In the alphabet soup of regional African trade blocs, will
the AfCFTA ease the cost of doing business on the continent?



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Ghana has been named the host of the African Continental
Free Trade Area (AfCFTA) following four years of talks to form a 55-nation
trade bloc. It will be the base for the AfCTA secretariat.



The opportunities for Africa with this new trade bloc are immense. The Economist Intelligence Unit estimates that the AfCFTA will create the world’s largest continental free-trade area, provided all 55 African Union (AU) members join, and has the potential to create an African single market of 1.2 billion consumers whilst eliminating about 90% of tariffs on goods over the next five years. 



So far, 44 African countries have signed up for the historic agreement, the world’s largest free trade area since the formation of the World Trade Organization.



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The AfCFTA is expected to boost the economies of African
countries through employment creation and the promotion of made-in-Africa
goods. But Kayode Akindele, a partner at TIA Capital, a pan-African investment
partnership focussed on credit-based investing across sub-Saharan Africa, is
not opening up the bubbly just yet.



“We already have ECOWAS [Economic Community of West African
States] which doesn’t seem to be working and so why don’t we sort that out
first before we enter a continental trade agreement for Africa?”



And he is not alone in his concerns. 



“There are other factors we need to also consider. Firstly, with the implementation of the AfCFTA, goods made in other continents could be disguised as made-in-Africa to qualify for duty free treatment. There could also be a reduction in government revenue and also this trade bloc also threatens the profitability and survival of infant industries,” says Vincent Acheampong, an economist based in the United Kingdom.



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Of the regional blocs in Africa, including EAC (East African
Community) and SADC (Southern African Development Community), the ECOWAS has
some way to go in terms of performance, according to Muda Yusuf, the Director
General of the Lagos Chamber of Commerce and Industry, in an interview with
CNBC Africa. But he believes there is still reason to be optimistic.



“A continental trading bloc is going to build on the success
of the regional blocs like ECOWAS and other blocs across Africa. So, this
integration is going to build on those blocs. In terms of performance, of
course ECOWAS is the least performing because East Africa is doing very well
and South Africa is doing far better also. But there is no perfect time for
things like this, what is important is for us to get a conviction that economic
integration will work for us and also if we can get our institutions to make it
work,” says Yusuf.



Amongst the many challenges of the ECOWAS is its failure to
implement its vision of a single currency, the ECO, which is part of its plans
to make Africa a more integrated continent. That vision has been postponed
several times by the 15-member group with the newest target date set for 2020
although most experts believe the date to be unrealistic.



The success of the AfCFTA requires not only a trade policy but also a manufacturing agenda, competition, industrial policies and property rights to work well according to Vera Songwe, the Executive Secretary of the UN Economic Commission for Africa, in a statement at the launch event that took place in Niamey, Niger. 



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The ninth edition of the flagship Assessing Regional
Integration in Africa report (ARIA IX) stipulates that AfCFTA’s success will be
due to its ability to actually change lives, reduce poverty and contribute to
economic development in Africa. 



In support of the new trade bloc, Ghanaian President Nana
Akufo-Addo pledged to donate $10 million to the AU to support the operationalization
of the secretariat of the AfCFTA.



Although the AfCFTA will be economically transformative for
Africa in the long-term, the immediate benefits will be restricted due to the
macro-economic uncertainties of regional trade.



“Most African countries are currently not producing the
goods and services that their neighbors import, as a result we do not trade a
lot with each other. It is easier for an African country to trade with a
country in Europe than a country that lies right next to it and these low
levels of intra-African trade need to be addressed before we can reap the full
benefits of the AfCFTA,” says Acheampong.

Africa, elements of this image furnished by NASA

Towards One Africa

Ghana has been&nbsp;chosen&nbsp;by the African Union (AU) to host the secretariat of the African Continental Free Trade Area. It beat other competing countries including Egypt, Eswatini, Ethiopia, Kenya, Madagascar and Senegal to win the bid.



As a free trade area, member countries have come together and agreed not to impose tariffs, quotas and other trade barriers on goods and services. The agreement is expected to enlarge markets and diversify exports, particularly manufactured goods. 



According to US-based think tank the Brookings Institute, intra-African trade stands at about 14%, while the share of manufactured goods to the rest of the world stands at 18%. Trade among Asian countries is much higher – at 59% – and even higher among European countries at 69%. The hope is that the African free trade area will boost trade across the continent by 52% by 2022 .



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The core mandate of the secretariat will be to implement the free trade agreement, which has been&nbsp;ratified&nbsp;by 25 out of 54 countries. Once all have ratified the deal, it will create the world’s largest free trade area since the formation of the World Trade Organisation in 1995.



Africa’s free trade area will cover a market of 1.2 billion people with a combined Gross Domestic Product (GDP) of&nbsp;US$2.5 trillion.



The secretariat’s job will be to recruit personnel, train them, and develop organisational capability. The secretariat will also have to implement policies handed down by the governing body, keep the media informed, organise conferences and identify potential funding sources. It will also monitor and evaluate the progress of policies and programmes.



This is a first for Ghana which has not hosted a continental secretariat. The hope is that it can emulate the success of other African capitals that have befitted from hosting the AU and the United Nations. 



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">Addis Ababa is home to the AU headquarters while Nairobi hosts two of the UN’s biggest bodies. For its part, South Africa hosts the Pan-African Parliament.</blockquote>



The presence of the AU in Addis Ababa has been&nbsp;credited&nbsp;with an increase in property valuations as well as job creation.



In making its bid, Ghana took advantage of its strategic geographical location in West Africa. It has put a great deal of effort into making the country a gateway and a trade hub in West Africa.



Hosting the free trade area secretariat will come with costs and benefits &#8211; direct and indirect.



<h3 class="wp-block-heading">Why Ghana</h3>



In establishing its credentials to host the secretariat, the Ghanaian government would have set out the country’s most notable achievements.



These would have included the fact that it’s been an exemplary member of the AU. For example, in 2007 it was among the first countries to be reviewed by the&nbsp;African Peer Review Mechanism&nbsp;– the self-assessment mechanism used to measure&nbsp;good governance.



The fact that it put its hand up sent a signal to other countries that the peer review process was credible.



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Other factors that would have played in Ghana’s favour are that the country’s economy has been showing strong growth.



It is one of the fastest growing economies in the world with an&nbsp;averageGDP growth of about 6%. In addition, it comes second to Cape Verde in West Africa in terms of the United Nations Human Development&nbsp;index.



In one of the most unstable sub regions in the world, Ghana also has a tradition of relative peace and security, a key parameter for hosting a secretariat.



In addition, Ghana has had the advantage of learning about trade collaboration through its membership of the Economic Community of West African States (Ecowas).



<h3 class="wp-block-heading">Costs and benefits</h3>



Ghana has been part of the&nbsp;15-member&nbsp;Ecowas since its formation in 1990. The regional body introduced a common external tariff in&nbsp;2015&nbsp;.



While Ghana has enjoyed&nbsp;benefits&nbsp;from the arrangement, like many other West African States, it has not been able to harness its full potential. For example, border controls remain cumbersome, delaying transits due to the numerous check points, huge unofficial payments at the&nbsp;borders.



The most direct cost to the country will be the $10 million pledged by President Nana Addo Dankwa Akufo-Addo to support setting up the secretariat. The AU is also expected to contribute funds and appeals have been made to international funding agencies.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">Ghana’s hope is that hosting the secretariat will boost the hospitality sector – and more broadly the services sector – and generate increased international exposure.</blockquote>



There should also be a boost for job creation as the secretariat hires staff; ranging from economists to translators, administrators and technicians.



There is no clear deadline on when the secretariat is expected to be up and running. The AU itself still has to clear a number of&nbsp;hurdles, including adopting a structure, staff rules and regulations, and the secretariat’s budget.

Tag: African Continental Free Trade Area

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Ghana Hopes To Benefit From Hosting Africa’s Free Trade Area Secretariat

2018 African Of The Year – President of Rwanda Paul Kagame