Today marks the commencement of AFCFTA envisaged almost for over half a century. Dr. Vera Songwe, Executive Secretary of the United Nations Economic Commission for Africa, has addressed in writing questions that The Ethiopian Herald sent to Her Excellency via email. Issues ranging from countries’ preparations to AFCFTA to whether or not the necessary infrastructural facilities are there; policy harmonization and whatnot are discussed in depth. Enjoy your reading!
How are countries prepared for AFCFTA
Over half a century after its initial conception, the landmark African Continental Free Trade Area (AFCFTA) will be officially launched on January 1, 2021.On 1 January 2021, at least 34 African countries will have deposited their AfCFTA instruments of ratification with the African Union Commission (a further 2 countries have ratified domestically, and are in the process of instrument deposition). This historic achievement crowns a vision
of trade integration that is over 50 years old, originating in an economic committee appointed by the inaugural Summit of the Organization of African Unity, in 1963, to study the “possibility of establishing a free trade area between the African countries”.
African negotiators have worked hard through the trials and frustrations of Covid-19 to make this commencement of trading possible. While some trade will indeed start on January 1, 2021, there are still a few protocols to be finalized by the parties.
First, the remaining countries must ratify the Agreement to bring all African countries together under the initiative. Second, not all countries that have ratified the Agreement have submitted their initial tariff offers, though 41, covering most of the countries that have ratified, have done so. For instance, Ethiopia has ratified the agreement, but not yet submitted its tariff offer. A small number of products – about 10 per cent – still do
not have agreed rules of origin, and cannot be traded under the AfCFTA until they do. An in-built agenda to finalize this remaining 10 per cent of rules of origin envisages their conclusion by June 2021. Finally, though about 33 countries have submitted schedules of concessions for trade in services (including the EAC countries as a group), these schedules have not yet been formally reviewed by negotiators and the liberalization of services will only begin once those offers have been reviewed and agreed.
The United Nations Economic Commission for Africa (UNECA) is proud to have been an important part of this initiative over the years and continues to support member states in the process.
Though more work must be done in a small number of technical, the momentum behind the AfCFTA has continued despite the Covid-19 pandemic to ensure the historic start of trading on 1 January 2021.
Are the critical infrastructure there to achieve AfCFTA?
Sufficient infrastructure exists to allow intra-African trade – in the first half of 2020, despite Covid-19, $36 billion in goods flowed between African countries. However,Africa’s infrastructure could be improved. Africa’s costs of transportation is still 63 per cent higher than developed countries and freight costs are 11.4 per cent of import value for Africa (as compared to 6.8% for developed countries).
Currently, cross-border and regional infrastructural projects are under-invested in: roughly 55% of Africa’s ‘Aid for Trade’ development assistance has been concentrated in ‘economic infrastructure’ over the last two decades, but only 15% of this has been in regional initiatives.
East Africa has, however, been one of the more promising regions for trade-related infrastructure investment. The Trade Mark East Africa (TMEA) initiative has invested over $800 million to enhance trade facilitation across the region, focusing on initiatives like improving infrastructure, upgrading ports and border posts, and automated trade systems and processes.
The ECA and TMEA recently signed a memorandum of understanding to leverage our respective strengths and accelerate these developments. For East Africa, the development of the Northern and Central Corridors will form critical trade facilitating infrastructural developments.
These multimodal routes connect the seaports of Mombasa and Dar es Salaam, respectively, to the landlocked countries of Burundi, Rwanda, South Sudan and Uganda. The Lamu Port-South Sudan-Ethiopia-Transport (LAPSSET) Corridor project is of similar importance and the leaders of these countries are focused on accelerating its implementation.
The core infrastructure initiative designed to complement the AfCFTA is the AU’s Programme for Infrastructure Development in Africa (PIDA), which consists of 51 projects aimed at improving the continents infrastructure. The PIDA is specifically cited within the Boosting Intra-African Trade Action Plan – adopted by the AU Assembly in 2012 – as being a necessary component of building the trade-related infrastructure to transform Africa’s trade.
Africa has also launched a number of service projects to support the launch of the AFCFTA. Limited – and expensive –convertibility between African currencies raises costs for traders. The Afreximbank Pan-African Payment and Settlement System (PAPSS) seeks to improve Africa’s cross-border payments infrastructure, saving the region an estimated $5 billion in payment transaction costs annually.
How do you evaluate commitments of governments in harmonizing laws?
Though governments must retain the policy space for legislative flexibility in many areas, there are certain topics where harmonization is conducive for trade. These are known as “behind the border” issues, and are to be explicitly targeted in the phase II and III negotiations of the AfCFTA expected to commence in early 2021. Fortunately, there already exists some policy alignment in these areas across Africa.
On competition policy, already the COMESA, EAC, CEMAC and ECOWAS regions have common regional competition laws and enforcement agencies. The African Competition Forum further helps Africa’s national competition authorities to coordinate and share best practices, particularly in emerging issues like market domination in the digital economy.
On intellectual property rights, the 17 (mostly francophone) countries of the Organisation Africaine de la Propriété Intellectuelle (OAPI) have already unified their intellectual property laws.
The 19 (mostly Anglophone) countries party to the African Regional Intellectual Property Organisation (ARIPO) on the other hand, have divergent intellectual property laws but a few common protocols (on protection of patents, trademarks, plant varieties and traditional knowledge) and are currently working towards the establishment of a regional voluntary copyright registration and notification system.
Investment rules may be more a difficult topic for harmonization. Since 1960, African countries have concluded 852 bilateral investment treaties, 515 of which are currently in force.
These treaties overlap and conflict in provisions, and are ripe for consolidating and harmonizing (hopefully under the AfCFTA protocol on investment).
Finally, following the decision of the February 2020 meeting of the AU Heads of State and Government, the AfCFTA will now have the opportunity to harmonize digital regulations related to e-commerce. ECA and the AU Commission are leading on this initiative.
ECA surveyed online sellers in East Africa, in 2020, to identify the priorities for improving cross-border e-commerce. The top responses were harmonizing tax laws; harmonizing laws on electronic trade, digital signatures and e-transactions, and harmonizing data standards and privacy laws. COVID-19 has rendered his even more urgent.
How will ECA assist trading among Africans?
ECA is working with 38 African countries to develop AfCFTA implementation strategies – 11 of which have now been validated and implementation has begun.
These strategies identify new opportunities for diversification, industrialization and value chain development, and complementary actions needed to overcome the existing constraints to trade and industrialization. The AfCFTA Strategies are being drafted through an inclusive and consultative process at the domestic level, and therefore reflect the priorities and interests of a wide range of national stakeholders.
To use the example of Ethiopia, ECA has already assisted Ethiopia to undertake an AfCFTA impact assessment study of the AfCFTA on Ethiopia; translate the Agreement into Amharic; and host a sub-regional forum on the AfCFTA. Similar processes are underway in various countries including Nigeria, Mauritania and SADC at the regional level.
ECA has also organized a number of national, regional and continental AfCFTA forums focused on sensitization, awareness building and information sharing on the content of the Agreement.
These forums have targeted a wide range of stakeholders such as the private sector, civil society, women groups, academia and the media. Broadly, stakeholders have indicated a keen interest to engage on AfCFTA implementation.
Although the forums have been found to contribute to increase understanding on the AfCFTA among participants, it has been highlighted that more targeted engagement and advocacy efforts are required, including those that reach more remote and vulnerable groups of stakeholders.
Most recently, ECA has developed the African Trade Exchange (ATEX) B2B e-commerce platform in partnership with Afreximbank. Scheduled to begin operations in the first quarter of 2021, the ATEX will facilitate trade between African businesses utilizing the AfCFTA rules. It will seamlessly integrate logistics and payment options for traders, with these being known challenges for trade in Africa. The platform will also help to identify any real time constraints to trade and work with relevant institutions to relax these constraints.
Tell us in figures how the trading will promote economic growth in Africa?
ECA modelling forecasts the AfCFTA will boostAfrica’s overall GDP by between $28 to $44 billion annually after full implementation of the reform in 2040, as compared to a baseline without tariff liberalization.
Africa’s net total exports are forecasted to increase by between $40 to $56 billion. All countries in East Africa are forecast to experience positive welfare gains as a result of the AfCFTA and its implementation could lead to an estimated additional 2 million jobs for the East Africa region for example. We are undertaking similar analysis for the other regions and have begun to work on country specific gains.
In Ethiopia specifically, we forecast a 23-26% increase in exports to Africa from Ethiopia accompanying a GDP boost of 0.07% and estimated fall in total government revenue of 0.7% in the short term, but with benefits concentrated in textiles, processed foods and light manufacturing.An estimated fall in total government revenue of 0.7%.
An important part of the economic improvement in Ethiopia is expected to be more competitive import prices, which are expected to fall by almost $2 million. We expect a net annual welfare gain of $239 million with much of this being driven by improvements in the country’s efficiency of production.
The AfCFTA will also contribute to longer-term structural changes that are more difficult to formally estimate, but known to lead to firmer and more sustainable growth and development. First, the AfCFTA will helps drive Africa’s long-overdue industrialization by accruing its greatest impact on intra-African exports of industrial goods – estimated to increase by 25-30% (or up to $43.3 billion).
It will also encourage African export diversification: Africa’s exports outside the continent are concentrated in petroleum oils (40% of total African exports) as well as metals (12%) and gold (7%). Intra-African trade is more diversified.
As a result, when there is an economic crisis Africa’s external exportscurrently collapse: in the 2008 global financial crisis external exports fell by 31%, while intra-African trade fell only 10%. During Covid-19, Africa’s external exports fell 20% while intra-Africa trade fell only 13%. By promoting more intra-African trade, the AfCFTA will help to make Africa’s trade more resilient to external shocks.
What hope is there for Africa’s development in the year 2021?
The Covid-19 pandemic is expected to lead to a significant and long-lasting contractionfor many African economies if significant reforms are not put in place and if additional financing is not accessible by the continent for growth and job creating investments. To build forward better and faster Africa must put its capital, human, and financial to work to accelerate implementation of sustainable investment projects and broaden and strengthen its information technology infrastructure amongst others.
ECA estimates that Africa’s growth could contract for the first time in more than 20 years by between 2 and 5.4 per cent in 2020. By 2021, Africa should have started to bounce back with GDP growth greater than 3 per cent, on average.
Africa will however face critical challenges in the areas of debt sustainability as a result of the economic and fiscal costs of the Covid-19 pandemic. ECA assesses that Africa’s fiscal deficit could increase from 4.7% of GDP in 2019 to 8.7% in 2020, thereby rising Africa’s debt level from 55% of GDP in 2019 on average to 66% on average by 2021.
Timely access to the vaccines will be besides the launch of the AfCFTA one of the most important determinants of how well and how fast Africa rebounds.
The vaccine will allow economies to exit from costly and disruptive intermittent lockdowns. Being more financially constrained, solutions like the AfCFTA will have to form an important part of Africa’s Covid-19 “build forward package”.
This will also need to be underpinned by continuous improvements in the overall governance environment to ensure more citizens have better access to the opportunities unleashed by the AfCFTA in the agriculture, manufacturing and services sector.
The Ethiopian herald January 1/2021
