The realities on the African continent are unpalatable. The levels of financial, education and energy poverty among several other scales of poverty are extremely high. Yet the continent lies on a bed of natural resources and is adorned by some of the most beautiful scenery in the world.
On top of that the biggest resource—its people—are capable of churning out ideas and innovation that can change the narrative on the continent. Africa is far from hopeless. Recognizing this, the African Union has set out to take steps towards achieving the realisation of a first class economic powerhouse by 2063.
The African Continental Free Trade Area (AfCFTA)
In a bid to achieve this agenda, a free trade area that seeks to create one common market through the integration of African countries was born. Of the 55 African countries 54 signed the agreement with Eritrea choosing to watch from the sidelines. To date 34 countries have ratified the agreement.
The other 20 signatories have not ratified the agreement and are not explicitly bound to follow the treaty terms. While they will be expected to carry out activities that lean towards supporting the agreement by virtue of being signatories they are not bound legally by its terms. This raises the question of the successful implementation of the free trade area.
The rationale behind the AfCFTA is based on the fact that the agreement opens up the African continent thus creating a free market of more than 1.2 billion potential customers. If however some countries don’t come to the table the size of the market is reduced. Will the free trade area still be able to stimulate trade on the continent by 52% as previously predicted?
Granted, some of Africa’s biggest economies like South Africa as well as the larger populated countries like Nigeria officially submitted their instruments for ratification to the African Union chairperson. It remains to be seen whether the existing AfCTA member states form a block sufficiently large enough for the realization of intra-African trade success.
Watching from the sidelines
That said the question to be asked now is what is the fate of the countries on the sidelines of the AfCTA? If successfully implemented AfCTA has the potential to transform business activity in member countries successfully propelling industrial production and manufacturing activities. For those that have chosen to sit out the AfCTA initiative, what could the potential effect be for them?
The continental free trade area is anticipated to increase competitiveness of products. Since the products will be manufactured on a larger scale through integration of various technologies across different countries this should significantly lower the prices of commodities.
This could mean non-member states will have to tighten protectionist policies in order to ensure their local producers remain competitive. Failure to do so may result in a situation where ‘Made in Africa’ (AfCTA banner) products flood into these destinations creating a reduced appetite for local products.
As part of the AfCTA initiative, member countries will gradually reduce import tariffs and import quotas that restrict free movement of goods. This should also add to the affordability of goods. The ultimate intention is for goods within the African markets to be completely free of barriers. Countries outside of the pact will therefore have a harder time trying to keep up with the reduced prices of goods.
One of the operational instruments of the AfCTA involves the digitization of payment systems to facilitate transactions. These innovations in fintech payment systems will make trading between countries faster and more accountable. Member countries will also benefit from this indirectly through an increasing uptake of digitization within each country.
Thus digital uptake and infrastructure improvements will be a byproduct of AfCTA implementation for member countries. Technological transfers are expected to boost digital infrastructure in member countries. In the same vein countries outside the agreement will not benefit from this. Rather through increased protectionism they could potentially suffer from the inability to take advantage of transferred technologies and digital infrastructure.
It is therefore a possibility that the countries that have opted to sit out the trade agreement will sink deeper into technological poverty if the AfCTA is a success.
Another important protocol of the trade agreement is the cooperation between customs agencies of the different member countries. This is expected to make the movement of goods and people more fluid across borders. This cooperation will not only facilitate faster service provision in customs jurisdictions at borders and ports, but it will also create an opportunity for increased training, reduction of inefficiencies and allow customs authorities on the continent to reach world class standards.
Customs authorities will therefore benefit from this transfer of knowledge and cooperation to boost operational efficiency for all member countries.
Mutual administrative assistance
In terms of the agreement of the continental free trade area member countries are expected to offer administrative assistance to fellow members on a mutually beneficial basis. Therefore, smaller less prominent member states are set to benefit immensely through increased efficiency in production processes and administrative processes. They gain knowledge and operational know-how from the more prominent parties. For those left behind however, this creates a situation whereby they will not have access to assistance from other countries.
The African Continental Free Trade Area is set to be the game-changer in the economics of the continent. The countries that have joined this agreement are set to benefit immensely from increased trade opportunities and operational and manufacturing efficiencies. Those outside the agreement will lose out from the benefits and useful side effects that AfCTA implementation will bring.
However all this hinges on the success of the free trade area. If the trading block can be as successful in real world application as it is on paper, it is set to benefit the continent tremendously and spell a disappointing fate for those yet to join the fold. As we enter the New Year which heralds the official start date of the trading bloc we await to see the outcome of this agreement. Will it spur Africa towards Agenda 2063 or will it become yet another promise on paper that fails to take off?