CFTA: If you want to walk far, walk together

Ke Nako is a Tswanian word that means It’s Time. Eight years ago, amidst the sounds of Vuvuzelas, this phrase made rounds, signaling that it was time for Africa, as the continent hosted the football World Cup for the first time.

Ke Nako is a Tswanian word that means It’s Time. Eight years ago, amidst the sounds of Vuvuzelas, this phrase made rounds, signaling that it was time for Africa, as the continent hosted the football World Cup for the first time.

This week, as Kigali hosts the Extraordinary African Union Summit on the Africa Continental Free Trade Area (CFTA), I am reminded of the term. 

The global economy is at an inflection point where a go-it-alone approach is becoming the spirit of the times. Globalisation has come under attack and protectionism is at a fever pitch.

Belief in globalisation has been shattered by the outcomes of the global financial crisis of the past decade and voters across the developed world have been turning to politicians who claim that the answer to flat-lining living standards is for nation states to take back powers from remote international bureaucracies.

This in part explains Brexit in the UK and the recent developments in the US, where convergence to protectionist policies are increasing fears of impending trade wars with countries such as China and the European Union.

Amidst this cacophony of protectionism, Africa stands with a refreshing story.

Leaders of the 55 nation African Union are pushing forward with efforts for increased integration on the continent and trade liberalization by opening up markets through the Africa Continental Free Trade Area (CFTA) agreement.

The Africa Continental Free Trade Area seeks to create a continent-wide single market, allowing free movement of goods, services, people and investment flows.

If enacted, it will cover 55 African Union member states, with a combined population of 1.3 billion people and a GDP of $ 3.4 trillion, making it the largest free trade area in the world.

Currently, even allowing for Africa’s unrecorded informal cross-border trade, intra-Africa trade is the lowest compared to other major regions.

For the past decade, intra-Africa trade averaged at 15 per cent of Africa’s total trade, implying that 85 per cent has been trade with the rest of the world.

In 2014 in Europe, for example, 69 per cent of exports were to other countries on the continent. In Asia, that figure was 52 per cent and in North America it stood at 50 per cent.

Africa had the lowest level at just 18 per cent. In most African countries, customs procedures are onerous, visa restrictions are high and transport links remain underdeveloped.  Such barriers continue to stifle trade and discourage intra-continental cooperation.

The CFTA therefore presents a great opportunity for Africa to trade and support economic development.

It is being driven forward along with other key initiatives such as the Single African Air Transport Market and the Protocol on Free Movement of Persons and the African Passport, which will help to open up opportunities for trading enterprises, businesses and consumers across Africa.

By reducing tariffs, simplifying trade and clearing procedures as well as reducing import duties, the CFTA will help to expand intra-regional trade further by eliminating barriers to trade and harmonizing and standardizing current trade liberalization and facilitation regimes.

According to the United Nations Economic Commission for Africa, for example, the CFTA has the potential to boost intra-Africa trade by 53.2 per cent by eliminating import duties and to double such trade if non-tariff barriers are also reduced.

It will make business more affordable for informal traders to operate via formal channels and help to improve African competitiveness by improving resource allocations, allowing for easier exploitation of scale economies.

This will as a result produce more jobs for Africa’s burgeoning youth population as small and medium sized enterprises are able to penetrate regional markets.

Moreover, the CFTA will increase the need for connectivity, so there will be new business opportunities to invest in various sectors ranging from infrastructure, transportation and energy to information and communications technology (ICT) among others.

It is predicted that by 2030, Africa’s population will be around 1.7 billion people. In the same year, business and consumer spending is forecast to be around $6.7 trillion.

Creating a single market that facilitates trade within the region has therefore come at an important time and will undoubtedly position Africa as a global economic powerhouse.

Protectionism may be the new kid on the block, but kudos to the leaders of the African Union who have rejected this rather dangerous narrative, to push forward with continental integration. Achieving such integration may not come easy and there will be challenges on the way, however, the CFTA is a good start.

As the old African proverb goes, if you want to walk fast, walk alone, if you want to walk far, walk together! It is great that Africa chooses to walk together!

The writer is an Economist in the Monetary Policy and Research Department at the National Bank of Rwanda.

The views expressed in this article are of the author.

 

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