Africa -China Review Africa -China Cooperation and Transformation
By: Mweusi Karake
According to the African Union schedule, the African Continental Free Trade Area (AfCFTA) will commence trading on the 1st of January 2021.
As per the press release from the African Union released on Sunday 6th December 2020, the Heads of State and Government have underscored the urgent need for Member States to kick-start trading activities, under the African Continental Free Trade Area (AfCFTA). The decision was adopted during a virtual meeting of the 13th Extra Ordinary Session of the Assembly of the Union on the AfCFTA, held on Saturday 5 December 2020, under the Chairmanship of South African President Cyril Ramaphosa, who is the current Chairperson of the African Union (AU). The summit was held to consider the adoption of the legal instruments that will facilitate the AfCTA’s operation.
Welcoming all the participants to the 13th Extraordinary Session of the Assembly of the Heads of State and Government of the African Union, Chairperson Ramaphosa said “today we stand on the cusp of a new era in the progress of our continent. The moment that we have all been working painstakingly towards has finally arrived. We are all filled with a great sense of pride at how far we have come to reach this moment”.
The AU Chairperson further recalled the collective journey embarked upon over four decades ago, before the existence, of the current African Union, when its predecessor was still called the Organisation Of African Unity (OAU)with the adoption of the Monrovia Strategy in 1979, followed by the Lagos Plan of Action in 1980, the Abuja Treaty in 1991 and the subsequent Decisions and Declarations adopted during previous Summits relating to the economic development and integration of the African continent
He optimistically announced that “ now, we are about to witness the realisation of one of the flagship projects of Agenda 2063.”
President Ramaphosa called the FfCTA a continental milestone. “Throughout this process, we have stood united, with 55 sovereign AU Member States rallying together, despite different levels of economic development and diverse strategic priorities. The commencement of trading under the AfCFTA on the 1st of January 2021 is one of the most significant milestones in the continental integration project”. He underscored that, this is going to be the clearest affirmation that Africa is determined to take charge of its own destiny, and that its success and development is fundamentally tied to harnessing the potential and energies of her citizens.
Opportunities within the FTA
When fully implemented the AfCFTA is excepted to boost intra-African trade, promote industrialization and competitiveness and contribute to job creation, and it will unleash regional value chains that will facilitate Africa’s meaningful integration into the global economy. Taking into account that Africa has a population of over 1.2 billion people, the AfCFTA should improve the prospects of Africa as an attractive investment destination. Africa has a market of 1.2 billion people; it has a combined GDP of US$2.5 trillion, and about 400 continental companies that earn annual revenues of US$1 billion or more.
Mr. Ramaphosa, pointed out that they are a lot of opportunities that the AfCTA will provide to women. He said that, it will help advance the empowerment of Africa’s women, by improving women’s access to trade opportunities which will in turn facilitate economic freedom for women, and expand the productive capacity of countries. He called upon a deliberate positive discrimination in favour of women within the AfCTA framework. “To support this, we must strengthen women’s participation in the continental economy by ensuring there is greater public procurement earmarked for women-owned businesses. We must ensure that there is sufficient support given to women-owned SMMEs and cooperatives in both local and regional economies” Underlined Chairperson Ramaphosa.
Chairperson of the AU happy with progress:
The Chairperson of the AU Commission Moussa Faki Mahamat, addressing the Summit, expressed satisfaction on the millstone achieved in the implementation of the AfCFTA. He said it is the fulfilment of the dream long aspired by the founding fathers of the Organisation of African Unity (OAU), who have always wanted to create an African Common Market.
Moussa Faki outlined different stages that have led to “this dream to finally become a reality”, this continental project had to go through several stages he said. First was the signing in 1991 of the Treaty establishing the African Economic Community, followed by the signing in March 2018 in Kigali, Rwanda, of the Agreement establishing the AfCFTA, during which 44 countries signed the Agreement, and it is with great satisfaction that in record time 34 countries have ratified the legal instrument on the AfCFTA .
To give the AfCFTA clout, early this year, AfCFTA Secretariat, was created with its headquarters head in Accra, Ghana. Mr. Wamkele Mene, its first Secretary General was sworn-in on 19 March 2020.
In his key note address to the summit, Secretary General Wemkele called on AU Member States to aggressively implement the AfCFTA as one of the tools for effecting a fundamental structural transformation of Africa’s economy and placing Africa on a path of long term industrial development. Adding that “women in trade, young Africans and SMEs, confront significant challenges when attempting to benefit from trade agreements”. He pointed out that , for the AfCFTA to be inclusive and to ensure shared growth across the continent; women, young Africans and SMEs have to be at the heart of its implementation.
Challenges:
The major challenge is political. James Freeman Clarke , once correctly remarked that “A politician thinks of the next election; a statement of the next generation” the AfCFTA, is primarily dependent on political goodwill and leadership of the continent. As earlier indicated by the AU Chairperson Cyril Ramaphosa, this has been a four decades journey. That is not an impressive performance.
Experiences from other integration arrangement, such as NAFTA and the EU, indicate that, it is very difficult to win an election based on the implementation of a regional Free Trade Area. For politicians who are therefore thinking about their next elections, the AfCTA may not be an urgent matter. It is not surprising therefore, that full implementation is tied to Agenda 2063. More than another four decades away! None of the current heads of State and Government will be still around then and in politics 40 years is eternity.
Tariff revenue losses : Although the African Continental Free Trade Area is widely seen as a crucial driver for economic growth, industrialization and sustainable development in Africa. Experiences from Regional Economic Communities Free Trade Areas, such as the COMESA Free Trade Area, Launched nineteen years ago, the SADC FTA launched in 2008, fears of significant tariff revenue losses and an uneven distribution of costs and benefits are likely to be among the main obstacles to the continent’s integration. Countries will lose revenue in terms of loss of import taxes. Unless there are mechanism to cushion against these immediate revenue losses, we are likely to see countries sign free trade agreements at the same time resorting to all kinds of “sensitive products” that need to be protected, thus disrupting the real implementation of the AfCTA. The COMESA and SADC FTAs have indicated that countries will request for derogations year after year, almost endlessly, especially if a particular product such as sugar in Kenya under COMESA FTA , and Sugar in Tanzania under SADC FTA. Where a product is either of strong economic importance, or a big rural employer or simply uncompetitive. Similar scenarios are likely to arise under AfCTA, and at a larger proportions taking into account of the participating countries.
Unfair sharing of costs and benefits: Need for adjustment facility
Different African Regions have at least one giant player. For example, in the Southern Africa Development Community ( SADC), we have South Africa, In East African Community (EAC) we have Kenya, in the Economic Community of West African States (ECOWAS) we have Nigeria, in the Arab Maghreb Union (AMU), we have Algeria. And the Africa’s largest Economic Community ( COMESA) has Egypt. These big economies will come with their benefits but also disadvantages as has already been experienced in their different economic communities. Measures and flexibilities should be explored for a fair sharing of costs and benefits, to reduce adjustment costs and to attain the full long-term benefits of the AfCFTA.
Lack of Common Currency and Currency convertibility.
All African Economic Communities have a dream of a monetary Union, with a common currency, but when it comes to implementation, countries shy away for ceding their monetary policies to a regional central bank. Far back there were two existing regional currency unions in Africa, using the West African CFA franc, and the Central African CFA franc, respectively. Even then the CFA franc depended directly on the French Treasury which was not sustainable and colonial in nature.
Actually CFA was a hungover of French Colonisation, CFA stood for “colonies française d’Afrique” or African French colonies. It is not surprising therefore, that it was abandoned during the regime of Emmanuel Macron the first French president born after colonialism. It died this year-2020,
Africa FTA will have the population close to that of China and India, and about three times that of the USA and European Union. Yet it will be trading with 54 different currencies, which poses a big challenge. 54 countries will be trading through one of the world major currencies, probably the US dollar as transit point. Thus every transaction will be charged a transaction cost not to mention disadvantages that go with trading through a nonmember currency.
In August 2003, the Association of African Central Bank Governors announced that it would work for a single currency and common central bank by 2021. It is surprising that the announcement of the AfCTA due on 1st January 2021 seem silent about the common currency.
What teeth does the AfCTA Secretariat have?
The 13th Summit of heads of State and Government that endorsed the 1st January 2021, AfCTA, went at length to show prospects for the AfCTA. It also endorsed the legal instruments governing it. I am yet to meet someone who is knowledgeable to explain to me how the AfCTA secretariat will deal will politicians who are thinking of the “ next election” not the next “ generation”. Does the secretariat have powers to impose what has been agreed upon? Or is it one of the many bureaucratic imitations with high sounding names? That too shall be known once tha AfCTA is in place in 2021.
The above are some of the opportunities and challenges but are by no means exhaustive.
Mweusi Karake is a veteran journalist and former head of Public Relations/Corporate Communication at the Common Market for Eastern and Southern Africa (COMESA).
For comments or opinion email us on; info@africachinareview.com