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Free trade Africa African Union

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'Moving into the heart of negotiations' for Africa's free trade agreement

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AU Commissioner for Trade Albert Muchanga at the World Export Development Forum, Lusaka. Photo: ITC

The African Continental Free Trade Area agreement makes some big promises about removing barriers to trade and freeing up the flow of goods and services. It would be one of the world’s largest free trade blocs. The agreement was originally signed by 44 countries in March and signatories to the deal now number 49, but when will it come into force and what are challenges in putting it in place?


“The process of ratification is progressing very, very well,” Albert Muchanga, the African Union’s commissioner for trade told RFI on the sidelines of the World Export Development Forum in Lusaka. “It’s possible that by March [next year] or by December this year we should have the minimum of 22 countries required to ratify and bring it into force after a month.”

Six countries are yet to sign the Continental Free Trade Area (CFTA) agreement – Benin, Botswana, Eritrea, Guinea Bissau, Nigeria and Zambia.

“We are in constant touch with the six countries that haven’t signed,” says Muchanga. “Most of them have indicated that they should be able to sign before the end of this year.”

Africa’s free trade area agreement ratified by end of year? Interview: Albert Muchanga

Seven countries have ratified the agreement so far – Chad, eSwatini (formerly known as Swaziland), Ghana, Guinea, Kenya, Rwanda, Niger. Leaving 15 countries needed to activate the agreement and make the free trade bloc a reality.

“Quite a good number of them have assured us that they’re going to ratify by December this year,” says Muchanga, a Zambian national, who previously worked as Zambia’s ambassador to Ethiopia.

Nigeria

Africa’s largest economy has still not signed the agreement, despite President Muhammadu Buhari’s promises in July that he “will soon sign it”. Buhari’s administration had originally said it was concerned about protecting the country’s businesses and industry.

“The government of Nigeria has not finalised the stakeholders consultations, they’re almost there,” says the AU trade commissioner.

Niger’s President Mahamadou Issoufou is in touch with Buhari, according to the commissioner, in his role as “champion” of the CFTA on the heads of state level. South Africa’s President Cyril Ramaphosa, who signed the agreement in July, is also liaising with Buhari, adds Muchanga.

“The government [of Nigeria] is actively involved with the stakeholders to ensure that there’s buy-in from everybody,” says Muchanga. “But there are quite a number of stakeholders who may not be fully convinced – some could come from business, some could come from the trade union movement, some come from the regions,” the commissioner adds, refusing to be more specific, saying he is not in a position to comment.

Potential stumbling blocks and ‘adjustment facilities’

Some general concerns centre on the potential impact a continental free market could have on particular sectors of national economies. If a smaller economy was swamped by tariff-free imports from a more developed economy with more competitive businesses, there could be job losses.

“They should shift focus, their new domestic market is the African Continental Free Trade Area and they should produce to scale,” says Muchanga. However, the commissioner also refers to safeguards that may be available to intervene on occasion of unexpected surges of imports.

“If a country has a sudden inflow of imports it can enforce safeguard measures to ensure the economy is not disrupted.”

The other matter for national governments is the loss of revenues from removal of tariffs at border posts. In this case, an adjustment facility may be able to pick up the slack in reduced revenues.

“As to the shape which it will take, we don’t know, the study is underway and we hope to get it out by the end of the year,” the AU official says.

Muchanga cites a report by the UN Conference on Trade and Development (UNCTAD), stating that governments may face a reduction in revenues from tariffs in the short term. Nevertheless in the long term “everybody is going to benefit” and there can be a shift to using sales tax to make up the difference.

Non-tariff barriers could be an issue for the functioning of the CFTA once it is up and running. These may be as simple as delays at border crossings or controls on foreign exchange. This hurdle will be dealt with by a special monitoring mechanism, says the AU commissioner, triggered by the coming into force of CFTA. The monitoring will examine non-tariff barriers and analyse how they are “evolving” with the opening up of the African single market.

Business guide

In tandem with efforts by the African Union to further hammer out the details of the CFTA and push the continued ratification of the agreement, the International Trade Centre has published a 57-page guide for African businesses. It acts as an assessment of the 450-page CFTA agreement, which itself is a starting point for more detailed negotiations.

A business guide to the African Continental Free Trade Area Agreement” was launched at the World Export Development Forum and aims to “identify potential synergies, issues, opportunities and benefits for African business”.

It highlights a number of expected benefits of CFTA. But also outlines difficulties in the ongoing negotiations over “sensitive” goods that need to be protected and how tariffs will be phased out for countries at different levels of economic development. “Member states are now moving into the heart of negotiations,” says the guide.

The CFTA could cover a potential African market of some 1.7 billion people by the year 2030, representing a total gross domestic product of more than 3 trillion US dollars. It is hoped that intra-African trade will be doubled by the year 2022.

Key decisions on specific elements of the CFTA are likely to be taken at the next African Union summit in January 2019, according to the International Trade Centre.

Reporting assignment supported by the International Trade Centre