African Continental Free Trade Area - The next step?
When it comes to the continent of Africa, many countries in it are in the process of opening up their economies for more trade with each other and other countries in the world, as part of the general global trend towards globalisation and integration e.g through the reduction of tariffs and various trade agreements. While many in the continent are welcoming this as an opportunity for African countries to open themselves up and in doing so boost economic growth, productivity and prosperity, critics on the other hand argue this will hurt domestic businesses and that the said countries should take measures to defend these businesses, as well have warned that the fact that much of Africa’s infrastructure is underdeveloped will make the implementation hard and give certain countries an unfair advantage. This case study will analyse the current issues relating to a specific trade agreement that has been pushed in Africa in recent years (AfCFTA), and look at the arguments made in favour of as well as against it, and then give some policy advice on how to ensure this trade agreement successfully maximises economic growth and prosperity while ensuring local businesses aren’t negatively affected or countries given an unfair advantage.
What AfCTFA is and how it is believed it will be beneficial
As has been stated, there has been a move towards the opening up of economies in African countries for free trade with each other, particularly in the last decade. Many African countries struggle with poverty and underdevelopment of infrastructure, healthcare, etc. ‘only 38% of the African population has access to electricity, the penetration rate for internet is less than 10% while only a quarter of Africa’s road network is paved’ (Mayaki) and it is hoped that the lifting of trade restrictions will allow for more exchanges of goods and revenue needed to give the continent the development and economic growth it needs. An example of this is the African Continental Free Trade Area agreement (AfCFTA), which has been ratified by a number of African countries and formally comes into effect on January 1st 2021. This has been called ‘an unprecedented initiative to generate vast economies of scale on an intra-continental basis’ (Broadman, 2019), eliminating 90% of tariffs on goods and ensuring more intra-trade amongst African nations: ‘the AfCFTA aims to connect 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion’ (Apiko, Woolfrey, Byiers,2020). It is also said by supporters that AfCFTA ‘has the potential to increase income and welfare significantly for its member countries’ and ‘African countries could reap long-term income gains of up to 5 percent from the reduction in trade barriers in the context of the AfCFTA’ (Abrego, 2020). It is hoped that AfCFTA will make the integration of the African economy with the global economy easier and more smooth, which will be a net plus for globalization efforts: ‘It is expected that AfCFTA will allow for more diverse and sustainable economic growth, not only increasing trade between African countries, but facilitating the larger integration of the African market as a whole’ (Brady, Maimane, 2020). It is further believed that this increased integration will in turn be a net boost for the continent's manufacturing industry, boosting the economy and creating more jobs overall. ‘Africa’s manufacturing sector is thought to be able to double in size and create 13m to 16m new jobs under the AfCFTA’ (Broadman, 2019). Finally, with the global economy experiencing a recession due to the effects of Covid-19 it is argued the increased intra trade caused by AfCFTA will mitigate these effects on the African economy: ‘if 90 percent of intra-African tariffs are removed according to the AfCFTA modalities—the drop in Africa’s GDP would be -5.2 instead of -7.9 percentage points, in the case of a 4 percent drop in world GDP’ (Olumane, Jallab, Zidoueme, 2020). Overall then,it appears that AFCTA has much to recommend it in terms of its potential.
Objections and concerns
Nonetheless there have also been issues and objections raised as to the nature of AfCFTA, and this study believes some of them to be valid. Some opponents of the agreement have expressed concern that the effects on the continent overall will be mixed: ‘To this end, there have been growing fears that the AfCFTA’s anticipated gains, and associated losses, are likely to accrue unevenly’ (Ndonga, Laryea, Chponda, 2020). In other words, the fact that like many continents Africa’s economy is effectively divided, between a few regional powers and many smaller players, has led some to worry the effects of the trade agreement could be unbalanced, helping those in the former category at the expense of those in the latter. This concern seems to be at least partially warranted, especially when it is considered that ‘The AfCFTA has the greatest levels of income disparity of any continental free trade agreement’ (Akeyewale, 2018). This fear has led several countries to ask for differential treatment when it comes to the tariff removal being implemented, for example Malawi (Ndonga, Laryea, Chiponda, 2020). There is also the possibility that the lack of infrastructure can be a significant hindrance. The fact that as stated above many African countries have badly underdeveloped infrastructure is also seen as an issue that could make implementing the terms of the agreement much harder, as the inability to to have developed infrastructure such as roads, airports etc can make the exporting and importing of goods far more difficult, thus making it impossible for AfCFTA to be as successful as it could be otherwise. ‘Lack of infrastructure, a fundamental condition for the functioning of trade, is a major problem.’ (Krippahl, 2019). Critics have also said that the opening of the trade zone and increased globalisation caused by the agreement could be used to exploit and take advantage of African countries by World powers such as China and the United States.. A similar concern is the effect that opening up trade can have on domestic industry. Many African governments seek ‘to promote and protect domestic industries, including from competition from other African countries. This runs counter to the logic of the AfCFTA, which seeks to promote industrialisation by creating an integrated and more competitive African market’ (Woolfrey, Byiers, 2019). These two mentioned concerns of global exploitation and determination to protect domestic industry are a large part of why Africa’s largest economy, Nigeria, delayed in signing the Agreement and was one of the last countries to sign it, only doing so in July of 2019 (Munshi, 2019) and ratifying in November of the following year. The Nigeria Labour Congress, and umbrella organisation of trade unions, warned that ‘instead of becoming manufacturing hubs, Nigeria — and other countries — could turn into “dumping grounds”’(Munshi, 2019), highlighting the issues many in African countries have taken with the Agreement.
Proposals for a successful implementation
It is crucial to recognize that many people have legitimate concerns about the effect the AfCFTA trade deal can have on domestic businesses.Many economists recognize that for this effect to be mitigated the countries involved will need to take measures to limit the domestic damage that can be caused: ‘The AfCFTA’s success will depend on the extent to which it incorporates from the outset a robust...programme to alleviate the significant transitions and dislocations among firms and workers that trade liberalisation policies induce everywhere around the globe’ (Broadman, 2019). As such, it proposes that the countries involved seek increased public-private partnerships with companies from other countries with the goal of infrastructure development in the hope that the implementation of the agreement will be more smooth and less disruptive. In order to ensure that this occurs effectively the provisions of AFCTA should be implemented gradually (e.g 50% of tariffs removed in 5 years and 90% in 10), to ensure a stable transition to more open trade markets. China has already realised the importance of building infrastructure in African nations (Mourdoukoutas, 2019), African countries should seek to establish such ties with wealthy Commonwealth nations as well. Special consideration shold be given to the UK in the aftermath of Brexit. If the ‘small players’ like Malawi are able to develop accordingly then the risk of AfCTA being unbalanced will hopefully reduce. A second proposal calls for the improvement of digital connectivity in the African continent. The increased use of digital platforms on social media and co will definitely be a boost for AfCFTA. As one writer said ‘Digital tools like cloud services and online platforms can enable ecommerce and facilitate trade in services’ and it can ‘drive trade facilitation in Africa’ (Apiko, 2020). As such, African countries involved in AfCFTA should seek to encourage the adoption of these digital connections, as to make the implementation of AfCFTA easier. This can be done via advertising campaigns, more agreements to ensure such platforms are set up in these countries, etc. If these proposals are adopted, then AfCFTA has the potential to be very successful overall.
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