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What Africa can expect as ACFTA comes into force

by Brian Yatich

By Brian Yatich

May 30, 2019 will remain a notable date in Africa’s economic context as the day the African Continental Free Trade Area (AfCFTA) came into effect, marking a historic milestone in the economic integration of the continent.

This, according to a report by the United Nations Conference on Trade and Development (UNCTAD), predicts reducing intra-African tariffs under and could bring $3.6 billion in welfare gains to the continent through a boost in production and cheaper goods.

The UN’s trade body also reveals that the AfCFTA pact is touted to bring together a single market of 1.2 billion people, with a combined gross domestic product of more than US$ 2 trillion.

The significance of the AfCFTA cannot be overstated: It will be the world’s largest free trade area since the establishment of the World Trade Organization (WTO) in 1994.

It has been a lengthy voyage to getting the African continental Free Trade Area treaty. Between 2012 and 2015, there were technical studies on the establishment of the negotiation processes; a roadmap setting was then laid out in December, 2017 as the end of the negotiation process was set.

By March 2018, 44 African countries had signed.Since then, AfCFTA has gained momentum; as of April 29, 2019, 22 countries had deposited their instruments of ratification agreement to the African Union, meeting the threshold for the agreement to come into effect.

AfCFTA is envisaged to be an instrument that will transform and integrate African economies, driven by and meeting the needs and aspirations of all her people, as highlighted in the African Union Agenda 2063 aspirations.

The UN Economic Commission for Africa (UNECA) estimates that the implementation of the agreement could increase intra-African trade by 52 per cent by 2022, and double the share of intra-Africa trade which is currently around 13 per cent of Africa’s exports by the start of the next decade.

The treaty is set to establish a single continental market for goods and services, with free movement of business professionals and investments, accelerating the establishment of the Continental Customs Union and the African customs union.

Also, it will Expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation across Regional Economic Communities (RECs) and across Africa while at the same time resolving challenges of multiple and overlapping memberships and expedite the integration processes.

This will inevitably enhance competitiveness at the industry and enterprise level by exploiting opportunities for scale production, continental market access and better reallocation of resources.

According to a research paper published by the UNCTAD in February 2018, the treaty offers many opportunities for sustainable development and economic growth in the African economies. However, not all countries will benefit to the same extent, and the gain of welfare benefits also implicates relevant costs and commitments.

“Most of the benefits of further trade integration (i.e. welfare benefits from lower import prices, production efficiency and increase in outputs,  higher value-added jobs and exports, technological specialization, etc.) will materialize in the long term, while most of the associated costs of adjustment and integration (i.e. loss in trade tariff revenue, local SME’s vanishing in front of stronger competition, adjusting unemployment, required investment in infrastructure, political and regulatory reforms, etc.) will be incurred in the short term,” the report reads in part.

Using the Global Trade Analysis Project (GTAP) computable general equilibrium (CGE) model, UNCTAD has estimated the quantitative effects of the CFTA in line with 2 long-term scenarios: a full Free Trade Agreement (FTA) and Special Product Categorization (SPC).

A full Free Trade Agreement (FTA) eliminating all tariffs in the CFTA could generate welfare gains of US$ 16.1 billion, at the cost of US$ 4.1 billion in trade revenue losses (representing 9.1 per cent of current tariff revenues).

GDP and employment are expected to grow by 0.97 per cent and 1.17 per cent respectively. Intra-African trade growth is estimated at 33 per cent and the continent’s trade deficit is expected to drop by 50.9 per cent, according to the Analysis project.

Despite the many benefits this agreement will render, not all the countries are expected to benefit equally from the free trade agreement.

As such, UNCTAD reports that the countries with large manufacturing bases and enabling physical and industrial infrastructure, such as South Africa, Kenya, Egypt, Morocco, and Ethiopia are in a better position to gain the expected benefits of the CFTA.

Agriculture will also benefit from the creation of a more viable African marketplace for food. Enhanced trade in agricultural products will also promote agro-processing and further sectoral linkages with manufacturing.

In his commentary on the Building the African Continental Free Trade Area: Some Suggestions Dr. Mukhisa Kituyi, UNCTAD Secretary-General reveals that ACFTA could be the game-changer that reverses this state of affairs.

“Today, cross-border trade deals, such as the “mega-regional” Trans-Pacific Partnership, Trans-Atlantic Trade and Investment Partnership, and the Regional Comprehensive Economic Partnership, focus on regional arrangements as the source for creating new trading, employment and income generating opportunities,” he notes.

Even though the CFTA is a great step forward towards economic integration, there is still a long road ahead. African governments must commit to keep working so that the gains from CFTA are distributed as fairly as possible, making sure no one is left behind, and ensuring that the pact becomes a catalyst for sustainable economic development for the whole continent.

Dr. Kituyi says that CFTA has substantial room to increase trade growth dramatically, and to pave the way for industrialization and economic transformation necessary for African countries to achieve ambitious targets of the global Agenda 2030 as well as Africa’s visionary Agenda 2063.

UNCTAD estimates that implementing the CFTA will roughly double the share of intra-African trade by early next decade.

The continental free trade pact has laid the foundation for what could be the world’s largest free trade zone. The African free trade accord once operational, is projected to boost the level of intra-Africa trade by more than 52 percent by the year 2020, according to the Economic Commission for Africa (ECA).

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