Africa urged to make the most of its trade pact

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Is Africa failing to capitalize on a good thing, or making steady progress on the AfCFTA?

It is now a year since the implementation of the African Continental Free Trade Area (AfCFTA), a far-reaching free trade deal that aims to bring the continent out of poverty and boost its standing in the global trade arena.

However, one financial expert has said he believes the countries within the pact should be doing more to reap the rewards it offers. So, is he right? Here, we'll take a closer look.

Not making the most of a good thing?

In an interview with China Daily, international investment banker Aly Khan Satchu said that despite the AfCFTA being in effect for just over 12 months, many nations on the continent have still not begun participating and so are not achieving the full benefits it could offer.

He said many of Africa's governments have remained "fundamentally protectionist" because they can earn considerable amounts from customs duties, and have also failed to ensure the appropriate infrastructure and technological connectivity necessary to give their countries the boost they need.

"I think Africa needs to accelerate the implementation and create a powerful mechanism to force the reluctant countries to open up. Free trade agreements, if they operate optimally, are very much a silver bullet. The significance of the AfCFTA cannot be overstated. It is a real necessity and the potential benefits are huge," Mr Satchu commented.

Background to the AfCFTA

The AfCFTA was presented as a tour de force in global trade for the African continent, gathering as many of its countries as possible to phase out all tariffs on commerce and eliminate customs duties on 97 per cent of products within 15 years.

According to the International Monetary Fund, this should boost intra-African trade by around 16 per cent and reduce the continent's dependence on European exports, as well as lifting 30 million Africans out of extreme poverty, the World Bank said.

Indeed, World Economic Forum figures show only 17 percent of exports from African countries are intra-continental (compared to 68 percent in Europe, for instance), so the trade deal's removal of tariff and non-tariff barriers looked set to really help level the playing field.

Unfortunately, the agreement did not take effect in July 2020 as planned due to the coronavirus pandemic, but it was finally established in January 2021.

Are the comments accurate?

Mr Satchu's comments might sound pessimistic, but the African Development Bank has also conceded that there has traditionally been a lack of cooperation in Africa when it comes to infrastructure.

It states there remains a need to connect the continent's economies not just economically but physically too, so addressing the vast gap in transport and utilities infrastructure is going to be crucial if further growth is to be achieved.

Better infrastructure would allow businesses to increase production and begin to export, as well as incentivizing foreign firms to establish bases within Africa.

Meanwhile, an article in Investment Monitor magazine has highlighted the fact that it isn't just freedom of movement for products in Africa that is causing issues, but also the restrictions affecting the movement of people.

It points out that businesspeople are unable to travel easily between, for example, Kenya and Nigeria due to immigration rules. If people cannot move easily, it is surely putting them off even attempting to move products in the form of trade.

Statistics from the recent UNCTAD Economic Development in Africa Report 2021 also suggest simply having a trade deal in place and hoping for the best is not enough. It found that Africa's untapped export potential is equivalent to 43 percent of intra-African exports, which could be unlocked if non-tariff measures, infrastructure gaps and market information gaps are addressed using joint efforts under the AfCFTA.

In her closing comments, UNCTAD secretary-general Rebeca Grynspan said: "The AfCFTA has immense potential to spur economic growth and transform the continent's development prospects - if additional measures are taken to realize and fairly distribute its many potential benefits. These gains will not come automatically."

What next for the AfCFTA?

In an interview with Africa Renewal magazine, secretary-general of the AfCFTA Secretariat Wamkele Mene acknowledged that there are challenges in the way of allowing the agreement's goals to be met, which he mainly attributed to the varying levels of economic development among the signatory countries.

However, he also pointed out that the trade agreement has already reached several important milestones, including 87.8 percent agreement on rules of origin that means people will be able to trade with certainty and predictability.

Another achievement Mr Wamkele cited was having operationalized the Protocol on Dispute Settlement, which shows Africa is willing to be bound by the rules of trade law.

"So, we've made progress, but of course, much remains to be done," he added.

Next, Africa will no doubt be waiting to see the effects of the Pan-African Payment and Settlement System (PAPSS), which was just launched this month in Ghana, as well as the implementation of the AfCFTA tariff book, set to go live in February 2022.

It is hoped this will help traders better understand rules of origin and the customs procedures that apply to products, which may in turn make them more willing to trade.

The AfCFTA has certainly offered Africa unprecedented opportunities, and it may seem frustrating from the outside to see factors as ostensibly simple as infrastructure and red tape holding it back. However, it's important to consider that no free trade agreement this large was ever built in a day and that time will be needed to see if its potential can really come to fruition.