The worrying future of trade in Africa

Africa is on the cusp of creating the African Continental Free Trade Area. This will be the first step on a long journey towards creating a single continental market with a customs union and free movement of people and investment – similar to the European Union.

The agreement, brokered by the African Union, was established at the Kigali Summit. To date, 52 countries have signed the agreement; only Benin, Eritrea and Nigeria have yet to sign it. The free trade area comes into force once 22 member states have ratified the document. On April 2, 2019, Gambia became the 22nd country to approve the agreement.

The first phase begins in June 2019. In terms of market access offers, the parties have already agreed to liberalise 97 percent of tariff lines, accounting for at least 90 percent of intra-African trade, with a five-year timeline for liberalisation (ten years for the least developed African countries).

Many studies conducted thus far on the expected effects of the agreement have been positive. The United Nations Economic Commission for Africa projects that the agreement will increase intra-Africa trade by over 52 percent. According to estimates by the African Development Bank, the effect of the removal of tariffs on intra-African trade will be a 0.1 percent increase in net real income, amounting to gains of $2.8 billion. In addition to the removal of tariffs, the removal of nontariff barriers on goods and services may result in a 1.25 percent increase in net real income, or a gain of $37 billion.

Much of the potential of the free trade agreement rests on the assumption that this agenda will be comprehensively implemented. Yet there is nothing in the history of trade commitments in Africa to suggest that this is likely. The trade agreement will follow the existing model of regional integration in Africa and may therefore face in even greater measure some of the implementation and coordination challenges that have obstructed regional trade. The East African Community, the most successful region in recent years, has encountered several obstacles, such as instability in the application of tariff and trade rules and trade disputes between countries. Following these disputes, some member states have ignored the rulings of the East African Community Secretariat.

This raises the question of whether the African Union and institutions created to administer the African Continental Free Trade Area will have enough disciplinary power to make countries comply. It’s unlikely.

Other matters of coordination have not been properly considered, such as aligning the trade agreement with industrial policy in the form of providing a continental framework to avoid predatory behaviour at the national level, which is one of the causes of dispute among countries of East African community. There is also the difficulty of aligning the new trade agreement with other commitments. For example recently launched post-Cotonou trade negotiation, the latest incarnation of the trade relations between the European Union and the African, Caribbean and Pacific countries, may not integrate well with the African Continental Free Trade Area. Given that under the current Cotonou Agreement, African regions negotiate separately with the EU, an approach that could undermine the African Continental Free Trade Area agreement, the African Union is insisting on a continent-continent approach where Africa negotiates as a single unit. However, such an approach would involve North African countries that have hitherto not been part of the EU-Africa trade history (which they view as neo-colonial) and are not keen on joining the trade agreement.

For the African Continental Free Trade Area to work, the African Union will have to deal with implementation and coordination challenges from the very beginning.

Featured Image Credit: ‘Shipping Containers’ by chuttersnap. CCO public domain via Unsplash.