The agreement establishing the African Continental Free Trade Area ("the Agreement" or "AfCFTA") is arguably the most discussed economic subject out of Africa. Now the largest free trade agreement (FTA) since creation of the World Trade Organisation (WTO), it is easy to understand the attention.
Considering how long Africa has unsuccessfully attempted to set-up a pan-African economic community, recent steps towards developing a working FTA have surprisingly advanced very quickly.
This progression has moved many businesses to quick thinking, as they look to align their business models with trade patterns that could evolve as a result of the Agreement. However, several businesses have indicated a significant challenge with putting together a robust response to the AfCFTA.
They explain that so much has been said about the Agreement but very little clarity is being disseminated about its workings and its impact on businesses. Whilst some countries have done impact assessments, these assessments have failed to provide the visibility that these businesses need to plan around the Agreement.
This write-up provides some background to the AfCFTA, reviews its current state and attempts to predict what businesses should expect in the short to long term.
The AfCFTA, which came into force on 30 May 2019, is the culmination of several years of deliberations and negotiations around the economic integration of Africa. It is the outcome of a process that started as a long term African vision.
The founding fathers of the Organization of African Unity (which has now metamorphosed into the African Union (AU)) strongly believed that Africa would only be truly independent with greater economic integration among the member states. That belief still holds true today, with the AU predicting that Africa would be wealthier and less vulnerable to external vicissitudes, if member states traded more with each other.
Against this backdrop, AfCFTA is designed to be a legal instrument which would foster economic integration by creating a single market for goods and services, vide progressive elimination of tariff barriers (TBs) and non-tariff barriers (NTBs) (Eg. permits, national protectionist policies) to trade and investment.
Is removal of TBs and NTBs the single bullet that automatically integrates the African region? Absolutely not! The current regional infrastructure is not built for intra-Africa trade, visa restrictions still create problems, and Africans still need to move beyond historical biases. So there are still other challenges to overcome and they need time.
However, a platform that removes TBs and NTBs in international trade is always a sweetener, which without doubt has the ability to get businesses in Africa looking inwards for solutions.
Current state of the AfCFTA
Based on its structure, AfCFTA addresses six (6) broad areas, divided in two phases:
Phase 1: What goods are covered and how will they be liberalized? What services are covered and how will they be liberalized? How would disputes be resolved?
Phase 2: How would intellectual property rights be protected? How will intra-Africa investment be increased and/or facilitated? How would competition be promoted?
Whilst work on Phase 2 is still at its infancy, work on Phase 1 is well advanced, with the expectation that final details would be completed ahead of the trading start date of July 2020. For now, the focus of this write-up would be on Phase 1:
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