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African Countries Not Ready to Implement Free Trade from January

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Sunday, January 17, 2021 /07:00 AM / by FDC Ltd/ Header Image Credit: FT

AfCFTA's secretariat says adoption will be slow as many nations lack border facilities. In 2019, 14.4% of official African exports went to other African countries, a small proportion compared with the 52% in intra-Asian trade, according to Afreximbank.

Most African countries are not ready to implement the terms of the African Continental Free Trade Area when the new zone comes into effect on January 1, according to the head of the trade bloc's secretariat.

Fifty-four African nations have committed to join AfCFTA but of the 33 countries to have ratified the agreement so far, many lack the customs procedures and infrastructure to facilitate tariff-free trade, said Wamkele Mene, secretary-general of the AfCFTA secretariat.

"It's going to take us a very long time," said Mr Mene, a South African trade expert elected by the African Union last February. "If you don't have the roads, if you don't have the right equipment for customs authorities at the border to facilitate the fast and efficient transit of goods... if you don't have the infrastructure, both hard and soft, it reduces the meaningfulness of this agreement."

Mr Mene insisted that the free trade area, which covers a population of 1.2bn and countries with combined output of $2.6tn, could still be transformative. "We want to move Africa away from this colonial economic model of perpetually being an exporter of primary commodities for processing elsewhere," he said. "We want to stop approaching tariffs as a tool for revenue. We want tariffs to be a tool for industrial development."

In 2019, 14.4% of official African exports went to other African countries, a small proportion compared with the 52% in intra-Asian trade and 73% between European nations in the same year, according to Afreximbank, a Cairo-based multilateral trade finance institution.

"We want to stop approaching tariffs as a tool for revenue. We want tariffs to be a tool for industrial development"- Wamkele Mene, secretary-general of the AfCFTA secretariat

David Luke, who co-ordinates trade policy at the UN Economic Commission for Africa, said that goods traded within Africa were more processed than the raw materials exported from the continent to China, India, Europe and other major trading partners.

"Policymakers have understood that, although trade on the continent is limited, this is valueadded trade," he said. "This is where the jobs are coming from, as opposed to trade with the rest of the world, which is mostly commodities."

Trade experts said the single market also offered investors potential economies of scale, enabling them, in theory, to manufacture goods in one country and export them tariff-free to the whole continent. Jeffrey Peprah, chief executive of Volkswagen, Ghana, said he hoped eventually to export cars assembled in Accra to other West African countries.

Mr Mene warned it might take years to bring countries' laws into line with new requirements. Ethiopia, for example, prohibited foreign investment in its financial sector, a potential breach of AfCFTA rules, he said. As a result, the secretariat could see a flurry of legal challenges from countries on behalf of their corporations, he said. "I'm not saying countries must rush to dispute settlement. All I'm saying is that, if they do, the jurisprudence will bring clarity to the body of trade law that we've developed in the form of this agreement."

For the agreement to work, one western diplomat said the free trade zone must benefit producers in smaller, poorer countries as well as those in more industrialized parts of the continent. Many countries saw the free trade area as a way of boosting their exports but few had embraced the corollary that they would need to import more, the diplomat said. Mr Mene said the secretariat was working with Afreximbank to establish a pan-African trading platform to allow smaller enterprises to trade effectively across borders and in different currencies. "Often in trade agreements the big winners are the already industrialized countries and the big corporations who can access the new markets literally overnight," he said.

If AfCFTA created too many losers and not enough winners, Mr Mene said, there could be a similar backlash against free trade as had occurred in the US and parts of Europe. Then Africans too would conclude, he said, "these trade agreements don't work".