Africa: Key Pillars Almost in Place to Accelerate Africa’s Free Trade in 2022
A year later, negotiators for the African Continental Free Trade Area (AfCFTA) are making progress on the remaining crucial elements, in particular rules of origin.
The official launch of free trade under the African Continental Free Trade Area (AfCFTA) in January 2021 brought a major continental aspiration closer to reality. A year later, cross-border trade in goods and services may not be booming exactly as expected, but there are signs that there is progress – the cup is half full, not half empty .
A major obstacle is the ongoing negotiations on the remaining crucial elements of the trade pact, in particular the rules of origin.
However, in an interview with Africa Renewal last month, the Secretary General of the AfCFTA Secretariat, Wamkele Mene, sketched an optimistic vision for 2022.
In sum, the implementation of the AfCFTA will kick into high gear, traders would be delighted, and the push towards the accelerated industrialization of the continent should begin in earnest.
Concluding negotiations on rules of origin, which essentially involves determining the “nationalities” of thousands of products to prevent dumping, will be the key to success.
Already, negotiators have reached an impressive 87.8% agreement on rules of origin. This includes more than 80% of the approximately 8,000 products listed under the World Customs Organization’s Harmonized System of Rules of Origin and Tariffs. Such a high consensus threshold ensures that the vast majority of products can be marketed.
“What’s left hanging are automobiles, textiles, clothing and sugar. These make up about 12-15% of what we call the tariff. We want to conclude the negotiations on these products in order to reach to 100% convergence of rules of origin,” Mr. Mene said.
Mr. Mene is convinced that traders in Africa deserve an enabling environment, including solid market information and other incentives to propel their businesses.
The Futures Report 2021 launched last December in New York provides traders with valuable trading insights, making it one more item in the AfCFTA’s toolkit to catalyze intra-African trade.
Produced jointly by the AfCFTA Secretariat and the United Nations Development Program (UNDP), the report, titled “What value chains for a made in Africa revolution”, highlights for market players the value chains value offering lucrative opportunities in value-added goods and services. Noting growing inequalities, the report states that “Africa is the only continent where the number of poor has increased, from 392 million in 2000 to 438 million in 2017”.
Africa needs to “diversify into other commodities…beyond the current commodity cycle pitfalls in different high-tech industries,” comments Mr. Mene, in the foreword to the report. “Africa has 42 of the 63 Fourth Industrial Revolution (4IR) elements, including coltan, cobalt, copper, nickel and graphite, for which global demand will increase by 1000% by 2050. “
UNDP Regional Director for Africa, Ahunna Eziakonwa, urges Africa to stop exporting raw materials, but to “industrialize its economies, produce goods rich in African content and create decent jobs for generations to come “.
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Apart from 100% completion of the rules of origin negotiations, Mr. Mene’s radiant optimism for free trade in Africa in 2022 will depend on other pillars:-
- The first is to establish a trade finance facility to support SMEs, especially those run by women and youth. The timing of this initiative is less certain given the involvement of commercial banks.
- This conversation [with commercial banks] is going slower than I would have hoped because there are several technical issues that we need to resolve,” says Mr. Mene. “It may take a little longer.
- The second pillar is the launch of the African Trade Gateway, which is a one-stop digital platform containing information on rules applicable to thousands of products, customs procedures, market information and trends, and payment transfers. Mr. Mene said, “The African Trade Gateway is under our control. We can deploy it quite quickly.
- The third pillar is an AfCFTA adjustment facility, which should cushion the fiscal effects of tariff losses in countries. Mr. Mene was quick to point out that this facility is not intended to fill a budget gap; rather it will be “to support specific value chains in specific productive sectors of the economy, for example textiles and agro-industry”.
The AfCFTA Secretariat and Afreximbank have raised $1 billion for the adjustment facility, a good start, although the seed liquidity estimate is between $7 and $10 billion.
- The fourth pillar is to roll out the Pan-African Payments and Settlement System (PAPSS), a platform that facilitates cross-border payments in local African currencies and is expected to save African merchants around $5 billion a year in currency convertibility. The PAPSS was officially launched on January 13, 2022, while a continent-wide roll-out and outreach campaign to traders is expected to ramp up in the coming weeks.
“We have over 42 currencies in Africa. We want to reduce and eventually eliminate this cost [$5 billion] because it constrains the competitiveness of our SMEs and makes trading costly and inaccessible for many SMEs and young entrepreneurs,” Mr. Mene explained.
- The final pillar is to ensure that African Special Economic Zones (SEZs) are compatible with the AfCFTA. Countries that establish SEZs subject these zones to special trade laws, such as tax breaks, to attract investment and boost employment.
The United Nations Conference on Trade and Development (UNCTAD), champion of the success of the AfCFTA and SEZs, reports that there are 237 SEZs – and counting – in 38 African countries.
In anticipation of increased activities in the African Free Trade Area, UNCTAD recommends appropriate policies to enable SEZs to adapt to both the “new trade and investment environment in Africa” and to “future changes in global value and investment patterns”.