The 18th Ordinary Session of the Assembly of Heads of States and Governments of the African Union, held in Addis Ababa in January 2012, adopted a decision to establish an African Continental Free Trade Area (AfCFTA) with an indicative date of 2018.
The free trade area is supposed to include all fifty-four (54) African countries with a population of more than one billion people and a combined gross domestic product (GDP) of more than US $3.4 trillion.
Subsequently in June 2015, at the twenty-fifth summit of the African Union held in South Africa, negotiations towards the establishment of AfCFTA were launched.
According to the documents prepared to establish the free trade area, the major aim of AfCFTA is to create a single continental market for goods and services, which will ensure free movement of business persons and investments, as well as create an avenue for the establishment of the continental and the African Custom Union.
It is a market access mechanism that is expected to deliver several benefits to the African continent. AfCFTA will enhance intra- African trade through trade liberalization. The Action Plan on Boosting Intra-African Trade (BIAT) has identified seven priority action clusters, namely: trade policy, trade facilitation, procedure capacity, trade-related infrastructure, trade finance, trade information, and factor market integration. It will lead to a much larger market, which will improve competitiveness and encourage manufacturing within the African borders and also improve the standard of manufactured goods.
As one of the signatories of AfCFTA, Ethiopia has recently agreed to scale back 90 percent of tariffs for members of AfCFTA within the next 15 years.
What does this imply? What specific advantages will Ethiopia obtain from the higher level of tariff reduction?
According to official sources from the Ministry of Foreign Affairs, the tariff liberalization considers the existing conditions and keeps the national economic advantage of the country.
Ethiopia will have a huge market for its agricultural products, including coffee, oil seeds and pulses, hides and skins, textiles and apparel, and will also be able to export food items like vegetables, wheat, animal products, and manufactured goods.
Furthermore, the commercial competition among companies in the African region will help to improve the quality of its export commodities.
The tariff liberalization for the member states will be based on law and regulation. Ambassador Woinshet Tadesse, Permanent Representative to the African Union said AfCFTA helps Ethiopia to develop industries which create jobs for the unemployed and stabilize the market for consumers.
It also helps to create strong industries in Africa that can even compete in the international markets, she added. AfCFTA will create economic integration and social solidarity among member states.
Accordingly, the tariff liberalization in member states of AfCFTA will kick off from July 1, 2020 onwards.
AfCFTA, in my opinion, will provide further growth in the volume and quality of trade among African countries by trading in value-added products. This will help to create more jobs in the country of origin of the products and will also generate more income for countries compared to sending unprocessed raw commodities products instead of sending raw commodities.
UNECA experts researching the advantages of AfCFTA categorized the level of trade transactions within AfCFTA in three stages. At the first level, trade between African countries will grow by 28 billion, and at the best level, to 44 billion. Trade between the countries at the level of full liberalization will grow to 56 billion USD in GDP.
There are major preconditions that need to be fulfilled before full implementation of the agreement will kick off. The first is to agree on the rules of origin. The second is the market access offers which every country has to make for trade in goods, and the third is the market access offers for the trade in services.
With the rules of origin, if you create a free trade area, it means that the goods traded in the free trade area have to originate in that free trade area. The goods will qualify for the preferential treatment for the lower tariffs in the area if they originate from countries that are party to the free trade area. There are many ways of developing rules of origin for a free trade area, and the simplest is to say that any good that meets, for example, a threshold of 30 percent originating from the area qualifies.
As AfCFTA will be very competitive in every aspect, there is a need to design competition policy to avoid the pressure from big companies or monopolies that take advantage of the market push out others.
Now the question is, how could Ethiopia synchronize the basic tenets of the reform program with the requirements of AfCFTA? I think that Ethiopia can exploit several of its comparative advantages as the country joins the free trade area.
The geographical location of Ethiopia, it’s potential for diverse energy resources, the diversity of its commodities for exports, and its growing infrastructure and transport facilities in railroad and air transport provide a comparative advantage at the disposal of this country. Ethiopia has a better diplomatic standing and modern foreign policy objectives that the country can use to boost its role in AfCFTA.
But the country also faces a number of practical challenges that need to be addressed swiftly. Ethiopia needs to work on streamlining the nation’s fiscal, monetary and banking policy with that of AfCFTA.
The macroeconomic policy and the resultant financial and monetary regulations issued by the NBE need to test the operational policies and strategies of the free trade area against those of the national macroeconomic policy and the role that Ethiopia is to play in its economic development as a member of BRICS.
Besides, the quality of goods and value added products to be exported require higher attention and timely delivery. Nonetheless, diversification of more export commodities with required volume and logistics services is a weak link that the country should address urgently.
In line with the objectives of AfCFTA, Ethiopia also needs strong teams of negotiators who can safeguard the benefits and the national interests while discussing issues of an economic nature either bilaterally or at the regional level.
In my opinion, Ethiopia needs to strengthen its private sector so that the sector could play an important role in a relatively competitive regional economy that is on the horizon. Quite a considerable number of exporters handle their business far below the international standards. They have challenges in organizing modern logistics, packing and forwarding, handling modern financial systems and planning of their business.
I have the opinion that the government needs to conduct a series of sector oriented technical and managerial training programs designed to the level of the local private sector in the country.
Further support for the industrial parks with emphasis on the manufacturing sector and agro-industry will give Ethiopia a broader export of commodities, while the local industries can enjoy sustained markets for their products, prompting them to employ more manpower as part of the government’s efforts to reduce the alarming rate of unemployment in the country.
Local consulting firms should be given expanded opportunities to work with local companies on market research, logistics management and soliciting of partners in the confines of member countries.
Although AfCFTA is all about free trade and future economic integration, it would also serve as a major instrument of peace, peaceful cooperation, and reconciliation between countries at loggerheads among themselves. Ethiopia’s peacekeeping and mediation experience could uplift the role of the country to promote peaceful economic development in the entire region.
Ethiopia has a lot of visible opportunities within AfCFTA, but there is still more to be done.
National strategies for further structural adjustments and economic reforms currently underway need to be put in place and implemented to avoid any discrepancy with the objectives of the free trade area.
AfCFTA member nations are all at various level of economic development. They have different levels of preparedness in financial status, trade regulation, logistics and infrastructural development to meet the standards of the free trade area.
Under a global situation in which free trade is being challenged by escalation of reciprocal tariffs and trade protectionism, African countries need to join hands to organize a continental system of trade with reasonable level of tariffs.
Ethiopia has started to establish national economic zones and free trade centers like the Dire Dawa Free Trade Area and some others to stimulate regional and international trade.
Each African country needs to develop their own logistics and infrastructure facilities like roads, aviation services, communication systems to the standards that are acceptable not only by AfCFTA but also meet the standards at global level.
Resolution of conflicts and wars among future AfCFTA member states is an important precondition for the smooth flow of trade among the countries. African leaders need to take the prevalence of peace within their own countries and with other African countries.
AfCFTA is part of the Agenda 2063 and other socio-economic programs that are designed to ensure comprehensive development for the peoples of Africa. Implementing a continental free trade area requires strong political commitment from the leaders of Africa. There needs to be a unity of purpose and determination based on the spirit of pan Africanism and united effort among the countries.
It is obvious that there are a number of challenges that need to be resolve before the actual implementation of the free trade. Viable strategies and plans of action need to be designed in a collective approach.
There is also a need for accelerating the pace of implementation because of the crisis in both international trade and the global economic situation.
BY SOLOMON DIBABA
THE ETHIOPIAN HERALD WEDNESDAY 14 MAY 2025
