Trade Investment | |
Trade Investment | |
1136 VIEWS | |
![]() | |
PROSHARE | |
PROSHARE |
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.
Related to AfCFTA
Related News - Trade Investment