African traders to start enjoying benefits under continental free trade this week

Adnan Adams Mohammed

African traders are expected to enjoy some trade tariff exemptions, easy entry and access to other African countries market, as the African Continental Free Trade Area (AfCFTA)  commences this week.

Already, almost all African countries have signed a free trade agreement with exception of Eritrea. During a virtual summit in early December, last year, African leaders held that trading under the agreement starts on January 1, 2021, as scheduled on the AfCFTA agreement and requested institutions to provide technical and financial support for its implementation.

The agreement was signed in May 2019 and as at December 5, 2020, 34 countries have ratified and deposited their instruments, including Ghana, Nigeria, Egypt, Kenya, Tunisia, South Africa, Rwanda, Cote D’Ivoire which are among the major economies on the continent.

According to a new report by the African Export-Import Bank (Afreximbank), the agreement is expected to bring together an estimated US$3 trillion market which could yield more than US$84 billion in untapped intra-African exports. Countries now have to harmonise custom and tariff regimes. There are currently eight regional economic blocs in Africa.

"It naturally presents, as with any new agreement, some challenges; in our opinion of air link of movement of people in the region itself, but, I believe that they are challenges that as we move forward in the process we will be able to resolve”, Sao Tome's minister for foreign affairs, Edite Tenjua has said.“There is of course also the issue of customs tariffs, although we are talking about free movement. But on the list and on the products that we are going to consider as priority products for the country, so there is a whole organisation that has to be done."

According to the Ghana government, the AfCFTA will enhance government's current Industrial Development Agenda and contribute to the diversification of the Ghanaian economy and open up new market access opportunities under preferential terms for Ghanaian producers particularly Small and Medium-scale Industries.

As the largest trade agreement seeks to increase intra-African trade through better harmonisation and coordination of trade within the African continent, address the challenge of small fragmented markets in Africa by creating a single continental market which will lead to economies of scale. It will also develop regional value chains and facilitate cross border movements, enhance access to an expanded market for SMEs in Africa on preferential trade terms, facilitate the integration of African economies into global markets, enhance the benefits to consumers in Africa through lower prices of goods imported from within Africa and significantly enhance employment opportunities in Africa particularly for the youth.

According to the UN Economic Commission for Africa (ECA), the Eastern Africa region is anticipated to generate US$1.8 billion in welfare gains and benefit from over 2 million jobs from the successful implementation of AfCFTA.

Trading was originally planned to start on July 1, 2020 but the pandemic struck leading to the suspension of negotiations.

For Intra-African trade, 90 percent of all goods will become tariff free from January 1 for all the countries that have deposited their instruments of AfCFTA ratification with the chairperson of the African Union Commission (AUC). A total of 36 countries have already completed this procedure.

With all the African countries, except Eritrea, participating, the AfCFTA would have the largest number of member countries in any trade deal since the formation of the World Trade Organization.

By giving a boost to intra-regional trade in manufacturing, AfCFTA is expected to increase employment opportunities, and help women get into the workforce. It can result in gradual altering of global supply chains, especially for products that require relatively lesser skills.

Holistically, the AfCFTA agreement has the potential to become a game changer and bring some great opportunities for entrepreneurs, such as: Improving the intra-African trade landscape and export structure; Creating a sound global economic impact; Developing better policy frameworks; Fostering specialisation and boosting industrialisation; and Strengthening regional and inter-state cooperation.

Also, increasing employment and investment opportunities, as well as technological development; and Providing the opportunity to harness Africa’s population dividend.

However, for young people to benefit equitably, these aspects must be addressed and improved across the content: access to information, access to education, and access to capital. Without these three elements, youth will be inactive in the AfCFTA and Africa will not achieve population dividend, where a country's working-age population grows larger relative to the young dependent population.

Similar to any other trade block, AfCFTA is likely to encounter some challenges. For example, the implementation is complex and poses significant adjustments costs for member countries; it is also hard to ensure broad-based gains for all Member States. Moreover, in some countries, weak infrastructures, low technological uptake and conflicts will threaten the implementation of the agreement. Finally, there’s a general fear of losing control and sense loss of identity across segments of the population.

These challenges will require the African Union’s Chairperson to work closely with other political heads and the secretariat to negotiate best terms for a single market.

Despite these possible challenges, it’s important to note that the benefits for the continent will surpass the risks if the trade agreement is successful: Africa will be more self-sustainable if it increases trade with itself and creates value addition systems for its products. There is no doubt that AfCFTA is the biggest trade area since the inception of WTO and if it works out will spring immerse development on the African continent.