Few intergovernmental projects are as ambitious as unifying 54 countries with a combined population of 1.2 billion to create the world’s largest free trade area.
Yet the African Continental Free Trade Agreement (AfCFTA) has proved successful in rallying all of the African Union member states, except Eritrea, to sign the landmark accord. As of January 2021, 35 of the 54 signatories have ratified the agreement.
Trading under its terms has begun, but much remains to be done before it reaches its full potential.
Hailed by AfCFTA Secretary-General Wamkele Mene as “a strong signal to the international investor community that Africa is open for business, based on a single rule-book for trade and investment,” the benefits of a free trade area are clear. Eliminating burdensome trade tariffs, harmonising regulatory systems and establishing a single market for goods and services will pave the way for a reshaping of markets across the continent and enhance intra-Africa investment.
But the continuing impact of COVID-19 is complicating the already substantial challenges facing the AfCFTA. Due to the impact of the pandemic, the start of free trading under the agreement was postponed from July 1, 2020 to 1 January 2021.
Virtually all African countries have faced major economic upheavals and threats to conventional ways of working due to COVID-19.
While launching the AfCFTA in the middle of a global pandemic entails risks, especially around trade readiness, experts believe that it was imperative to forge ahead rather than wait for countries to be better prepared.
“The risks and missed economic opportunities in not launching the AfCFTA now would be much greater than the risks in cautiously proceeding with implementation and negotiations,” says Dirk Willem te Velde, principal research fellow and head of the international economic group at the Overseas Development Institute (ODI).
The need for essential medical supplies and goods to move seamlessly across borders during COVID-19 highlights the importance of advancing regional integration and strengthening market linkages across the continent. While the pandemic has so far been less lethal in Africa than other regions of the globe, it has jolted regional and global value chains.
For example, Chinese imports into Kenya’s Mombasa Port fell by 20 percent in the immediate aftermath of the pandemic between January and February last year.
“COVID-19 and other shocks like drought and locust infestation have emphasised the need to diversify African economies away from the export of primary commodities, in order to achieve a more sustainable economic development across the continent, as well as avoid the next disruption of global value chains,” says Justin Bayili, executive secretary of Borderless Alliance, a partnership of private and public sector stakeholders to increase trade in West Africa and eliminate barriers to trade.
But despite the best attempts of policymakers to forge ahead, COVID-19 is still likely to complicate the early months of the launch.
Undertaking negotiations on even non-contentious elements of the AfCFTA has been complicated, since physical restrictions make it almost impossible to arrange face-to-face meetings of policymakers.
While many AfCFTA negotiations have continued via video conferencing platforms, issues around infrastructure reliability and data security have limited the ability to carry out deliberations online.
“The disruption of negotiations and business processes due to COVID-19 has accelerated the development of digital solutions for business meetings, financial transactions and virtual discussion forums, which has paved the way for streamlining AfCFTA e-commerce negotiations with a sense of urgency,” adds Bayili.
The first few months of the trade agreement were already expected to be challenging, as friction traditionally mounts between parties as the practical and physical realities of cross-border trading differ from expectations under new trade deals. Even as customs officials begin to get used to trading under the AfCFTA, initial roadblocks will remain for some time.
“We continue to see a lot of challenges at border crossings because of government efforts to stop the spread of the transmission of the virus, especially the new variant that is advancing across the world,” says Stephen Karingi, director of the regional integration and trade division at the United Nations Economic Commission for Africa.
Nevertheless, the January launch ushers in changes long awaited by African businesses. Africa’s fragmented internal market has led to intra-African trade sitting at just 18 percent of total exports, up from a low of nine percent in 2000, illustrating the uphill challenge in increasing cooperation on both trade and investment.
Providing businesses with access to capital and markets, as well as other non-financial support, could immediately benefit African countries and open up growth possibilities outside of the larger economies. – African Business