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AfCFTA Agreement: Hitting the Coronavirus Bumps?

Trade Investment	1803 VIEWS
Trade Investment
1803 VIEWS

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Tuesday, April 21, 2020 / 12:31 PM / By CSL Research / Header Image Credit: Reuters

In March 2018, Africa reached a landmark agreement to create a free trade area in Africa. This was done through the signing of the African Continental Free Trade Agreement (AfCFTA) which was later ratified in May 2019. Meanwhile, Nigeria joined the pact on July 7, 2019 after initially pulling out of the agreement. Subsequently, 54 of all 55 African countries signed the pact with Eritea now indicating willingness to sign after resolving its dispute with Ethiopia. Notably, the agreement which entered its operational phase on July 7, 2019 was expected to kick start in July 2020 following completion of negotiations on the last phase 1 negotiation item- schedule of tariff concessions and phase 2 negotiations on protocols for competition, intellectual property and investment.

Unfortunately, the coronavirus pandemic has introduced significant level of uncertainty on the implementation of the agreement. Phase 2 negotiations started in February 2019 and was expected to be completed by 2020 after which implementation would commence. However, with 52 out of the 54 member countries in the agreement battling the coronavirus pandemic, negotiations have been implicitly placed on hold. As of now, no official statement has been made by the African Union (AU) as to whether full implementation will commence in 2020.

At the recently concluded Spring meetings of the International Monetary Fund (IMF) and World Bank, the Managing Director of IMF, Kristalina Georgieva restated the importance of the landmark AfCTA deal to recovery in Africa post coronavirus. This informs our view that should the implementation of the agreement be deferred due to critical negotiations not concluded, it would be to the detriment of the continent. While we note industrialization in Africa remains weak relative to other continents, the agreement was expected to open up trade channels and facilitate cross-border investment in industrial capacity given access to a large African market.

For Nigeria, the deal was expected to open up the African market for key manufacturing companies in the country to support export sales while attracting new capital for increased capacity. Delay in implementation implies these benefits may not materialise at least in the short term. That said, we continue to reiterate that Nigeria does not sit in a strong position to benefit from the agreement. Apart from crude oil, Nigeria lacks any major product to offer the African market. Key infrastructure such as power, transportation, strorage systems etc. needed for industrial revolution also remain largely underdeveloped.

There is a dim hope for a possible implementation of the agreement in H2-2020, if the virus is contained in H1 2020. The IMF has stated it would leave no stone unturned in ensuring the AfCTA deal is implemented as it plans consultations with the AU and other leaders of the continent.