Ceteris Paribus:eben mabunda
THE African Continental Free Trade Agreement (AfCFTA) finally became operational this week following delays due to the ravaging effects of the novel coronavirus that is threatening to paralyse the globe.
Initially, the liberalised trade on the continent was supposed to start in July 2020 after 54 of the 55 countries signed the agreement.
The trade area is set to be fully operational by 2030 and has the potential of being the world’s biggest free-trade zone by area with a potential market of 1,2 billion people. The continent has a Gross Domestic Product (GDP) of US$3 trillion. This can make the African free trade area, the world largest free zone since the formation of the World Trade Organisation.
Intra-African trade under the AfCFTA is expected to grow by over 50%, unlocking exports worth US$84 billion and integrating the market beyond national economies through promotion of free movement of investments and human capital.
AfCFTA secretary-general Wamkele Mene said, “54 out of 55 countries have signed the agreement; 33 have ratified the agreement and over 40 countries have submitted their offers which signals that Africa is ready to start trading on the basis of new rules and preferences that will ensure market integration.”
Eritrea is the black sheep while 20 countries including Tanzania, Burundi and South Sudan have signed but are yet to ratify AfCFTA.
Africa’s intra-continental trade accounts for 15% of the total GDP compared to 58% in Asia and slightly over 70% in Europe.
The accord seeks to revolutionise the low continental trade by eliminating cross-border tariffs on 90% of goods, facilitate free movement of people and capital, promote investment and pave way for a continent-wide customs union.
Several preparatory initiatives have been implemented to ensure smooth integration and inter-state co-operation for the success of the trade bloc.
So far, 41 countries have submitted tariff offers which outline frameworks on tariff negotiations. Tariff consultations on provisions and levies are expected to end in July 2021.
For the unhinged trading between buyers and sellers, the Economic Commission for Africa (ECA) launched a business-to-business e-commerce platform — ATEX in 2020.
ECA partnered the African Export-Import Bank (Afreximbank) which serves as a broker for the payment systems and logistics.
The AfroChampions Initiative led by former South African president Thabo Mbeki and Nigerian billionaire businessman Aliko Dangote in 2020 tabled a U$1 trillion investment fund to support the AfCFTA. The fund is designed to spur infrastructure and industrial investment to unlock AfCFTA’s 2030 goals.
Market watchers say the pact is a giant leap toward fostering regional economic growth but there are fears that African markets are ill-prepared due to high levels of competition.
Africa is dogged by other challenges such as tariff and non-tariff barriers, poor infrastructure, a weak transportation network, government bureaucracy, high levels of corruption and few supportive policies.
Considering the wide disparity in socio-economic development in Africa, bridging the heterogeneity gap is also problematic.
Over 50% of Africa’s GDP is contributed by Egypt, Nigeria and South Africa while six sovereign island nations collectively add 1%. The AfCFTA has the greatest income disparity compared to other blocs and more than double the levels witnessed in the Association of Southeast Asian Nations (ASEAN) and the Caribbean Community (CARICOM).
For the effectual implementation of the AfCFTA, several bottlenecks have to be addressed such as addressing fair mechanisms in income gaps, improving investments in power and infrastructure.
But Africa can learn from the recent protracted conclusion of the Brexit that the triumph of the bloc hinges on the unity of member states.
Mabunda is an analyst and TV anchor at Equity Axis, a leading financial research firm in Zimbabwe. — ebenm@equityaxis.