CFTA: Challenges and the road ahead

Foreign affairs minister Louise Mushikiwabo chats with Olusegun Obasanjo, former President of Nigeria. (File)

World history was made on March 21, 2018 in Kigali, Rwanda when Africa launched its Continental Free Trade Area, the largest economic integration project ever undertaken.

The African Continental Free Trade Area (CFTA) was negotiated by the 55 countries of Africa, and was expected to double intra-Africa trade, creating the much-needed jobs and wealth for a young continent with a median age of 19.5 years and a population of 1.27 billion people.

Africa has a geographical size of 30 million square kilometers and 60 per cent of the world’s arable land. In the global production of minerals, Africa accounts for 75 per cent of the platinum group, 46 per cent of diamonds, 21 per cent of gold, 17 per cent of uranium, and 8 per cent of aluminum, to mention a few.

The EU raw materials initiative indicates the critical economic, strategic and security importance of minerals. What is really required in Africa though is not mines but minds, to convert these resources into equitable and sustainable growth and wealth.

The Mckinsey Global Institute, in its ‘Lions on the move 2.0’, estimates that consumer and business spending in Africa has reached US$ 3.9 trillion annually, Africa has 700 companies with annual revenues of more US$ 500 million, and manufacturing output has reached US $ 500 billion and is projected to hit US $930 billion by 2025, creating 14 million stable jobs over the decade.

Economies of scale and other advantages from this size and natural wealth, and despite the enormous potential, have been denied by the balkanisation of the continent into diminutive national economies and multiple economic regulatory regimes, stunting economic growth and global competitiveness.

The CFTA is meant to create a large single African market with a common trade regime, providing a seamless regulatory regime across the continent. The euphoria at the launching of the CFTA was therefore very much in order but a lot of hard work lies ahead, especially to innovate new products and industries that can utilise new export and investment opportunities, and realise the enormous potential.

A sober assessment of the tasks and challenges ahead should now be undertaken with a view to effectively addressing them in order to deliver the promise of the African Continental Free Trade Area. 

Forty-four African countries signed the Agreement establishing CFTA on the spot. Eleven countries didn’t, including Nigeria and South Africa, which was a setback, but these two big economies are expected to sign in due course.

The 44 countries, who include Kenya and Egypt, account for 38 per cent of intra-Africa exports and 47.2 per cent of intra-Africa imports, according to current figures from the COMTRADE data base. South Africa accounts for 34 per cent and Nigeria 9 per cent of intra-Africa imports.

Of Africa’s total GDP at purchasing power parity in dollar terms of US$ 6.7 trillion (nominal GDP is US$ 3.3 trillion), the 44 countries that signed the ACFTA account for 65.1 per cent, of which Egypt accounts for 18.9 per cent. South Africa and Nigeria, which haven’t yet signed the Agreement, account for 11.9 per cent and 17.6 per cent respectively.

Evidently then, the absence of Nigeria and South Africa from the ACFTA, together accounting for 43 per cent of intra-Africa imports and 29.5 per cent of Africa’s GDP, remains a matter of some concern. A first challenge for the ACFTA then is to get Nigeria and South Africa to sign the Agreement.

Nigeria is undertaking internal consultations among stakeholders. What might be important is to clearly explain the flexibilities in the Agreement and the 10 per cent list of excluded and sensitive products, amounting to about 600 products, as adequate to protect domestic industries; as well as the vast export and investment opportunities in Africa to follow up and utilise. Regional and continent-wide value chains will benefit domestic industries through sourcing and exporting inputs on the free trade area. 

The outstanding work should be completed, such as legal scrubbing of all the Annexes, finalisation of tariff modalities and identification of the services sectors that will form the integrated services market. When this is done, South Africa is likely to sign the Agreement.

The good thing is that a one-year timetable for completing this outstanding work has been agreed and adopted. Abiding by this timetable will be a challenge, and will require good management of the meetings, so they duly accomplish what each of them is called for.

The Agreement establishing the ACFTA requires 22 ratifications before entering into force. Forty-four signatories provide a good catchment area. The summit spurred a sense of urgency and the expectation that the Agreement should enter into force before the end of this year 2018. This is possible if proactive and systematic outreach activities are sustained, to mobilise governments and relevant stakeholders and parliaments. A clear programme to this end, with designated emissaries would help. 

Governments have challenges to contend with. Financial and human resource shortfalls, as well as disconnects between the trade ministries on the one hand, and finance and planning, and foreign affairs ministries on the other, are notable constraints in a number of countries.

Boosting financial, skills and personnel capacities in governments, and institutionalising national multi-stakeholder consultative frameworks, will therefore be urgent interventions to support ratification and implementation of the ACFTA.

Industry-related challenges will need to be addressed under a renewed impetus that adequately prioritises their role in working the free trade area. The Afrexim Bank and the African Development Bank have properly stepped forward with financial products to support trade under the free trade area, bearing in mind that 90 per cent of international trade uses credit. Intra-Africa trade has always had enormous unutilised potential.

In COMESA, for instance, intra-regional exports of goods have an un-utilised current potential of US $82.3 billion. A survey of enterprises in active production found that lack of information about products in the region was a key factor. Other factors included the high cost of inland surface and air transport as well as perceived risk especially by banks.

The moment for Africa is now but nothing is pre-determined and the efficacy of the CFTA will depend on how well the myriad constraints facing Africa are addressed. Nigeria and South Africa need to sign the Agreement. A systematic ratification programme should be put in place and this should not be left to chance. Government, industry and academia related constraints should be looked into and addressed. Innovation for new products, industries and processes should infuse the CFTA if it is to deliver the expected welfare. As Nelson Mandela said, after climbing a great hill, one only finds that there are many more hills to climb.

The writer is Director of Trade, Customs, and Monetary Affairs at the Common Market for Eastern and Southern Africa (COMESA).

The views expressed in this article are of the author.

 

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