Ambitious African free trade pact aims to boost development
At a cereal market in Busia, on the Ugandan side of the Uganda-Kenya border, business is booming. Trucks with goods from different parts of Uganda are offloaded while others heading for Kenya and South Sudan are being loaded.
The east African country, according to its ministry of finance, is enjoying a trade surplus with most neighboring countries, with its exports reaching 1.1 billion U.S. dollars in 2018, up from 425 million dollars in 2007.
Such a cross-border trade boom is taking place all over Africa.
For decades, despite deepening trade integration in Africa, intra-African trade has remained low.
According to a report released by the United Nations Economic Commission for Africa (ECA) last year, African economies are fragmented due to trade barriers, including tariffs, cumbersome border procedures and infrastructure bottlenecks.
The ECA report said these barriers limit the ability of African businesses to achieve economies of scale and build competitive production capacities for regional and international trade of value-added products.
However, as the African Continental Free Trade Area (AfCFTA) Agreement is set to enter into force on May 30, regional trade among African nations is expected to rise.
The AfCFTA, according to the African Union (AU), aspires to create a tariff-free continent that can grow local businesses, boost intra-African trade, spur industrialization and create more jobs.
The pact comes into force after 22 members of AU ratified it, fulfilling the minimum threshold needed for the deal to come into force.
If all the 55 AU members join the free trade zone, it will be the world’s largest free trade zone by the number of countries, covering more than 1.2 billion people.
“AfCFTA will lead to more trade of products and transfer of knowledge among African countries, which will create more value,” said Yao Guimei, a professor of African studies in Chinese Academy of Social Sciences.
It will also ease export procedures so as to bring more African countries to integrate into global and regional value chains, Yao said.
Researchers, economists and policymakers believe that effective implementation of the AfCFTA will yield enormous opportunities for the continent.
Abdelkhalek Touhami, an economist at the National Institute of Statistics and Applied Economics in Morocco, told Xinhua that the trade pact will boost interstate economic exchanges.
Touhami projected that the intra-African trade will grow by 25 percent in the short term and more than 52 percent in the long term.
He said the foreign direct investment will jump due to benefits from the economies of scale and diversification that exist in different countries.
Eric Mangunyi, a researcher at the Walter Sisulu University, South Africa, told Xinhua that the free trade zone will create a larger market for goods and services among the participating countries as opposed to the current format where few countries are trading together.
El Hadj Alioune Diouf, an economist at the Cheikh Anta Diop University of Dakar in Senegal, argued that the increasing African population, now estimated at 1.2 billion, is a key element.
As the efforts to boost the intra-African trade take shape, there are ongoing measures to lay a foundation upon which the trade can flourish.
African countries with support from international financiers continue to invest in building trade corridors and infrastructure, including interconnected power grids, roads, railways, and modern ports and airports.
In east Africa, China is financing the construction of the Standard Gauge Railway (SGR) which will link the region’s hinterland to the Kenyan port of Mombasa. The line from Mombasa to the Kenyan capital Nairobi is already operational. When fully operational, the SGR is expected to significantly cut the cost of transportation to and from Mombasa.
While there are enormous opportunities out of a continent-wide free trade zone, Africa faces a daunting challenge to implement the AfCFTA. The governments’ political will must be backed by efforts to materialize what nations have agreed on, analysts said.
Negotiations on tariff regimes are likely to be protracted due to the protectionism tendencies in some countries.
Gerishon Ikiara, an economics lecturer at the University of Nairobi, Kenya, argued that as negotiations enter their final stages, there is a need to ensure that all concerns or reservations of member economies are given adequate attention.
“For the AfCFTA to have full positive impact, the member states must recognize that the economies in the union have differing comparative and absolute advantages,” said Ikiara, adding that it is imperative to create an environment where different economies can maximize their potential.
African ministers of trade are scheduled to meet in the Ugandan capital Kampala in early June to negotiate on supporting instruments of the AfCFTA, including rules of origin, schedules of tariff concessions on trade in goods, online non-tariff barriers monitoring and elimination mechanism.
The ministers will forward their outcomes to the African leaders for approval when they meet in July at the AU meeting.
A favorable external environment characterized by high commodity prices, the emergence of China as an important trade and investment partner, and a massive inflow of foreign capital has helped boost growth in the region in the past two decades, according to a working paper on trade integration in Sub-Saharan Africa released by the World Bank in May.
Observers argue that the AfCFTA is likely to strengthen the trade and political ties between Africa and the world. Africa-China cooperation is also expected to be deepened.
There already exist cooperation forums between China and Africa, including the Forum on China-Africa Cooperation (FOCAC), which convenes periodically to deepen ties.
At the 2018 Beijing Summit of the FOCAC, China said it will implement eight major initiatives with African countries, which include industrial promotion, infrastructure connectivity, trade facilitation and green development.
Many Chinese financed projects, according to Ikiara, are implemented through FOCAC.
Ikiara said that the China-proposed Belt and Road Initiative would also be important for the future development of Africa.
“This will have a positive impact … in terms of integrating African economies among themselves and with the rest of the world,” Ikiara said.