Sunday, January 03, 2021 04:33
PM / by African Trade Policy Centre/ Header Image Credit: AfCFTA
- How can the African Continental Free Trade Area provide business
opportunities that will enhance industrialization in Africa in line with
Agenda 2063: The Africa We Want?
- The African Continental Free
Trade Area (AfCFTA) will cover a market of 1.2 billion people and a
gross domestic product (GDP) of $2.5 trillion, across all 55 member States
of the African Union. In terms of numbers of participating countries,
AfCFTA will be the world's largest free trade area since the formation of
the World Trade Organization.
- It is also a highly dynamic
market. The population of Africa is projected to reach 2.5 billion by
2050, at which point it will comprise 26 per cent of what is projected to
be the world's working age population, with an economy that is estimated
to grow twice as rapidly as that of the developed world.
- With average tariffs of 6.1 per
cent, businesses currently face higher tariffs when they export within
Africa than when they export outside it. AfCFTA will progressively
eliminate tariffs on intra-African trade, making it easier for African
businesses to trade within the continent and cater to and benefit from the
growing African market.
- Consolidating this continent
into one trade area provides great opportunities for trading enterprises,
businesses and consumers across Africa and the chance to support
sustainable development in the world's least developed region. ECA
estimates that AfCFTA has the potential both to boost intra-African trade
by 52.3 per cent by eliminating import duties, and to double this
trade if non-tariff barriers are also reduced.
- Why does intra-African trade drive sustainable growth and jobs?
- Africa's industrial exports are
forecast to benefit most from AfCFTA. This is important for diversifying
Africa's trade and encouraging a move away from extractive commodities,
such as oil and minerals, which have traditionally accounted for most of
Africa's exports, towards a more balanced and sustainable export base.
Over 75 per cent of Africa's exports outside the continent were
extractives from 2012 to 2014, while less than 40 per cent of
intra-African trade were extractives in the same period.
- The great risk with products
like oil and minerals is their volatility. The fiscal and economic fate of
too many African countries relies on the vicissitudes of these product
prices. Using AfCFTA to pivot away from extractive exports will help to
secure more sustainable and inclusive trade that is less dependent on the
fluctuations of commodity prices.
- Perhaps most importantly,
AfCFTA will also produce more jobs for Africa's bulging youth population.
This is because extractive exports, on which Africa's trade is currently
based, are less labour-intensive than the manufactures and agricultural
goods that will benefit most from AfCFTA. By promoting more
labour-intensive trade, AfCFTA creates more employment.
- How does AfCFTA benefit small and medium-sized enterprises?
- Small and medium-sized
enterprises are key to growth in Africa. They account for around 80 per
cent of the region's businesses. These businesses usually struggle to
penetrate more advanced overseas markets, but are well positioned to tap
into regional export destinations and can use regional markets as stepping
stones for expanding into overseas markets at a later point.
- Another way in which small and
medium-sized enterprises can benefit is by AfCFTA making it easier to
supply inputs to larger regional companies, who then export. Before
exporting cars overseas, for example, large automobile manufacturers in
South Africa source inputs, including leather for seats from Botswana and
fabrics from Lesotho, under the preferential Southern African Customs
Union trading regime.
- What's in AfCFTA
for Afric's women?
- Analyses of
the impact of AfCFTA at the household level suggest that the effect
between male and female headed households is broadly quite balanced; both
gain by differing degrees in different countries. However, women in
particular can benefit from improvements to the challenges they face as
informal crossborder traders.
- Women are
estimated to account for around 70 per cent of informal crossborder
traders in Africa. When engaged in such an activity, women are
particularly vulnerable to harassment, violence, confiscation of goods and
even imprisonment. By reducing tariffs, AfCFTA makes it more affordable
for informal traders to operate through formal channels, which offer more
protection. This can be further enhanced by simplified trading regimes for
small traders, such as the Simplified Trade Regime in the Common Market
for Eastern and Southern Africa (COMESA), which provides a simplified
clearing procedure alongside reduced import duties that provide particular
help to small-scale traders.
- Africa comprises a range of countries from those large and more
developed, to those small and less developed. How can it be ensured that
all benefit from a win-win AfCFTA?
African countries have a diversity of economic
configurations and will be affected in different ways by AfCFTA. Nevertheless,
the benefits from AfCFTA are widespread.
- While African
countries that are relatively more industrialized are well placed to take
advantage of the opportunities for manufactured goods, less-industrialized
countries can benefit from linking into regional value chains. Regional
value chains involve larger industries sourcing their supplies from
smaller industries across borders. AfCFTA makes the formation of regional
value chains easier by reducing trade costs and facilitating investment.
countries can gain from satisfying Africa's growing food security
requirements. The perishable nature of many agricultural food products
means that they are particularly responsive to improvements in customs
clearance times and logistics that are expected of AfCFTA.
- The majority
of African countries are classified as resource rich. Tariffs on raw
materials are already low and so AfCFTA can do little to further promote
these exports. However, by lowering intra-African tariffs on intermediates
and final goods, AfCFTA will create additional opportunities for adding
value to natural resources and for diversifying into new business areas.
- The cost of
being landlocked includes higher costs of freight and unpredictable
transit times. AfCFTA provides particular benefits to these countries: in
addition to reducing tariffs, the AfCFTA is set to include provisions on
trade facilitation, transit and customs cooperation.
It will nevertheless be vital that AfCFTA is supported
with accompanying measures and policies.
countries can benefit from the implementation of the programme for the
Accelerated Industrial Development of Africa; domestic investments in
education and training can ensure the necessary complementary skills.
of the Africa Mining Vision can complement AfCFTA, by helping
resource-based economies to strategically diversify their exports into
other African markets.
- The Boosting
Intra-African Trade (BIAT) Action Plan is the principal accompanying measure
for AfCFTA. It outlines the areas in which investments are required, such
as trade information and access to finance, to ensure that all African
countries can benefit from AfCFTA.
- How can AfCFTA
contribute to the achievement of the 2030 Agenda for Sustainable
- AfCFTA is a
flagship project of Agenda 2063 of the African Union - Africa's own
development vision. It was approved by the African Union Summit as an
urgent initiative whose immediate implementation would provide quick wins,
impact on socioeconomic development and enhance confidence and the
commitment of Africans as the owners and drivers of Agenda 2063.
- The cumulative
effect of AfCFTA is to contribute to the achievement of the United Nations
2030 Agenda, in particular, to the Sustainable Development Goals, from
targets for decent work and economic growth (Goal 8) and the promotion of
industry (Goal 9), to food security (Goal 2) and affordable access to
health services (Goal 3).
- By supporting
African industrialization and economic development, AfCFTA can also help
to reduce the continent's reliance on external resources. This would allow
Africa to better finance its own development, which is recognized under
- Of utmost
importance, however, is Goal 1 and keeping the pledge that "no one will be
left behindâ€¦ starting with the furthest behind first". For this, it is
crucial that Governments across Africa implement measures to accompany
AfCFTA, such as the African Union's Boosting Intra-African Trade Action
Plan, but also that the African private sector step up to invest in, and
take advantage of, the opportunities arising from AfCFTA.
- What has been achieved in AfCFTA negotiations so far?
were launched by the African Union Heads of State and Government in June
2015. By late 2017, the intensity of negotiations had escalated,
culminating in the drafting of the agreement itself.
- In early March
2018, the negotiating forum met for the tenth time to finalize outstanding
matters and conclude legal scrubbing in preparation for the signature of
the agreement on 21 March 2018. The outstanding matters included agreeing
to a dispute settlement mechanism and finalizing several annexes to the
protocol on goods. The negotiating forum also agreed a Transition and
Implementation Work Programme to finalize offers for goods and services,
and to prepare product-specific rules of origin, as part of the built-in
negotiations will progress to further deepening trade in Africa with
"Phase two" negotiations expected to begin in late 2018. Phase two will
focus on provisions for investment, competition and intellectual property
rights. A facilitative environment for e-commerce is also being mooted as
a possible additional phase-two topic
- What does AfCFTA mean in concrete terms?
- African businesses, traders and
consumers will no longer pay tariffs on a large variety of goods that they
trade between African countries;
- Traders constrained by
non-tariff barriers, including overly burdensome customs procedures or
excessive paperwork, will have a mechanism through which to seek the
removal of such burdens;
- Cooperation between customs
authorities over product standards and regulations, as well as trade
transit and facilitation, will make it easier for goods to flow between
- Through the progressive
liberalization of services, service suppliers will have access to the
markets of all African countries on terms no less favourable than domestic
- Mutual recognition of
standards, licensing and certification of service suppliers will make it
easier for businesses and individuals to satisfy the regulatory
requirements of operating in each other's markets;
- The easing of trade between
African countries will facilitate the establishment of regional value
chains in which inputs are sourced from different African countries to add
value before exporting externally;
- To protect against
unanticipated trade surges, State Parties will have recourse to trade
remedies to ensure that domestic industries can be safeguarded, if
- A dispute settlement mechanism
provides a rule-based avenue for the resolution of any disputes that may
arise between State Parties in the application of the agreement;
- Upon conclusion, the "Phase
two" negotiations will provide a more conducive environment for
recognizing African intellectual property rights, facilitating
intra-African investment, and addressing anti-competitive challenges.
institutional arrangements are needed for the effective implementation of
- Responsibility for coordinating
the implementation of AfCFTA agreement will be with AfCFTA secretariat,
which will form an autonomous institutional body within the African Union
system with an independent legal personality, akin to an agency of the
African Union. It shall work closely with the African Union Commission and
its departments and the Commission shall provide the necessary
transitional support until AfCFTA secretariat is fully operational. The
funds of the secretariat shall come from the overall budget of the African
Union, and its headquarters, structure, roles and responsibilities shall
be determined by the Council of Ministers responsible for trade.
- Complementary structures to
AfCFTA will include the African Business Council, which will aggregate and
articulate the views of the private sector, as well as a Trade
Observatory, which will ensure effective monitoring and evaluation.
- The Protocol on Rules and
Procedures for Settlement of Disputes elaborates the institutional
arrangements for the Dispute Settlement Body.
- The regional economic
communities (RECs) will remain important implementing partners and be
represented in an AfCFTA Committee of Senior Trade Officials. Their role
will include coordinating implementation and measures for resolving
non-tariff barriers, harmonizing standards and monitoring implementation.
- At the national level, it will
be critical to have an AfCFTA strategy and dedicated institutional
arrangements in place to carry out implementation and fully utilize the
opportunities of AfCFTA.
10.How can business shape the
implementation of AfCFTA?
AfCFTA is a tool for private enterprise in Africa. It
succeeds when it is leveraged by private businesses, traders and consumers to
trade across the continent.
- Awareness. Businesses need to be fully sensitized
by government on the potential of AfCFTA. On this basis they can then
establish new trade linkages or push their governments to negotiate for
these opportunities if they are not already covered by the negotiated
substance of the agreement.
Partnering with governments by business is essential to ensure and facilitate
investment in the accompanying measures necessary to complement AfCFTA. This
includes intra-African trade infrastructure as well as supplying trade finance,
trade information and logistics services. Such provisions will help businesses
recognize and realize the trading opportunities available through AfCFTA.
- Private sector involvement. More active involvement of
the private sector in terms of advocacy is required in order to ensure
direct input into the AfCFTA negotiating institutions to ensure that
AfCFTA is shaped to assist the business community to trade in Africa.
AfCFTA is an opportunity for development in Africa.
But it must be wielded by private enterprise. Through doing so, businesses can
benefit from the great opportunities that the continent has to offer, and
contribute to its sustainable growth and development.
11.What next steps remain to bring
AfCFTA agreement into effect?
- State Parties must develop and
submit schedules of concessions for trade in goods. These details, for
each State Party or - as the case may be - customs union, the particular
90 per cent of products that are to be liberalized for each State Party,
as well as the sensitive products that are to be liberalized over a longer
time period and the excluded products that are to be temporarily exempted
- A related complement to the
schedules of concessions for trade in goods is the list of
product-specific rules of origin which, alongside the general rules of
origin, will enable the application of preferences under AfCFTA. The list
of productspecific rules of origin is being developed as part of AfCFTA
- For trade in services,
scheduling will call for a deep review of the regulatory framework of the
identified sectors, in view of preparing, subsector by subsector, mode by
mode, the initial market access offers, which will then be subject to
- AfCFTA will then enter into
force after the deposition of the 22nd instrument of ratification with the
Chairperson of the African Union Commission.
- A conference of State Parties
will meet to adopt the structure and organigram of AfCFTA secretariat, the
staff rules and regulations, and the secretariat budget.
- AfCFTA secretariat will be
established in a host country to be decided and approved by the Assembly.
- AfCFTA committees will then
convene and begin facilitating the implementation of the agreement,
including the provision of capacity-building to assist State Parties with
The Q & A was compiled by the African
Trade Policy Centre (ATPC) of the Economic Commission for Africa (ECA) in
association with the African Union Commission
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