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AfCFTA Take-off Date Suffers Setback

Trade Investment	2291 VIEWS
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Monday, May 04, 2020 / 10:44 AM / by CSL Research / Header Image Credit: Businesslive

According to local media reports, the newly elected Secretary-General of the African Continental Free Trade Agreement (AfCFTA) secretariat, Wamkele Mene, revealed that the implementation of AfCFTA agreement will not begin on July 1st 2020 as planned due to disruptions caused by the global pandemic. We recall the agreement which entered its operational phase on July 7, 2019 was expected to kick start in July 2020, following the ratification by 54 of all 55 African countries. It was also reported that the AU summit which was scheduled to hold in South Africa on 30th May to encourage trade negotiators to complete their bargaining on tariff reductions, rules of origin and other necessary regulations has been postponed.

The AfCFTA agreement, which is aimed at removing trade barriers and in turn boosting intra-Africa trade, was brokered by African Union (AU) and signed on by 44 of its 55 member states in Kigali, Rwanda on March 21, 2018. President Muhammadu Buhari, in July 2019, after initially withdrawing assent, signed the agreement at the 12th Extraordinary Session of the Assembly of the African Union in Niger Republic.

The agreement requires members to remove tariffs from 90% of goods traded, allowing free access to commodities, goods, and services across the continent. According to International Monetary Fund (IMF), the elimination of tariffs could boost trade in Africa by 15-25% in the medium term. Once operational, the agreement is expected to create a US$3.4 trillion economic bloc, connecting 1.3 billion people across Africa, which would make it the largest trading bloc since the World Trade Organization was formed in 1994.

Specifically for Nigeria, the agreement was expected to open up the African market for key manufacturing companies in the country to support export sales whilst also raising the prospects of attracting foreign direct investment across the value chain and different compartments in the manufacturing sector. Although, the delay in implementation implies these benefits will not be seen in the short to medium term, we think it gives the country ample time to accelerate investment in critical infrastructure that will reduce the cost of producing goods locally and improve the competitiveness of local manufacturers. In our view, African countries with the requisite infrastructure neeeded for large scale manufacturing activities will be better placed to attract foreign capital from multinational companies who are seeking to establish manufacturing hubs in to Africa to take advantage of economies of scale as well as the benefit associated with the absence of regional taxes made possible by AfCFTA.