Accelerating Intra-African Trade

DHESH NELSON

The goal of the African Continental Free Trade Agreement is to speed up trade within Africa and between African countries, as well as boost the continent’s trading position in the global market by strengthening its common voice and policy space in global trade negotiations.

The agreement establishing the African Continental Free Trade Area (AfCFTA) came into force in May 2019 and all African Union countries, save for Eritrea, are signatories.

The backdrop to the AfCFTA is that Africa is one of the world’s least integrated continents, with intra-African trade estimated at less than 15% of total African exports.

The Agreement is expected to increase trade by 52% and improve regional value chains given that over 70% of the exports within the continent are primary commodities.

According to the AfCFTA Secretary General, AfCFTA is not just a trade agreement, but a flagship of Africa’s economic development of Agenda 2063, focusing on industrial development to harness export capacity and readiness, in order to achieve inclusivity and equitable distribution of benefits of trade in and across countries.

The AfCFTA will cover a market of more than 1.4 billion people, including a growing middle-class typified by high urbanisation rates, and a combined gross domestic product (GDP) of more than $3.4 trillion.

The Agreement also recognises the role that Africa is a young continent with about 77% of the population under 35 years, hence the focus on youth and women also playing a key role in poverty reduction.

The Agreement has been operational since January 2021, although no trade has taken place due to ongoing negotiations on rules of origin and tariff schedules.

However, as at May 2022, 43 countries had deposited their instruments of ratification. The continent trades an estimated 4,500 goods using different rules of origin and the positive news is that 88% of these have been ratified, allowing for harmonisation across the continent. The target is to reach 90%.

The message echoed is one of readiness and creating awareness among citizenry as negotiations are being finalised on the remaining products, sectors and protocols.

Objectives

The main objective of the AfCFTA is to create a single continental market for goods and services, with free movement of business-people and investments, and thus pave the way for accelerating the establishment of the Customs Union.

It will also expand intra-African trade through better harmonisation and co-ordination of trade liberalisation and facilitation, and instruments across Africa.

“We are watching the space and are very excited, as it is going to provide a platform on which African countries will be able to trade with greater freedom and access to each other’s markets,” says Export Credit Insurance Corporation CEO, Kutoane Kutoane.

Kutoane also sees great potential benefit for South African businesses.

“It will provide, particularly for our small and medium-sized enterprises in South Africa, the opportunity to take advantage of the opening up of these markets and the integration that comes with that, and they will benefit immensely from the ability to trade more on the continent.”

The AfCFTA is also expected to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access, and better reallocation of resources.

Further, it aims to increase Africa’s presence in the global economy by improving intra-African trade flows and attracting foreign investment, whilst it is also hoped that it will deliver significant welfare gains, GDP, employment and a reduction of Africa’s trade deficit.

Once the AfCFTA is fully operational, it will be, in terms of numbers of participating countries, the world’s largest free trade area since the formation of the World Trade Organisation.

Estimates from the Economic Commission for Africa (UNECA) suggest that the AfCFTA has the potential to boost intra-African trade by 52.3% by eliminating import duties and double this trade if non-tariff barriers are also reduced.

ECIC & AfCFTA Future

The Covid-19 pandemic created a pressing need to reduce Africa’s high trade dependence on non-African states and the AfCFTA could help facilitate this, with Kutoane being confident that the delay caused by the pandemic will be a thing of the past in the not-too-distant future, due to the obvious benefits the agreement presents.

“There has only been a slight loss in momentum, but I’m very much aware that the African countries involved in the AfCFTA are still keen to proceed with the operationalisation of it,” he says.

Kutoane is also adamant that South Africa, as a country, needs to adopt a proactive approach in assessing and maximising the benefits the AfCFTA offers and he sees ECIC playing a key role in this process.

“We have to position South Africa to play a key role in actualising the benefits of the AfCFTA for the country,” he says.

“So, we are very keen, as ECIC, to play a prominent role. We have the experience and we understand the trading dynamics, as well as the risks and challenges faced by the economies involved. We are, therefore, also better placed in the country to facilitate South African companies’ ability to enter that market or expand their presence on the continent.”

South Africa is a key trading partner, with Zimbabwean exports to South Africa estimated at 40% and 43.8% being imports from South Africa, while the trade balance is in favour of South Africa with a surplus.

Main imports from South Africa are fuel, capital equipment, motor vehicles and consumer products.

Zimbabwe and South Africa are both SADC members. A and with Regional Economic Communities being the building blocks under the Agreement, it means the countries already have common trading rules and both countries can select the favourable terms that will bring better mutual benefits.

In terms of ECIC, we are already supporting AfCFTA, through various infrastructure projects and one such example is the development of Zimborders which will allow for a one-stop border post to enable seamless movement of goods to neighbouring landlocked countries.

While the focus has generally been on big-ticket projects due their ability to adapt to financing structures that can be covered by the ECIC, we have also had exposure to various sectors such as mining, telecommunications and agro-processing in Zimbabwe.

Dhesh Nelson is Export Credit Insurance Corporation PR and Communications Specialist. She can be contacted dnelson@ecie.co.za