AfCFTA offers renewed potential amid concerns

By Song Wei Source:Global Times Published: 2019/7/15 18:23:40

Illustration: Luo Xuan/GT

At the recent African Union (AU) 12th Extraordinary Summit, Nigeria and Benin signed the African Continental Free Trade Agreement (AfCFTA), increasing the trade bloc's membership to 54, in Niamey, capital of Niger.

Though negotiations among the members will continue, AfCFTA has emerged with legal substance. What unfolds is the world's largest free trade area, connecting 1.3 billion people and valued at $3.5 trillion. The new trade area is expected to create development opportunities for the African continent. However, from the standpoint of political science, ethics and anthropology, it can hardly be said that AfCFTA prospects will be positive.

AfCFTA has promoted the integration process of the African economy, which lifted bargaining power for the continent among the international economic system. According to the agreement, members will remove 90 percent of the tariffs within five to eight years. Non-tariff barriers will also be removed down the road. 

Issues surrounding competition policies, intellectual property and investment protocols are still under negotiations. Once the agreement is concluded, it will facilitate the free movement of goods, service and capital within the African continent and will formulate market unification. The move carries great significance for African development.

Economic integration could push AU integration to deeper levels. Other regional organizations such as the EU and ASEAN were further integrated after achieving closer economic connection.

Individual African countries lack the capabilities to support economic diversification and industrialization in the face of global competition. Negotiating as a free trade bloc, Africa will enjoy an improved bargaining position on the international stage, as AU chair and Egyptian President Abdel Fattah al-Sisi said at the summit.

AfCFTA was designed to boost regional trade. However, the free trade area arrangement may barely achieve this goal as African countries have a homogenous industrial structure. Due to their colonial history, they mainly trade with former colonizers located outside of Africa. 

This homogeneous economic structure has constrained deeper integration. World Bank statistics revealed that in 2017 raw materials were products of Sub-Saharan African countries and mainly exports, while consumer goods were major imports.

Fuels are the highest in-demand product on the continent even though African countries, such as Nigeria and Angola, are oil producers. They export crude oil to developed countries as they are unable to process it while simultaneously importing petroleum. Many African countries still exist at the lower end of the production chain. Products lack competitiveness and high logistics costs curb incentives for these nations to import from their neighbors.

Relatively poor governance capabilities and deficient mechanisms will make AfCFTA enforcement difficult. Africa has established several integrated organizations to promote regional trade which have caused an institutional overflow. At least eight regional economic groups, including the Common Market for Eastern and Southern Africa (COMESA) and the Economic Community of Central African States (ECCAS), were established to achieve regional economic integration but made limited progress. 

Many countries are members of more than two of these groups. The expense from excessive institutions has taken its toll on trade and has become an obstacle for the free trade area. Increasing rules and regulations and entanglements have become a typical "spaghetti bowl phenomena." 

Meanwhile, African countries have not given enough attention to fulfilling agreements and following protocol. Possibilities already exist in applying implicit non-tariff barriers to protect domestic industries. Other concerns including weak infrastructure, political unrest, the threat of extremism, bureaucracy and corruption, have cast doubts over AfCFTA's future.

It should be acknowledged that AfCFTA is heading in a positive direction. China-Africa cooperation needs to connect the Belt and Road Initiative (BRI) and Agenda 2063, which both help African countries overcome structural and institutional difficulties. The cooperation must support African countries to explore and develop heterogeneous manufacturing based on each country's natural endowments. Fundamentally, it needs to raise governance capabilities among all African countries to achieve economic integration. With the above-mentioned measures in place, the African continent would experience in-depth integration and overall growth.

The author is an associate research fellow at the Chinese Academy of International Trade and Economic Cooperation under the Ministry of Commerce.

Posted in: INSIDER'S EYE

blog comments powered by Disqus