The dream that every African country would join to create an AfCFTA trade bloc took a step further towards reality in May, when the ECA convened a high-level meeting in Addis Ababa to mobilise finance ministers and policy makers to discuss the nuts and bolts and create the measures necessary to form the market by 2020. Report by Antony Shaw.
This year’s UN Economic Commission for Africa’s Conference of Ministers took place against the backdrop of the historic signing of the African Continental Free Trade Area (AfCFTA) agreement by 44 countries in Kigali, Rwanda, earlier this year.
Countries are now required to ratify and implement the legal instruments of the agreement that would create a trade bloc with a combined gross domestic product of more than $3trn, together with an additional 300,000 direct and two million indirect jobs, according to the African Union.
The AfCFTA is one of the flagship projects of the AU Agenda 2063 – a strategic framework adopted in 2015 for the socio-economic transformation of the continent over the next 50 years.
The necessity for this ambitious plan to be a driving force for sustainable and equitable development across the continent was underlined by Dr Abiy Ahmed, the Prime Minister of Ethiopia, who urged the assembled finance ministers and policy makers to use their “collective vision” to create the right conditions and commit the necessary resources for the creation of the world’s largest trading bloc, with 1.2bn people.
The Prime Minister, who stated that his government is ready to ratify the AfCFTA and deposit its instruments to the AU, said: “There are no losers with the AfCFTA. We are all winners.” He also stated it must create “inclusive prosperity” for all Africans, including marginalised and vulnerable communities.
Vera Songwe, the Executive Secretary for the ECA, reflecting on the theme of the meeting – ‘The African Continental Free Trade Area: Creating fiscal space for jobs and economic diversification’ – emphasised the wide-ranging measures required to fully unlock the potential of the AfCFTA: “We need to improve our levels of fiscal space. This includes boosting tax revenues, improving the efficiency of public expenditure management, tackling illicit financial flows and making use of private finance for public projects.”
The conference, which included a programme of ministerial debates together with expert briefings, aimed to offer a clearer vision for the trade bloc. Special focus was given to how it would become a catalyst for economic growth and investment, especially in relation to offsetting short-term tax base reductions in the new trading environment.
A ministerial statement summarising the meeting highlighted that only a small component of government revenue, accounted on average for 15% of the total tax revenue in Africa, according to the African Tax Administration Forum in 2017.
Gains for large and small countries
David Luke, Coordinator at the African Trade Policy Centre, said: “The AfCFTA is an idea whose time has come”, for both larger, industrialised nations that would immediately capitalise on a ‘ready market’, together with smaller states that would enjoy more export opportunities as non-tariff border issues were addressed.
Regulatory convergence, with the mutual recognition of standards and licences, is also expected to improve the trading environment. Furthermore, Luke expected that existing free trade arrangements through blocs like SADC would be deepened thanks to measures such as improved transit co-operation, which would also make it easier for landlocked states to access ports.
SMEs, which often struggle to penetrate markets out of Africa, would find it easier to access neighbouring states through supply chains. The export of leather from Botswana to South Africa was offered as an example of such trade.
This optimistic outlook was reinforced by Philip Lane, Ireland’s Central Bank Governor, who drew upon his country’s experience within the European Union trading bloc to explain how such structures can offer economies sustained growth. The Central Bank Governor argued: “A large export base provides stability, the diversification of markets and economic transformation.”
He went on to say that this helps states become more resilient to economic shock and attracts more FDI; he also stressed the gains from importing intermediate or capital goods to assist exporting businesses. According to the ECA, the creation of a common market could increase intra-African trade from 16% presently to more than 52% by 2022.
Eswar Prasad, the Tolani Senior Professor of Trade Policy at Cornell University, also appealed for a deeper understanding of the AfCFTA so that it is not confined to trade integration but also incorporates financial and regulatory integration. He explained, “Think about trade as one part of a broader economic integration. Openness to trade can be a catalyst but macro-economic and structural policies are needed.”
Role of private sector
Amb. Kwesi Quartey, the African Union Commission (AUC) Deputy Chairperson, added his voice to the many calls for trans-boundary infrastructure investment to complete many unfinished projects across the proposed trade bloc: “Seeking to travel from one African country to another can be an ordeal. We must scale up infrastructure investment to improve connections between and within African countries.”
The private sector, acknowledged by the meeting as playing a pivotal role in creating the bloc, offered a particular solution to railway investment through the Luxembourg Protocol, which enables new and cheaper resources from the private sector to support investment in rail projects.
Howard Rosen, Chairman of the Rail Working Group, highlighted how rolling stock has a key role to play in economic integration: “Free trade needs distribution and the roads cannot cope. And it’s too expensive.” He gave the example of Rwanda, where it currently costs $4900 to move a 20-foot container from Kigali to the coast, compared with the sub-Saharan average of $2504.
The launch of the Single African Air Transport Market in January 2018 was seen by the meeting as an indicator of how pan-African co-operation can yield practical results.
Dr Thomas Munthali, Director of Knowledge and Learning at the African Capacity Building Foundation, raised the ‘alarm’ in relation to the frequency of African countries ratifying but then failing to implement ambitious plans like the AfCFTA.
Research by his foundation had discovered that out of the 51 treaties signed by the AU between 2002 and 2018, only a third had been ratified while 19 had taken five years to reach that stage.
According to Dr Munthali: “Developing capacity for the AfCFTA must be seen in its interrelated and interlocking human, institutional and infrastructural dimensions at national, regional and continental levels.”
Ken Ofori-Atta, Ghana’s Minister of Finance, endorsed this sentiment and observed that by 2050 the continent would represent a quarter of the world’s “human potential”. He envisioned an “Africa beyond aid” through economic transformation and declared: “A continental free trade agreement will bring us closer to leveraging our resources and creating a more prosperous society.”
Protocols relating to investment, competition policy and intellectual property will be agreed during the next phase of the negotiations. The landmark agreement will enter into force after it is ratified by 22 nations. Rwanda, Niger, Ghana and Kenya have already approved it, and the second phase of negotiations will commence in September. Meanwhile, the ECA, together with the AU Commission and other supporters, continues to be actively engaged in advocacy regarding the five non-signatories to the agreement.