Wednesday, December 23, 2020 / 10:02 AM / by FBNQuest Research / Header Image Credit: Bitcoin KE
The signature of the African Continental Free Trade Area (AfCFTA) Agreement by 54 African Union member states provides an anchor for long-term reforms and integration. The AfCFTA creates the largest free trade area globally measured by the participation of 1.3 billion people across its member states of the African Union with a combined Gross Domestic Product (GDP) valued at USD3.4trn. According to the World Bank, AfCFTA is estimated to lift 30 million people out of extreme poverty and 68 million people out of moderate poverty by 2030. Real income gains from full implementation of the agreement could increase the size of the African economy by 7% (or USD450bn).
As at last week, 54 countries had signed the agreement while 34 countries had deposited their instrument of ratification. Furthermore, 41 countries captured across different custom unions have submitted their tariff offers, including Nigeria. The tariff offer(s) is an indication from a custom union of its preference on what the member states would like to liberalize.
We attended a virtual briefing geared towards the AfCFTA this month. During the briefing, Francis Anatogu, the secretary, National Action Committee on the AfCFTA disclosed that in terms of competitiveness, sectors such as financial services, entertainment and digital technology are already well positioned to thrive under the AfCFTA.
However, businesses within these sectors must invest in extensive market research before penetrating any market across the free trade area.
Tola Onayemi, an international trade and investment lawyer with Nigeria's Office of Trade Negotiation, shed light on recent key developments regarding the AfCFTA. They include: an ongoing conversation between AfCFTA and Afreximbank to develop a Pan-African payment settlement system to solve currency differences and an on-going conversation with Zenith Bank to develop a trade portal.
In addition, the AfCFTA is negotiating with Standard Bank to offer USD1bn trade facility to SMEs and there is a provision for an initiative tagged Afrochampions, aimed at providing a trillion dollar investment framework to AfCFTA enabling projects.
On the back of the ongoing pandemic, there are plans to fast-track a digital trade and e-commerce platform. Prior to the pandemic, digitising trade was not included in the first and second phase on the AfCFTA implementation.
With respect to the idea of free movement, though it is exciting, security threats exist. National security is still a major issue for Nigeria. According to H.K. Gummi, Assistant Comptroller General on Trade and Tariff at Nigeria Customs Service, there are arrangements to deploy drones across borders that will monitor both movement of people and goods. He also mentioned that there are plans to station vehicles with equipped security cameras across borders.
The AfCFTA is expected to boost African trade, particularly intraregional trade in manufacturing. Based on an analysis carried out by the IMF, by 2035 the volume of intracontinental exports is expected to increase by an average of c.81%.
Unlocking the full potential of this trade agreement will depend on significant policy reforms, strong political-will and trade facilitation measures.