CFTA, if we don’t develop infrastructure to allow countries to trade among themselves, we’re forgoing all of the jobs for African youth by offshoring these jobs via import outside the continent.”
It’s also just a matter of time before another big regional player, Morocco ratifies the free-trade deal, Zouhair Chorfi, Morocco’s secretary general of the Ministry of Economy and Finance told African Business recently. “The AfCFTA has been adopted but it requires the government to take action, and the parliament can’t force the legislature’s hand. “Morocco does have a role to play in enforcing the AfCFTA, but there will not be a huge difference as currently 70% of Moroccan trade in Africa is through free-trade agreements, so it is already tariff free,” he said.