The African Continental Free Trade Area (AfCFTA) - Is Africa Ready for a Single Market?
Wednesday, 21st March 2018 saw the endorsement of the AfCFTA by 44 of the 55 member countries of the African Union (AU) in Kigali, Rwanda. Nigeria and South Africa which are Africa's biggest and most advanced economies respectively also constitute member countries who failed to give assent to the AfCFTA.
This agreement is a major milestone towards achieving Project 2063, which is an AU project aimed at transforming Africa's economy in half of a century. Countries who have given assent to the AfCFTA have approximately 120 days to ratify the alliance in their parliaments and the AfCFTA will kickstart 30 days after ratification by 22 countries.
According to the African Union website, these are the objectives and background of the AfCFTA .
Objectives of the CFTA
• Create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Continental Customs Union and the African customs union.
• Expand intra African trade through better harmonization and coordination of trade liberalization and facilitation regimes and instruments across RECs and across Africa in general.
• Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes.
• Enhance competitiveness at the industry and enterprise level through exploiting opportunities for scale production, continental market access and better reallocation of resources.
Background
The 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union, held in Addis Ababa, Ethiopia in January 2012, adopted a decision to establish a Continental Free Trade Area (CFTA) by an indicative date of 2017. The Summit also endorsed the Action Plan on Boosting Intra-Africa Trade (BIAT) which identifies seven clusters: trade policy, trade facilitation, productive capacity, trade related infrastructure, trade finance, trade information, and factor market integration. The CFTA will bring together fifty-four African countries with a combined population of more than one billion people and a combined gross domestic product of more than US $3.4 trillion.
If all 55 member countries of the AU join in, the AfCFTA hopes to be one of the largest free trade zones in the world, encompassing a population of more than 1.2 billion people with over $4 trillion in combined business and consumer spending.
The AfCFTA could increase intra-African trade by 52% in 2022 when compared to the numbers of 2010 as estimated by the UN Economic Commission for Africa (UNECA).
The agreement focuses on removing tariffs from 90% of goods, liberalize services and tackle "non-tariff barriers" such as long delays at the border which impede trade between African countries. In the long term, free movement of people and a single currency may become part of the AfCFTA.
While the aims and objectives of the AfCFTA might sound objective enough, the big question is, "is Africa ready for a single market?". The biggest challenge here is the uneven distribution of production capacity across the continent. The removal of tariffs will take away any barrier the big boys would have to pumping in products into the less productive market which will have a bad toll on indigenous producers and entrepreneurs.
Competition is healthy, but when the competitors are not evenly matched then that is no contest at all. As of the moment, the implementation of the AfCFTA will give more power to the stronger economies while hampering the growth of the weaker once. Governments across the continents need to step up their production capacity and skilled man power in other for the AfCFTA to truly live up to its objectives.
A quick google search will show you that only 3 of the 55 AU member countries fall above the $200 billion mark in terms of GDP with the first having a GDP of above $400 billion, while 50 AU member countries maintain positons below the $100 billion mark (Ranking by GDP according to wikipedia).
According to Quartz Africa, there is still a very big gap in terms of funding destination for start ups in Africa as 85% of this funds go to Nigeria, South Africa and Kenya while the remaining 15% is unevenly shared among the remaining 52 AU member countries. All this goes to show the difference in economic strength among AU countries.
Africa is not ready for a single market but none the less, gearing for it is a good start. I believe in the goals the AU aims to accomplish through the AfCFTA but in my opinion its not yet time and that because at this point the AfCFTA might destroy smaller economies and make the dominance of the bigger once continental. Imagine a scenario where the Ugandan market is flooded with consumer goods from South Africa which will of-course be of higher quality or in the tech space where Nigerian developers start targeting Rwandan banks simply because they can, this would mean death to the smaller economies if they do not have the skilled labour and financial capacity to compete while sending all the big profits to the economically strong nations.
I would suggest that the early years of the AfCFTA should focus on schemes and alliances to improve the economic strength of as many countries as possible so as to give them a more level playing ground rather than removal of tariffs. Governments across the continent should grow the political will to improve education and encourage entrepreneurship and above all create a stable environment for the economy to thrive.