Africa Now World Largest Single Continental Market

by Ike Obudulu Last updated on June 1st, 2019,

The African Continental Free Trade Area (AfCFTA) Agreement became a binding international legal instrument on May 30, 2019, and the market would be launched on July 7, 2019, said the African Union in a statement.

“Historic milestone! #AfCFTA Agreement has today come into force. We celebrate the triumph of bold, pragmatic & continent-wide commitment 2 economic integration. We launch market on 7 July, 2019 & begin the journey of transformation 2 secure inclusive prosperity,” said the African Union Commissioner for Trade and Industry, Amb. Albert Muchanga.

52 out of the continent’s 55 countries have signed the free trade agreement with the exception of Benin, Eritrea, and Nigeria due to concerns raised by local businesses. Nigeria’s failure to sign the agreement was due to concerns raised by its manufacturing association which says the AfCFTA would have a negative impact on its members.

It’s been over a year since 44 countries first signed the consolidated text of the Agreement in the Rwandan capital Kigali to enable the long-awaited economic integration and movement of goods and persons across member states.

The AfCFTA will create a single continental market for goods and services; enhance free movement of business persons and investments; enhance competitiveness at the industry and enterprise level through exploiting opportunities for full-scale production.

It will also enforce the establishment of the Continental Customs Union and the African customs union, expedite the regional and continental integration processes and exploit opportunities for scale production, continental market access and better reallocation of resources.

With the commitment of all countries, the AfCFTA could bring together the 1.2 billion African population with a combined gross domestic product (GDP) of more than $2.5 trillion to remove tariffs on 90 per cent of goods, with 10 per cent of “sensitive items” to be phased in later.

This agreement was first introduced in January 2012 during the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union, held in Addis Ababa, Ethiopia. The member states adopted the decision to establish the Continental Free Trade Area by 2017.

One hurdle to integration is Nigeria. The country that vies with South Africa for the title of Africa’s biggest economy, hasn’t signed up yet. Now re-elected, President Muhammadu Buhari is reviewing an impact-assessment report.

Analysts including Tshepidi Moremong, the head of Africa coverage at FirstRand Group Ltd.’s Rand Merchant Bank, say the deal could still face opposition from oligopolies making “super profits” in the West African nation. Nigeria is one of three countries, including Benin and Eritrea, that hasn’t signed the deal. Twenty-two nations, including South Africa, have ratified the text, the next step after signing.

Trade between African countries is at 15%, compared with 20% in Latin America and 58% in Asia, according to the African Export-Import Bank. This could increase by 52% by 2022 and can more than double within the first decade after implementing the deal, the Cairo-based lender said in a report last year.

After four years of talks, the mechanics of the agreement will be negotiated in phases and it should be fully in operation by 2030. Non-trade barriers, such as delays at ports, and politics, would have to be navigated before the plan to remove tariffs on 90% of goods can be realized. Negotiators will also have to convince economies reliant on these levies for revenue to let them go.

“This is a technocratic agreement,” said Ronak Gopaldas, a London-based director at Signal Risk, which advises companies in Africa. “It’s aspirational in nature and while the direction is positive, translating what has been agreed by the technocrats and the policy makers into stuff that has a material impact on the ease and the cost of doing business and fosters more integrated markets” will remain challenging, he said.

The trade pact’s implementation could also be scuppered if leaders seeking re-election put sovereign interests ahead of the continent, Moremong said.

“In each of our countries, there are proper issues that one needs to deal with and where people need to see that the government is focused on their day-to-day issues,” she said. “Opening up a market for the people from other parts of the continent to freely come and do commerce and trade in your country is going to take a lot.”

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