The largest free trade area in the world, with a combined GDP of $3.3 trillion, came into effect on the first day of 2021. A look at what exactly implementation of a deal of this magnitude means.



By Paula Slier and Sasha Star



AFRICA’S TRADE RELATIONSHIPS HAVE BEEN irreversibly affected by three events – the Covid-19 pandemic and two important trade agreements.



At midnight on 31 January 2020, the withdrawal of the United Kingdom (UK) from the European Union (EU) officially came into force. The decision – Brexit – made by 52% of the British population resulted in the EU losing its second-largest economy and the Union Jack isolating itself in terms of trade, effectively quarantining in its own home. But for Africa, the move holds opportunities. Untapped export potential to the UK is large as is untapped UK export to Africa; the latter is worth more than $8 billion.



Yet, it is the new trade agreement implemented in Africa where interest should really be directed; 54 of the 55 African Union states on the continent have signed up for the African Continental Free Trade Area agreement (AfCFTA) which came into effect on the first day of 2021. Eritrea is the only country that chose to sit out – and there are various explanations as to why not unconnected to power and politics.



By creating the largest free trade area in the world, 1.3 billion people are now set to benefit from the elimination of tariffs on most goods, the liberalization trade of key services and the address of non-tariff obstacles to intraregional trade. The AfCFTA is estimated to bring Africa annual income gains of more than $130 billion per year.



The deal could not have come at a better time, though this was hardly factored in when the agreement was originally brokered in March 2018. Covid-19 has substantially impacted Africa’s tourism sector that accounts for much of its revenue— particularly for smaller nations — while the trade of goods, oil, and even food has also declined significantly as a result of the novel coronavirus.



“The pandemic has presented a historic opportunity to build a better future,” says the African Department of the International Monetary Fund (IMF). It stresses that “trade integration, along with domestic reforms to improve revenue mobilization, digitalization, competition, social safety nets, and climate-change mitigation, will be critical for the region’s resilience, growth and job creation”.



An extensive reduction of tariffs is the first step towards this. With 90% of taxed intraregional trade flows being contracted under the AfCFTA, current flows are due to increase by around 16%, or $16 billion.



“The AfCFTA, if implemented as laid out in papers, would usher an economic progression that would make China’s remarkable economic transformation look basic,” claims Ibrahim Anoba, the Managing Editor of AfricanLiberty.org.



“We’re talking about a continent with a consumer market as large as China but with a superior mineral and natural resources concentration.” The potential of the AfCFTA is enormous, but, as Anoba points out, this all depends on the players in the game. “The different thing about the AfCFTA is that it would take an absolute commitment from as many signatory states as possible to be efficient,” he says. “The first phase is the conceiving of the idea. The second is implementation; proper implementation. This is where we’re at. We cannot move further unless we do this right.”



What exactly does implementation of a deal of this magnitude mean, though?



With so many players involved, it is understandable that the AfCFTA will be enforced in stages. The instruments that are already operational include the regulations and administrative rulings applied by governments to determine the source of goods, services and investments known as the rules of origin; the monitoring and elimination of non-tariff barriers; as well as the schedule of tariff concessions and other specific commitments.



“Long term, the AfCFTA faces a Brexit type of threat from the larger economies which may feel like they are giving up too much autonomy by being part of the agreement,” warns Jamie Mighti, a South Africa-based political analyst. “This risk is higher in Africa than in the European Union because of increased economic disparities between states and Afrophobic attitudes.” Mighti believes that there are substantial levels of antipathy to the business presence of Africans from other states in the large African economies and that this could present a massive challenge to the success of the AfCFTA.



It is not all doom and gloom, however. Mighti is of the opinion that better inclusion of the youth on the continent is an excellent way to ensure that the agreement will thrive, and that more focus should be placed on aiding small and medium-sized businesses, as opposed to large entities. The IMF also feels that tariff reductions should be complemented by policies to reduce non-tariff bottlenecks to trade, and that agriculture-based and less diversified countries should combine trade policies with structural reforms that boost agricultural productivity to better leverage existing comparative advantages.



Overall, the AfCFTA has been packaged as an opportunity to lead Africa down a path of prosperity, or fall into greater economic depravity that will take decades to equalize. As Anoba sums up, “If things go according to plan, we can finally expect Africa to emerge as the global economy’s heartbeat a decade from now.”

Foreman control loading Containers box from Cargo freight ship

Will The AfCFTA Be The Heartbeat Of The Global Economy?

Rwanda’s President Paul Kagame and head of the African Union speaks to CNBC Africa’s Chris Bishop on continental trade, business and China’s influence. Excerpts of the interview.

Q. Philosophers and poets have been talking about a united Africa for decades. It seems on the business front, it is on the cards. We are talking about an African Continental Free Trade Area. As Chairperson of the African Union, how are you going to make this happen? 
A. Africa coming together and being united is a very important task and responsibility for all of us. It’s never going to be a task of the Chairperson of the African Union alone. What the Chairperson does is to govern the understanding and support and everyone together so we do what needs to be done for our continent to be unified. We have already started with the Continental Free Trade Area; before that, we have been talking about regional integration. Regions with a lot commonalities can come together to do business, to invest in each other or deal with the rest of the world as one entity.
Q. How difficult is this going to be? 
A. It is going to be difficult bringing change even when it is very necessary… As Chairperson of the African Union or even as a president of my country, I know it is the task of other leaders to not only talk about nice things that should happen, but also do the hard work to lead all of us to the results of the effort we have to put in. So we have to keep raising our voices first of all, reminding people, assuming that they have forgotten, because some of them do not know what they are supposed to do. So you have to keep raising your voice, keep reminding people and we do it collectively. It is always going to be useful if we do it together and understand that together is when we are going to succeed.
Q. A lot of countries have not yet signed up to the African Continental Free Trade Area agreement. What can you do about this? 
A. The best way is to start from somewhere and demonstrate the good that can come out of such a thing as a free trade area and having an agreement over that and what needs to happen. Once you demonstrate the benefits, I think people will quickly move towards doing things that benefit them. And in actual fact, we also need to look at what happens elsewhere in the world. We know the stories of different parts of the world where people have come from and the paths they have taken and where they are today. And from Africa, we look at what has happened in Asia, the long history of Europe, Latin America, United States, Canada and so on. So we need to relate to where they are with a number of things that have happened or they have done to be there… But we can’t be there by just admiring what other people have done and not doing exactly what you need to do for yourself and get moving with the situation and improving it&#8230;
Q: What do you think a leader should be doing to keep talented young people on the continent? 
A: It is governance; we need to govern our people properly. But governance alone does not provide anything; what you do within those structures, and that comes to the investments we make that are responsive to people’s needs, aspirations and desires. It’s around the creation of a business environment, whether small or big businesses can make money, can do whatever they can and do that freely, because people know how to do some of these things, but until there is a conducive environment for them to play that part, that won’t happen. So leaders must make sure that this is the case and allow people to participate in all that. Once there is participation, there is benefiting, there is the feeling that what they have is what they wanted; at least they have hope, they are sure that things are moving in the right direction even if they do not have what they wanted now, they can have it tomorrow.
<a href="http://www.forbesafrica.com/life/2016/04/01/tribute-remarkable-rwandan-women/" target="_blank" rel="noopener">READ MORE: ‘A Tribute To Remarkable Rwandan Women’</a>
Q: To your role as Chairperson of the African Union, I mean if you can argue that this is Africa’s time, but still there is that lingering fear and concern sometimes about stability, even in your own region in East Africa. How are you planning to tackle this in your job? 
A. It is just to keep bringing out these discrepancies. The complaints people have are real. You need to listen to them and you need to get to the bottom of why there are these contradictions, of course the major problem being we have many of us who say the right things but the next day, we are doing the complete opposite. So until we exercise some conscientious discipline to an extent really, if we understand that this is what we need to do and it’s good for everybody, it’s good for you, it’s good for me and in fact if there is something that is good for both of us, we shouldn’t tamper with that, we need to only take it forward and make sure we benefit more but together. This is something we have seen over many years because even when we are talking about regional integration, which has made good progress over the years, we still have people who will talk about integration and will talk about all the good things and how everybody should do this and that and then you find the same people are the ones undermining integration. It has happened. We see it every day. So we need to keep shouting out to these people and say ‘please, you know this is affecting me and maybe at the end, it will affect you’.
Q: How do you think Africa is doing right now in persuading the businessmen of the world to put their money into this continent? 
A: Well, let me start with my own country Rwanda. On the continent of Africa alone, Rwanda is the second best place when it comes to the ease-of-doing-business index. I am saying every country on our continent is trying to fix different problems that create obstacles for business in Africa. Every country is making an effort, Rwanda is one of them. The whole of East Africa is involved in that. So on people’s minds, they know how important it is for countries to create a good environment for investors to invest in, for people doing business to do business or for the business people of one country to do business in another country or with the citizens of another country. This is now a very common discussion. People are always searching for better ways to allow that to happen, so I think things are on the upward trend, things are in the right direction but it’s never enough and I think Africa is still lagging behind many other parts of the world. Even if we look at intra-Africa trade, it is still very low, when it comes to other regions, it’s much higher, so we need to improve, we need to do better and we need to move faster.
Q: A lot of countries have run into a lot of soured private-public investments. How do you approach it as a leader when trying to negotiate private-public partnerships? 
A. You see, the starting point is, let’s say both sides, are we prepared? Do we know what we want? Do we know how to get it while we allow the partner to also get what they want? You see, there are two parties here. Why things have gone wrong is some people have gone into partnerships and this is mostly with governments; a lot of things happen that prove that either government did not know what they wanted or they knew but the people who were involved on behalf of the government ended up trying to benefit themselves instead of looking at the country’s interest, and the other partner who is the private partner. This has always been the case but if governments are prepared and governments have expertise, if they do not have it in-house, they can hire expertise to act on their behalf. There is so much out there that once you ask people to stand in for you as expertise, they will do that. So it is not the formula of private-partnership that is problematic, it is those who are involved in the transactions that become problematic.
Q: So you are talking about corruption here? 
A. Absolutely! Corruption comes in, there is no question about it. Corruption is part of it or just bad governance of the whole process.
<div id="attachment_37491" style="width: 750px" class="wp-caption alignnone"><img loading="lazy" decoding="async" aria-describedby="caption-attachment-37491" class="wp-image-37491 size-large" src="https://www.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-825575448-1024x683.jpg" alt="" width="740" height="494" srcset="https://cms.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-825575448-1024x683.jpg 1024w, https://cms.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-825575448-300x200.jpg 300w, https://cms.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-825575448-600x400.jpg 600w, https://cms.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-825575448-768x512.jpg 768w, https://cms.forbesafrica.com/wp-content/uploads/2018/10/GettyImages-825575448.jpg 1654w" sizes="(max-width: 740px) 100vw, 740px" />Incumbent Rwandan President Paul Kagame greets the crowd after addressing supporters at the closing rally of the presidential campaign in Kigali, on August 2, 2017. </div>
Q: I know it is something you have tried to fight for a decade. How close do you think you are to actually getting it out of the system here? 
A. You will never kill corruption completely, but you can reduce it to the bare minimum and what has happened is to create an environment of accountability and transparency, where things will be done and without fear or favor, justice will be exercised. It does not matter whether it is a big person or an ordinary person. Once they are caught up in this, the law should apply.
Q: From all the corners of the continent, a lot of people are still saying China smacks of neo-colonialism – the influence they are exerting in Africa right now. What do you say? 
A. Well, tell me about neo-colonialism or the old one? The new or the old I don’t know, but they are all bad things, but again it comes to the whole point… There are Chinese investments in Africa; you do not make investments for nothing, and it is not charity, right? Africa needs investments and again, it goes back to the other point I raised – does Africa know what it wants in working with other people from other parts of the world? If China offers an opportunity, that’s the way I prefer to see it. What does Rwanda want from China or what can we ably get from China, where we will benefit and China will benefit because again it is not a charity relationship. So if we know that and have discussions about it, then we should have a fair deal. Do I want the Chinese to build a power plant for me, for Rwandans to have sufficient electricity? How much is China able to lend to us or how much actually do we owe, or different groups that have been lending us money, so we make sure that we don’t end up owing too much or more than we can actually absorb from China and if you did it with any other country anywhere, it would be the same problem so we have to be conscious of that but if they are able to give us resources or money or lend us and say ‘we build for you power plants because that’s what we want’, and we say ‘okay, we are going to have this much invested in it and this is how we are going to repay the debt’ and so on and so forth… why should that be a problem? Because I don’t know of any place where China has walked into and started grabbing things, and if it happened, then it is not a problem of China, it is a problem of where it is happening I think. For the country to just surrender everything and be grabbed, then there is a problem.
Q. Where do you think you would have been if you hadn’t gone into politics and become a president? What would you want to do with your life? 
A: Well, when I was in my youth, I used to like to do things, to make things. Maybe I would have pursued certain careers and professions. You would have seen me as an engineer, or somebody doing an innovation or creating things.
Q: So you would have been quite happy as a carpenter or… 
A: Absolutely! A mechanic or…
Q: And if you were, what would you be saying to your president of Rwanda today? 
A: I would say try to do the best, to provide us with an environment that does not stand in the way of people’s ability to realize their potential or do whatever they want to do, meaning, get the government out of the way of people trying to thrive and do things they wish to do. And this goes back to the same story, it’s like what we are always trying to say – what is it that we can get out of the way of business, investments or people who have benefitted from education to base on the knowledge and skills they have to do what they want to do and improve their standards of living. This would be my request to my president. If that was the situation, I would say make sure government does not stand in the way of the freedoms of people to realize their potential and do what they wish to do.
For the full interview, visit cnbcafrica.com

Tag: African Continental Free Trade Area agreement

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