2021: Africa’s first year of free trading

NEXT JANUARY, in about a month’s time, the commencement of trading on the platform of African Continental Free Trade Area (AfCFTA) would have run its course for one year. By now, we should be expecting to read big headline news about what has been achieved during the one year of implementing a trade agreement that took off in the middle of a pandemic. Because Africa is not an isolated continent, the impact of the pandemic on the continent could be considered understandable. AfCFTA, an ambitious project of the equally ambitious Agenda 2063 of the African Union (AU), aimed at inclusive and sustainable development across Africa, got off to a stormy start as the global COVID-19 epidemic did not help matters in a number of ways.

Months before its commencement and for a significant part of 2020 – movement of people across national boundaries was severely limited and a lot of meetings had to be done remotely, online. Even with the commencement of trading on the AfCFTA platform, great news are yet to emerge. It is encouraging, however, that all African economies, except Eritrea, are now part of a comprehensive integration process based on trade and investment liberalisation, expected to lead to a customs union. Expectations remain high on the much publicised anticipated benefits on reduction of trade costs, fostering intra-African trade, driving efficiency and competitiveness, improving regional value chains and attracting foreign direct investment (FDI). Official responses to COVID-19 are not helping AfCFTA, at least for now as Africa is taking a hit from the disruptions to global value chains and supply chains. Border closures against many African countries in the past one week have taken a new turn with the identification of OMICRON variant of COVID-19, setting many Western nations on the edge for the time being.

The poor in Africa will be affected. The economies of the continent will suffer some negative impacts and the transmission of impact on intra-African trade will remain significant. Clearly, industrialisation in Africa has suffered much setback over the years, affecting demands for industrial raw materials. But in this circumstance of a lingering pandemic, the countries outside Africa that rely on imports of such raw materials from Africa will be significantly affected as trade slows down, worsening the socio-economic crisis within the region. The total or partial lockdowns imposed on African countries at a time of AfCFTA’s take-off is undoubtedly counterproductive. Managing uncertainties of such a magnitude relating to business has not been factored into the implementation of major policies within the continent. This is especially true as AfCFTA has no in-house contemporary antecedent at such a continental scale to provide premonition.

United Nations University-Institute on Comparative Regional Integration Studies (UNU-CRIS) drew attention to the need to address Africa’s “current vulnerabilities caused by COVID-19.” It stressed further that “the crisis demands heightened African integration rather than isolation.”  Apart from the fact that the continent did not see the COVID-19 pandemic coming, its initial handling was with levity, apparently as it appeared to have spared the continent. Global travellers from Asia, Europe, and North America would later unleash the virus on the continent. The poor response – a result of weak governance and less mature democracies – may have made it harder to respond to such an exogenous shock, which has devastated the continent’s economy in the past 20 months. The impact on a market, expected to include 1.3 billion customers and an estimated $3.4 trillion in combined GDP, across 55 countries must have been very significant.

Much remains to be said about governance issues and impact of the lack of these on other areas such as political turmoil as no fewer than five countries have been grappling with one form of it or another. Take the coup d’etat in Mali, Guinea and Sudan and the immediate socio-economic consequences. Or the security threats in Mozambique, Nigeria, Burkina Faso, Somalia, South Sudan and Chad. Or infrastructure gaps, which are high ranking in the litany of impediments to free trade in many parts of Africa. Not much progress has been reported on regional exchange rates and equivalence. The World Bank reckons that AfCFTA presents a major opportunity for African countries to bring 30 million people out of extreme poverty and to raise the incomes of 68 million others who live on less than $5.50 per day. But, according to the World Bank, achieving that potential will depend on putting in place significant policy reforms and trade facilitation measures. It stated further that, with the implementation of AfCFTA, trade facilitation measures that cut red tape and simplify customs procedures would drive $292 billion of the $450 billion in potential income gains. It went further to affirm that the Implementation of AfCFTA would help usher in the kinds of deep reforms necessary to enhance long-term growth in African countries. It is just about a year of its implementation. But, morning shows what to expect during the day.

It is now widely acknowledged that COVID-19 has caused major disruptions to trade across the continent, including in critical goods such as medical supplies and food. But Africa still depends to a greater extent on importation, while its trade is more with countries outside Africa than within. Conservative estimate of importation of manufactured goods from Europe constitutes 35 per cent of Africa’s import. China comes next, with 16 per cent while the rest of Asia, including India, are responsible for 14 per cent of Africa’s imports and Africa’s intra-regional trade is only a paltry 16 per cent of total merchandise imports. It is important to state that 75 per cent of what African countries export to the rest of the world are mostly primary commodities in the forms natural resources, primarily raw materials. These are not huge revenues earners from the standpoints of global value chains. Egypt and Nigeria respectively are the two largest and second largest economies in Africa but, as major fuel exporters, their trade in terms of volume and value is mostly in exports to buyers outside Africa.

The United Nations Conference on Trade and Development (UNCTAD) has posited that AfCFTA could boost intra-African trade by up to 33 per cent and cut the continent’s trade deficit by 51per cent as it aims to increase intra-African trade by eliminating import duties – and to double this trade if non-tariff barriers are reduced. On maritime, UNCTAD noted that “the AfCFTA is expected to increase demand for different modes of transport, including maritime transport, which in turn will increase investment requirements for infrastructure and equipment – ports and vessels in the case of maritime transport.”  It emphasised the critical need to finance and develop adequate transport infrastructure and services in Africa to support maritime connectivity to fully realise the benefits of the AfCFTA. How much of these have been in place in the past one year will need to be made known. Any progress report on AfCFTA should document these new additions. It will be interesting to see trackers published on these critical aspects by AfCFTA. This is very important as more and more stakeholders try to take advantage of the new trading platform.

A study credited to the UN Economic Commission for Africa (UNECA), projected that, by 2030, cargo transported by vessels would increase from 58 million to 132 million tons with the implementation of AfCFTA. Those countries it predicted as likely to experience a surge in traffic through their ports by 2030 as a result of AfCFTA are Comoros, Gabon, Gambia, Ghana, Madagascar, Mauritius, Mozambique, Namibia and Somalia. Africa’s international maritime trade, including both goods loaded and discharged, fell by 7.6 per cent in 2020, according to UNCTAD. It reported that although the 2021 saw a revival in world cargo trade, the recovery was uneven, with exports from Africa and the Middle East remaining under pressure. UNCTAD reported that Africa’s contribution to global containerised trade remained relatively low in 2020, with container ports on the continent holding a 3.9 per cent share of global container port traffic, compared to Asia with nearly two-thirds and Europe with 14.9 per cent. It shows how insignificant Africa remains in global maritime transport and trade. But it also reveals deeper issues about governance in Africa’s trade. For instance, UNCTAD report noted that the longest times in port for container ships are generally in Africa, notably in Nigeria, Sudan and Tanzania. Nigeria is particularly notorious for the many needless layers of activities that only serve to delay clearance and increase the cost of importation, discouraging many importers from using Nigerian port, preferring rather to use the nearby port in Benin Republic. Morocco is an exception, with one of the world’s shortest times for vessels in port. The UNCTAD report identified the Tanger Med, Morocco, as Africa’s best-connected port in 2020.

Meanwhile, AfCFTA is yet to emphasise on trade in services, one which is about the easiest to start with. Because services are not encumbered with the demands that are peculiar to goods, trade in services ought to be one area of earliest focus and attention, particularly within the context of the COVID-19 pandemic restrictions. With the help of modern information and communication technology, services are not constrained by national borders or physical distance. AfCFTA has low hanging fruits in service industry and needs to look into promoting it right early, while dealing with the more cumbersome aspects of infrastructure, security, exchange rate equivalence and others gradually over the years. Trade Related Aspects of Intellectual Property Rights will enable free flow of services if given priority. The expectations of Africans have been raised with the commencement of AfCFTA trading platform. Now that a year is ending, it is expected that reports of landmark accomplishments will be rolling in. People are eager to hear the success stories.