BOOST FOR INTER-AFRICAN TRADE ….as AU launches US$2.5 trillion free trade area

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Kigali – More than 40 African Heads of State this week signed an agreement in the Rwandan capital Kigali for the establishment of a free trade area that will create the world’s largest market.

The African Continental Free Trade Area (AfCFTA) seeks to bring together all the 55-member countries of the African Union to trade tariff-free.

However, Nigeria and Uganda were not among countries that signed the agreement on Wednesday after withdrawing from the process.

Several African leaders, who included South Africa’s President Cyril Ramaphosa, who is the chairperson of Southern African Development Community, signed the agreement establishing the free trade area, the protocol on the free movement of persons as well as the Kigali declaration for the launch of the African Continental Free Trade Area.

The signing has been described as historic and a new dawn for Africa.

It comes 55 years after the formation of the Organisation of African Unity (OAU) and 16 years since the formation of the African Union.

Leaders at the summit said this brings the continent closer to the dream of integration.

The agreement will create a market of one billion people with a combined Gross Domestic Product (GDP) of US$2.5 trillion.

"Today's agenda is to adopt the Agreement establishing the AfCFTA," said Paul Kagame, Chairperson of the AU and President of Rwanda, at the opening session of the 10th Extraordinary Session of the Assembly of the AU.

The Protocol on the Free Movement of Persons, and the Kigali Declaration that expresses African unity in moving forward are sure to be counted among the "most consequential actions" that the AU Assembly that brings together heads of state and government of AU has ever taken, Kagame said.

The AfCFTA is the culmination of a vision set forth nearly 40 years ago in the Lagos Plan of Action, adopted by African heads of state and government in 1980, according to Kagame.

The decision to form the AfCFTA was adopted in January 2012 during the 18th Ordinary Session of the Assembly of Head of States and Government of the AU. In 2015, the AU launched the AfCFTA negotiations.

The AfCFTA is aimed at creating a single continental market for goods and services with free movement of businesses and investments. This, according to the AU, will pave the way for accelerating the establishment of the Continental Customs Union and the African Customs Union.

The AfCFTA will make Africa the largest free trade area created in terms of numbers of participating countries since the formation of the World Trade Organisation, according to the AU.

The 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, said the AU.

The UN Economic Commission for Africa estimates that the AfCFTA has the potential both to boost intra-African trade by 53.2 percent by eliminating import duties and to double this trade if non-tariff barriers are also reduced.

 

Trade between neighbours

AU trade and industry commissioner, Albert M Muchanga, said Africa’s fledgling industries and growing middle class would benefit from the CFTA’s removal of tariffs.

Currently, African countries only do about 16 percent of their business with each other.

“If we remove customs and duties by 2022, the level of intra-African trade will increase by 60 percent, which is very, very significant,” Muchanga told AFP.

“Eventually, we are hoping that all the African Union states will be parties to the Continental Free Trade Area,” he added.

Experts say countries with ports serving landlocked nations fear a loss of revenue.

With underdeveloped service and industrial sectors across the continent, African countries have for decades seen their fortunes rise and fall with the prices of exported commodities such as oil, cocoa and gold.

In recent years, nations like Ethiopia and Ghana have tried to wean themselves from this cycle by building factories and new infrastructure for local industries, spurring rapid growth.

Landry Signe, a development expert with Stanford University in the United States, said the agreement could help these industries while giving African countries a unified platform to negotiate trade deals with wealthier nations.

“With the CFTA, the manufacturing sector would be much more diversified, as the market would not be a few million people, but potentially 1.2 billion people,” he said.

South Africa, a vocal backer of the trade deal, has argued that African economies are too small to support economic diversification and industrialisation on their own.

Regional integration “is critical to reducing the vulnerability of African economies to global shocks, a vulnerability which results from their heavy reliance on commodities”, South Africa’s Trade and Industry Minister, Rob Davies, wrote in an editorial last week.

However, in Nigeria, the plans have not gone down well with unions and business leaders.

“We have no doubt this policy initiative will spell the death knell of the Nigerian economy,” said the Nigeria Labour Congress.

Easing trade and travel

The CFTA is a key part of the AU’s long-term development plan, Agenda 2063, which calls for the easing trade and travel across the continent.

At its most recent summit in Ethiopia in January, AU member states agreed to a common air transport market that could drive down airfares, as well as plans for visa-free travel for Africans across the continent.

Which countries will adopt these agreements remains unclear, as do the prospects for the CFTA, which requires 22 ratifications at a national level after its signing to come into force. – Xinhua/AFP.

 

 

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