The African Continental Free Trade Area (CFTA) summit held in Kigali, Rwanda in March 2018 was supposed to be the culmination of former Ghanaian President Kwame Nkrumah’s dream of a truly united Africa.
The CFTA, which was drafted in Niger in December 2017, envisages a trade area across the continent covering a market of 1.2bn people with a combined GDP of $2.5 trillion. According to research conducted by the UN Economic Commission for Africa (UNECA), the agreement could boost African economic output to around $29 trillion by 2050, and increase intra-African trade significantly. Currently, it stands at around 18% of total trade, which compares negatively to 59% in Asia and 69% in Europe.
But just days before leaders from across the continent were supposed to sign the agreement, Nigeria’s President Muhammadu Buhari announced that Africa’s largest economy would not sign up to the historic accord pending further discussions with local trade unions and the business community. The move surprised most delegates in the opulent conference hall of the Kigali Convention Centre, especially because part of the agreement was negotiated under the chairpersonship of Nigeria.
The country’s absence was compounded by the fact that South Africa, which is the continent’s second-largest economy, also did not sign up to the agreement. The absence of the two largest economies, however, did not come as a shock to one of the architects of the agreement, David Luke, coordinator of the African Trade Policy Centre (ATPC) at UNECA.
“It’s not all that surprising that we had countries changing their minds,” Luke says. “Implementing a trade agreement is complex. There are so many constituents and interests that need to be considered. So, it’s normal that on the eve of signing an agreement that a country may say, ‘Hey, let’s pull back; let’s look at this thing afresh’.
“If you remember when Canada and the European Union (EU) were negotiating a free-trade agreement at the end of 2016, there was a group from Belgium that had concerns and the agreement was blocked for a while. But, following further discussions, the issue was resolved and the agreement was approved by both parties.”
Objections will be overcome
The EU and Canada spent over seven years negotiating the Comprehensive Economic and Trade Agreement (Ceta) which would eliminate most tariffs between the two trading partners.
However, the Socialist-led parliament in Wallonia region in southern Belgium objected to the Ceta, claiming that the agreement would disadvantage their beef and pork farmers against Canadian producers. The Wallonia government eventually withdrew its opposition to the agreement after a compromise was reached.
Similarly, Luke believes that Nigeria’s withdrawal is due to domestic pressures, but, like the Wallonia region, eventually, Nigeria will sign up to the agreement.
“There is no way Nigeria will walk away from this deal,” he says. “ATPC analysis shows that Nigeria will be one of the major beneficiaries of the CFTA and the government knows that. So, they will have to bring the different groups together and allay their fears, which is what they are currently doing.”
“The agreement gives larger economies access to a market of 1.2bn people with no added duty.”
Nigeria was not the only country to perform a U-turn. Other countries, such as Madagascar were originally not scheduled to sign the agreement during the summit but decided to join the agreement at the last minute, to much fanfare in the conference hall.
In total, 44 out of 55 countries signed up to the CFTA. The various governments will now analyse the text of the agreement and will move to enshrine it into law. The process is likely to face intense scrutiny by local lawmakers who must take into consideration concerns of their constituents, trade unions and businesspeople.
One of the main concerns voiced by those opposed to the agreement is that the more developed economies will benefit to the detriment of smaller economies. But, according to Luke, every country, big or small, will have to find its place in the supply chain.
“Our research shows that there’ll be short-term costs for all countries in terms of reduced revenues from tariffs, with the less economically developed nations being impacted more than the more developed ones,” he says. “But the short-term loss is far outweighed by the long-term gains each country will experience.”
“Not all African countries can have the capacity to make finished goods such as automobiles, for example. So, if you’re a small economy you have to be smart and look at what sectors the big economies are concentrating on and what inputs they need so they can enter the supply chain at a lower level. This comes in the form of building leather seats for auto manufacturers in Morocco or South Africa.”
Another area of concern is the potential for foreign entities, especially Chinese firms, to use the agreement to dump goods in Africa via the back door. This concern has previously been raised by Tito Mboweni, director of the Development Bank in Shanghai, who stated: “Chinese entrepreneurs benefited from the African Growth and Opportunity Act (AGOA), [with] very few African entrepreneurs benefit[ing].”
AGOA is a preferential trade agreement that gives African countries duty-free access to the US market in return for making economic progress and political reforms. Critics of the CFTA argue that the agreement will only increase Africa’s vulnerability to dumping.
“It’s a legitimate concern and it is already happening now,” Luke says. “The Chinese, the Indians, other emerging economies and even the US have openly stated that they want to deal with ‘can-do’ African countries, which means they’re picking us off on an individual basis to their advantage.
“But the agreement helps protect African markets because we will be acting as a collective rather than individual competing markets. This agreement stipulates that we want to have a preferential trade regime among ourselves and a third party cannot undermine what we have agreed on. Gone are the days when larger economies pick us off individually; now they will have to deal with us all equally or not at all.”
The CFTA will mean that many of the multilateral trade agreements, such as the EU-Africa Economic Partnership Agreements with some African nations will have to be renegotiated to reflect the collective nature of the agreement between AU member states.
Against the trend
The CFTA agreement comes at a time when globalisation is under pressure around the world. US President Donald Trump’s anti-trade deal rhetoric and Brexit are just two phenomena that epitomise the rejection of international trade agreements.
While many countries are moving towards protectionism, Africa stands out as one of the only regions pushing for further integration. But can Africa avoid the pitfalls which have led to resentment of trade deals?
“The CFTA is not a customs union like the EU,” Luke says. “We are not saying, at this point, that all our external tariffs will be aligned. Instead, we are saying via the agreement that African nations will trade amongst themselves under a preferential regime.”
While the CFTA is not yet a customs union, there will be standardisation among the member nations for items crossing borders such as food goods or pharmaceuticals, and an arbitration committee ensuring that standards are being met and any disputes can be brought forward.
While the CFTA is still in its relative infancy, its success will be down to African nations thinking ahead and understanding that the short-term losses will lead to huge gains in the long run, according to Luke.