This is the second article in our The African Continental Free Trade Agreement (AfCFTA) series, where we continue our exploration of this transformative initiative. In this article, we delve into the multifaceted challenges that cast shadows on the path to AfCFTA's success, emphasising the need for proactive measures to transform these obstacles into opportunities for collective prosperity.
While AfCFTA presents opportunities for economic growth and transformation of the African continent, it is not without its growing pains. Some of the challenges that potentially inhibit AfCFTA's success are as follows:
A lot of African nations lack the organisational capability to oversee and manage operations along their terrestrial boundaries, which is a critical aspect for adhering to the verification and monitoring rules of the AfCFTA and ECOWAS. Studies have also shown that poor infrastructure such as road, rail and port facilities add 30% to 40% to the costs of goods traded among African countries. This in turn means that products can become more expensive to move and trade, thereby affecting competitiveness. The high cost of goods gives rise to counter smuggling and other illicit activities along the border, consequently undermining the success of the agreement. As more countries trade with each other, there are tendencies that this could become a prevalent issue if swift action is not taken to address it.
Customs and Border Procedures
Different countries have different rules at their borders. Harmonising these rules can be tricky to ensure goods move easily between countries. Discrepancies in customs procedures, including lengthy paperwork processes and differing regulations, can result in delays at border crossings. These delays can lead to storage costs, reduced shelf life for goods, and missed business opportunities, especially for time-sensitive products.
Divergent National Interests
While the potential benefits of AfCFTA for African economies are widely acknowledged, the individual priorities and concerns of nations can sometimes diverge from the overarching vision of a unified and integrated African trading bloc. Key among these divergences are the protection of domestic industries, revenue dependence on customs duties, and disparities in economic power.
Successfully navigating these divergent national interests calls for adept diplomacy and a commitment to finding a balance between individual priorities and the collective goal of fostering unity and prosperity.
Low Intra-African Trade
Despite the promise of increased economic integration and collaboration, the current levels of trade between African countries remain relatively low. The World Bank stated that trade in Africa remains low, this was echoed by the Council for foreign relations which argued that only 15% of African exports go to other African countries, compared to intra-trade levels of 58% in Asia and 67% in Europe. Low intra-African trade could be traced to poor communication and lack of adequate transportation infrastructure between African nations. Also, for African nations to stimulate higher demand for their products, the focus should be on exporting finished goods rather than raw commodities.
Barriers to Free Movement
This revolves around the contrast between the aspiration for the unrestricted flow of goods and the persistence of visa requirements for the movement of people among member nations. Despite their commitment to AfCFTA's economic integration goals, some member nations still uphold visa policies that demand citizens from other African countries obtain visas for travel. This inconsistency between the ideals of open borders and the practical realities of visa restrictions poses a significant obstacle to the full realisation of AfCFTA's objectives
The AfCFTA has also faced criticism for yielding substantial income disparities among its member nations. Some are of the opinion that the economies of countries like Egypt, Nigeria, and South Africa, which account for a significant portion of Africa's GDP, can potentially dominate trade, leaving smaller economies at a disadvantage. It is important for AfCFTA to address these disparities by ensuring that the benefits of increased trade are distributed more equitably among its member nations. As the AfCFTA continues to unfold, bridging these gaps will require not only political resolve but also a concerted effort to promote equitable growth and shared prosperity across the diverse African economies.
Informal Trade Challenges
Within the context of the AfCFTA, informal trade emerges as a significant challenge. This type of trade operates outside the realm of formal regulations and taxation, resulting in multifaceted issues. These issues include revenue loss for governments, distortions within markets, inaccuracies in data, and impediments to the broader goal of industrialisation. Additionally, informal trade's impact extends to consumer protection, evasion of non-tariff barriers, and highlighting the inadequacies of existing trade infrastructure. Tackling the complexities of informal trade is pivotal for the AfCFTA's success in establishing transparent, inclusive, and sustainable intra-African trade that contributes substantially to the overall economic advancement of the continent.
Inadequate Trade Infrastructure
Lack of access to trade-related information, trade facilitation centres, and digital platforms can hinder businesses' ability to find partners, access market information, and navigate trade processes smoothly. In a notable effort to enhance intra-African trade, the Secretariat of the African Continental Free Trade Area (AfCFTA) has entered into a Memorandum of Understanding (MOU) with Zenith Bank Plc. The purpose of this collaboration is to create an integrated online platform that will centralise trade-related information and streamline commercial activities throughout the continent. This partnership represents a significant advancement in operationalising the AfCFTA and facilitating smoother business transactions across African nations.
Non-tariff barriers (NTBs) represent challenges to the AfCFTA by creating obstacles to trade that go beyond traditional tariffs. NTBs encompass various regulatory, administrative, and technical measures that can impede the flow of goods and services between member countries. These barriers include issues like complex customs procedures, differing product standards, licensing requirements, and bureaucratic red tape. As the AfCFTA aims to facilitate seamless trade across the continent, the persistence of NTBs can hinder this goal. Addressing NTBs is essential for the AfCFTA to realise its potential, as these barriers can undermine the intended benefits of increased intra-African trade, economic growth, and job creation.
Undoubtedly, the AfCFTA carries significant potential for fostering economic change and advancement throughout the African continent however, its journey towards success is accompanied by various challenges. In our next series, we shall discuss the ways Africa can turn these hurdles into opportunities for a more integrated and prosperous intra-continental trade landscape.
- Douglas Okwatch "Africa's Free Trade on Track, More Efforts Needed" – January 2023
- UNCTAD Research Paper No. 15, "African Continental Free Trade Area: Challenges and Opportunities of Tariff Reductions"
- Victor H Mlambo, Et al. "The African Continental Free Trade Area: Challenges and Possible Successes" – April 2022
- Oluwatobi Ojo "AfCFTA: Examining the challenges and opportunities" – July 2021
- Sharkdam Wapmuk Ph.D and Jamaludden Mohammed Ali, "The African Continental Free Trade Area (AfCFTA) and Regional Economic Integration: Prospects and Challenges" (2022)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.