African Continental Free Trade Agreement (AfCFTA): Status Update for Business Stakeholders and the Private Sector

by Faith Tigere | Feb 13, 2019 | Blog

On 21 March 2018, member states of the African Union met and signed the African Continental Free Trade Area. 52 out of 55 countries have signed. 18 ratifications (10 deposited with the AU and 8 have completed the Parliamentary processes). 22 ratifications for the agreement to enter into force.

However, it is important to note that the agreement that was signed is not the complete agreement but rather the skeletal framework outlining general provisions. Specific details on the main aspects that form the agreement and will realize the trading opportunities are still outstanding. These include:

• Schedule of Tariff Concessions – State parties have yet to develop and submit their schedule of concessions for trade in goods. Parties have agreed to a 90{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} basket of goods to be liberalised and 10{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} for sensitive products which are to be liberalised over a longer period.
• Rules of Origins – Specific details relating to rules of origins have not been concluded. Parties are still to develop and submit their lists of product-specific rules of origin, including goods obtained from Special Economic Zones.
• Dispute settlement – agreeing to a mechanism for dispute settlement.
• Secretariat – To adopt the structure, budget, location (country) and organogram of the AfCFTA Secretariat.
• Services – schedule to be developed and submitted.

Countries to watch when the agreement enters into force:

These are the top ten countries with the highest percentage in intra-African trade (exporters). They are not in any specific order.

Source: African Trade Statistics Yearbook 2017.

Latest Update: 2019/03/20

• 0n 21 March 2018, member states of the African Union met and signed the African Continental Free Trade Area. Not all countries signed and ratified the agreement: 52 out of 55 countries have signed, and with 20 that have ratified the agreement. Of the 20 that have ratified, 15 deposited their instruments of ratification with the AU, and 4 have completed the parliamentary process but yet to ratify. In order for the agreement to enter into force, 22 ratifications are required.
• Schedule of Tariff Concessions – The summit of January 2019 finalised the sensitive products by agreeing to 7{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} sensitivities and 3{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} exclusions. This paves the way for countries to embark on preparing tariff offers in line with the modalities by June 2019.
• Rules of Origins – Still under negotiation. Some states want stricter rules of origin and some want flexible rules of origin. In addition, member states are yet to develop a strategy for special economic zones. Negotiations for special economic zones will commence soon. The initial deadline for the negotiations has passed and new deadline is set for mid-year 2019. However, at the pace that negotiations have been going, this year’s deadline may be missed.
• Secretariat – At the January Summit of 2019, the leaders agreed to hold an extraordinary summit in Niamey, Niger in July 2019. The purpose of the summit will be to decide on the Secretariat of the CFTA – particularly its location and structure. Ghana and eSwatini have expressed interest to host the institution.

Countries to watch when the agreement enters into force are listed below according to GDP size. The table also includes data on the countries with the highest percentage in intra-African trade (exporters and importers).

Source – African Trade Statistics Yearbook 2017 and IMF Map Data.

*not listed in the data captured of the 22 major intra-African trade importers and exporters.

The share of total Africa-Exports ({fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}), 2017 (only showing UN Comtrade reported data)

Source: UN Comtrade, 2019

Share of total Africa-Imports ({fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}), 2017 (only showing UN Comtrade reported data)

Source: UN Comtrade, 2019

Latest update: 30/04/2019

22 Ratifications for the AfCFTA! The Final Lap.

Finally, the AfCFTA has reached the minimum number of 22 ratifications for the agreement to enter into force. The agreement is edging closer to implementation. To date, the AU Commission has recorded 20 deposits of instruments of ratification with only two outstanding. After the 22^nd instrument of ratification has been deposited, the AfCFTA will enter into force after 30 days. At the January Summit, member states agreed to submit their schedule of tariff commitments at the next summit. They agreed to a liberalisation of tariffs up to 90{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} tariff lines over a 5-year period for non-LDC members and 10 years for LDCs to be progressively eliminated. The remaining 10{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} is reserved for sensitive and excluded products. Now we are entering a phase where the agreement will be implemented. But how does this schedule of commitments translate in terms of implementation?

A breakdown of the Schedule of Commitments

The AfCFTA negotiators agreed to a progressive reduction or elimination of tariffs and other barriers to trade. The progressive reduction and elimination of tariffs create market access. Currently, intra-African Trade remains very low, sitting at 18{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}. This is against the background that most trade in Africa is in primary products. See graph here

Questions arise concerning the generally agreed tariffs. Does 90{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} tariff liberalisation entail that much of intra-African trade will not be subjected to tariffs? At this stage, this basket refers to all goods. At the moment it is not clear what criteria were adopted for sensitive and excluded products. Under the agreement, goods risk being concentrated within the basket of sensitive and excluded products, leaving the 90{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} virtually empty. This potentially renders the agreement weak; and some could argue, meaningless. For a stronger and effective agreement, it is important that countries’ tariff schedules are not all concentrated within the category of excluded and sensitive products. The AU has emulated the WTO by setting up certain rules that require that no entire sector be exempted from liberalisation. Hence, they have added timelines applicable to the excluded products. Another useful mechanism could be the application of an anti-concentration clause. This clause prevents member states from concentrating their flexibilities in a specific sector. These rules will ensure that a more meaningful liberalization occurs for intra-African trade and that an important opportunity to liberalise trade and create a large market is not missed. Finally, an alternative solution is to use double-qualification, which would cover both the number of tariff lines and the share of imports being covered by those tariff lines. Double-qualification ensures that the level of ambition expressed (the 90{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} linear cuts elimination) is accurately expressed in terms of trade coverage. It also has the advantage of also taking into account various countries’ sensitivities in a reasonable manner.

Latest Update : 14/06/2019

Key Questions to Ask Now that the AfCFTA Entered into Force

The AfCFTA entered into force on 30 May 2019. 52 members have signed the agreement with 24 ratifications. This is the first step leading to the establishment of an African common market has been achieved. The next phase will be implementation – which entails applying the terms of the agreement nationally by each government. This includes amending domestic measures to be in line with the AfCFTA. Such customs procedures and domestic measures. Technically, most governments should have completed all the preparatory work leading up to the agreement entering into force. That way, the only thing left would be implementation. However, this stage raises a number of questions which are key to the successful implementation of the AfCFTA.

1. How ready are the individual African states for the implementation of the AfCFTA?
2. Have national instruments been updated to reflect the terms of the agreement?
3. Does each individual member state have an implementation strategy?
4. Do they have the necessary capacity for implementation?

Thus, despite signing the agreement, if the above questions are not answered, implementation of the AfCFTA will be challenging and the benefits of the agreement will be delayed. A readiness assessment is needed to ensure that all member states are at the same stage for the agreement to be successful. In addition, even though the rules are in force, the market access commitments to which they apply are still outstanding such as rules of origin, modalities for tariff negotiations, tariff schedules and service sector commitments.

Governance Failure and Debt: Sub-Saharan’s Africa Dual Challenges

by Faith Tigere | Jan 23, 2019 | Blog

Faith Tigere and Anna Ngarachu with Lesley Wentworth

Towards the end of 2017 and the beginning of 2018, a wave of political reforms swept across Southern Africa with widespread optimism and the promise of change. The ousting of Zimbabwe’s geriatric president, Robert Mugabe in November 2017 after 37 years of rule and replacement by Emerson Mnangagwa was a welcome transition to Zimbabweans across the world. This was followed by the election of Cyril Ramaphosa as the president of the ANC in December 2018 and the subsequent ousting of Jacob Zuma. Following the announcement of Mr. Ramaphosa as South African president, the rand saw a quick revival, and an overnight boost in the economy led to hopes of economic revival. The exuberance and euphoria in both South Africa and Zimbabwe evoked memories of the Arab Spring, unfortunately, this Southern African spring dipped to a decline shortly after (see analysis by Azwimpheleli Langalanga).

Despite hopes for change typically ushered in by a change in leadership, bad elements often endure. “Third termism” pervades the continent with leaders refusing to relinquish power after their second (and final) term of office comes to an end. By and large, democracy is still elusive for the continent as these conditions persist. Tactics to hold on to power include changing constitutional presidential terms (Rwanda, Uganda), the allegation of vote rigging (Zimbabwe and DRC), collusion and side-stepping the law (Sudan). These tactics create tensions in democracy as the authoritarian leaders stray from the rule of law in electoral processes and the outcomes, resulting in dynastic states. The year 2019 will see a total of 17 critical elections (general and parliamentary) across the continent including South Africa and Nigeria.

Other consequences of failed governance include poor leadership, that includes failure to introduce reforms and policies that would significantly improve the economy. The tendency towards autocratic leadership is widespread across the continent (seen most recently in Tanzania and Zambia) and characterised by brutal crackdowns on the opposition, civil unrest, and an ill-equipped civil service. These have resulted in weak institutions overrun by corruption, lack of capacity and poor implementation. Failure in national governance always has a domino effect on the economy and it is these symptoms that feed into the narrative in many African countries of a dire economic outlook.

Poor policies, weak institutions, and mismanagement of the economy induce a profound sense of resentment and disillusionment with government leaders. Without a doubt, poor governance leads to a visible downward spiral in the indebtedness of many African countries.

Debt is, to a degree justifiable, when it flows towards productive national or regional projects, with potential spinoffs for long-term job creation. However, the trend towards high debt-servicing costs is of great concern. High debt costs are notable in many African economies, including Mozambique’s undisclosed debt that has placed it in the limelight and Kenya’s high debt serving towards infrastructure projects that have raised suspicion relative to the conditions attached to its Chinese loans.

Regional institutions, including through SADC’s Protocol on Finance and Investment (FIP) have counseled Member States to maintain a public debt to GDP threshold of below 60{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}. For the IMF, this ratio should be closer to 40{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1}. The table here highlights the general government gross debt (share of GDP) of countries in SSA over the last decade. Today, the median debt-to-GDP ratio is 52.4{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} having risen from 30{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} in 2012, according to IMF calculations. Countries with gross debt higher than the medium (52.4) for the periods 2018 and 2019 are highlighted in red.

There are multifaceted issues that have led to the increasing indebtedness of many countries; not to mention the historical, colonial and structural adjustment factors that have played an invisible hand leading to these dynamics. Africa in many instances hasn’t recognised its state of fragmentation. Political leaders continue to perpetuate this vicious cycle of debt and poverty by holding onto power and setting out policies that are self-gratifying and with no reformist qualities. If African leaders are to set their countries on a path to prosperity, they would need to pay attention to improving democratic institutions, reforming their economies, reining in government spending that often leaks due to rent-seeking or lack of capacity in government, and adopting pro-growth and pro-poor strategies targeted at bolstering both the economic and social infrastructure. In the end, the prosperity of the continent rests on the combination of good leaders and sound institutions.

The G20 and the WTO: The Way Forward

by Faith Tigere | Dec 9, 2018 | Blog

There are active debates on the significance of the G20 as a global economic forum and their continued role to reform global economic governance since inception. Their impact on the global economy has been evaluated through their outputs. Trade has been one such area where a lot of questions and criticisms have been raised on the role of the G20. Despite the G20 pledging their support for the multilateral rules-based trading system, the success rate relating to trade issues has been glaringly dismal. They have been unable to resolve the issues surrounding the World Trade Organization (WTO), particularly the conclusion of the Doha Development Round (DDA) (agriculture, special and differential treatment, subsidies, intellectual property and services) which commenced in 2001 and by some accounts is still ongoing, the question of WTO reforms, and, recently, the escalating trade tensions between the US on the one hand, and China, EU, Canada and Mexico on the other.

The G20 forum for heads of states was formed after the 2008 financial crisis. Before upgrading to heads of states level, it was first a group of Ministers of Finance that was formed in the aftermath of the 1997-8 Asian financial crisis. At its inception, the forum’s main focus was on financial issues. However, the mandate of the G20 has since broadened from financial issues to other global issues including trade. This expansion has made it increasingly hard to focus on strategic issues. In their efforts to contribute to trade, the G20 has introduced initiatives that supported the WTO’s programs such as the WTO’s Trade Facilitation Agreement and the G20’s Strategy on Global Trade Growth amongst others. Despite these efforts, the G20’s impact on trade has been limited, if any at all. Hence the important question, is the G20 the right forum to resolve the challenges being faced by the WTO and the global trading community?

The G20 has certainly proved that it has the ability and flexibility to solve crises – a form of crisis management club– the 2008 financial crisis is a good example. But can this feat be replicated to solve rising global trade tensions before they become a full-blown trade war? There are certain things the G20 can do to alleviate some these tensions, notwithstanding its limitations:

1. The G20 has a representation of both developed and developing countries from the different regions hence they should try to craft long-term solutions for the institution. Bolder stances geared towards serious deliberations on trade are needed. Thus, if the G20 can develop a reform agenda and associated (medium term) processes with credibility considering the absence of trust among the main players, it would be a step to trying to defuse existing tensions. In addition to that, the G20 can also develop a mechanism to manage tensions among the major players eg Trump – Xi, and Trump -Junker ‘ceasefires’ to curb escalating

trade tensions. G20 members are uniquely placed to establish such a mechanism. They are also in a position to negotiate and engage with China and the United States as both these countries are members of the G20.

2. Consistency and continuity of trade-related initiatives. The G20 should address escalating trade tensions in a systematic way. Adopt initiatives to stop the bilateral trade war and these initiatives should speak to one another no matter the presidency to ensure consistency. Initiatives have more impact if they are not isolated from each other than when there are coordinated and consistent.

3. As one of the main deadlocks is consensus-based decision-making rule, the G20 albeit smaller group could take the lead and find a solution to reaching consensus on outstanding issues under the Doha Development Round.

4. Recent attempts (Canadian Initiative) at the reform discussion have not been fully representative, – in that, significant participants who are important to the reform discussion were excluded such as South Africa, China and the United States. In the wake of such initiatives, it is important for the G20 as the leading group to initiate the reform discussions and invite other non-G20 stakeholders for solid reforms.

At this juncture, it is critical that the G20 should play its role and ensure that the WTO as a multilateral rules-based system should not be allowed to fail. The WTO is an essential institution that adds value to the global trading community and not only that, it has been one of the most successful institutions particularly when it comes to the dispute settlement function which has been the pillar for the organization.

Improving Women’s Participation in the AfCFTA

by Faith Tigere | Aug 29, 2018 | Blog

The African Continental Free Trade Area (AfCFTA) brings with it the promise of market access to the continent with an estimated GDP of US $ 1.2 trillion. The agreement was signed on the 21 March 2018 by 44 countries. Thus far, six countries have ratified, and South Africa’s cabinet just approved the AfCFTA which will be submitted to Parliament for ratification. The agreement requires 22 ratifications to enter into force. With six ratifications in five months to date, the agreement is likely to enter into force sometime next year, some say somewhat prematurely, as not all the negotiations have been concluded.

Nonetheless, with the agreement signed, questions arise on the role of women who have always participated in economics, although often on a smaller scale. How can we ensure that the participation of women in trade is improved? This includes both women in the formal sector and in the informal sector (vendors and informal cross-border traders where women make up the majority. These questions should be addressed before the agreement ultimately enters into force.

The AfCFTA will impact women in all aspects and yet it has not been easy for women to trade. Many challenges are encountered by women in the different sectors of trade. Some of the challenges include disproportionate representation particularly in the services and financial sectors due to lack of adequate information on trade agreements, no access to finance, limited support from national government, poor implementation of gender policies, lack of coherence and coordination and lack of resources to implement the gender agenda. Patriarchal policies around land and property ownership are some of the long-term challenges women have been facing. Addressing these challenges would ease the way of doing business for the majority of women.

While women participate in all the sectors, there is a need to canvass the best means by which women can participate in the AfCFTA in the trade opportunities. Persistent side-lining of women in trade reduces the incentive to pursue structural reforms, which keeps women out. Integration of women in trade, supports stronger economic growth and ensures that women do not lag behind. In addition, the families they support are given a fighting chance when the women have a more solid economic base. This would also enable women to access the financing they need to penetrate markets that are currently closed off to them. The gender divide in many countries remains large, and therefore remains a priority to close the gap

One of the objectives of the AfCFTA is boosting intra-African trade through creating a continental market –increasing the trade between African countries through lowered tariffs, removal of non-tariff barriers (NTBs), simplified trade and customs cooperation at the borders. This means that where once it was hard to export or import goods, it should be simpler when the agreement enters into force. To ensure maximisation of benefits from the AfCFTA for women it is important to do at least some of the following:

* Create collaborative organisations – For women running small businesses to become organised with other women in the same sector or just small businesses. Women can make their mark on the trade scene particularly those in the informal sector that want to expand to exports. It is much easier to enter a market as a collective than as an individual;

* Enhance knowledge and knowledge sharing: Research the countries and their culture if you want to enter that market;

* Increase economies of scale – There is power in numbers;

* Increase access to information – Know the contents of the agreement to be better placed to access the benefits;

* Increase specialisation in certain sectors – With specialisation comes greater efficiency and effectiveness.

The AfCFTA has created various trade committees and sub-committees which are at the regional and continental levels. It is important to increase women’s participation in these committees and involving women in every stage of development planning, implementation, monitoring and evaluation process. This ensures that there is integration of women in all processes, strategies, programmes and activities. In addition, there is a need to simplify customs procedures and documentation at the different ports of entry. In particular informal cross-border traders, who are predominantly women, have been subjected to harassment, confiscation of goods, violence, corruption and lack of infrastructure.

With all this mind, women can play a greater role in their countries and trade should be used effectively as a tool to close the gender gap rather than increase existing gender inequalities on the continent. Women are the major contributors to socio-economic development, poverty alleviation, food security and employment creation. In the words of a wise woman, “No country can get ahead if it leaves 50{fdf3cafe0d26d25ff546352608293cec7d1360ce65c0adf923ba6cf47b1798e1} of its population behind. The future must be powered by strong women.”