As D-day approaches for the African Continental Free Trade Area African Business talked to Ambassador Albert Muchanga, the AU’s Commissioner for Trade and Industry, ahead of the AU’s all-important Extraordinary Summit in May
As the African Union’s Commissioner for Trade and Industry, Albert Muchanga has spearheaded the organisation’s efforts in driving the negotiations, conclusion and ratification of the African Continental Free Trade Area (AfCFTA), which entered into force on 30 May 2019, and was successfully ratified in July 2019.
The AfCFTA Extraordinary Summit to be held in May will address many of the outstanding points that need to be resolved in order for Africa to open up its borders, according to Commissioner Muchanga.
He is clear that the monitoring, reporting and elimination of non-tariff barriers will be just as critical as the agreement itself. “Sometimes we can reduce tariffs and then find that behind the scenes there are non-tariff barriers,” Muchanga asserts. He proposes an “online mechanism that is going to assist us in tracking developments in this area”.
Importantly, a payments and settlement platform is being developed to facilitate payments between African countries without having to recourse to a third currency, such as the euro or the dollar, which is currently the case. The AU, Muchanga says, is working with the African Export-Import Bank (Afreximbank), to develop this platform.
Another and final supporting instrument that is being developed is the African Trade Observatory, effectively a trade information portal. “This is going to provide real-time information on a number of trade-related issues,” Muchanga says, “such as the export and import opportunities across the continent; a directory of vetted key economic operators to eliminate fraud in the process of trading; and other general statistics.”
The era of balkanisation is over
Even though the prospect of a single, unified African market is becoming increasingly evident, both the US and EU are continuing to propose bilateral trade agreements with individual African countries as was the case with the US and Kenya in February.
Muchanga says this is the case but a system is in place to avoid undermining the AfCFTA and there are clear advantages to negotiating as a bloc: “What we would say to both the US, the EU and the other European countries that may be interested in bilateral trade agreements, is that we are creating the African Continental Free Trade Area. We want to ensure that trade agreements with third parties are agreed with the continent as a whole. We have made this sentiment quite clear. Within the agreement there are provisions that are very clear. Any country that wishes to enter into a third-party free-trade agreement, on a bilateral basis, has the obligation to report to the rest of the membership and clearly indicate the impact that it is going to have.”
He goes on to say that “when we negotiate as a collective we are much stronger and we are also contributing to the growth of the market because the history of Africa is the history of balkanisation, or fragmentation if you like. So, by creating the African Continental Free Trade Area, we are ending the era of balkanisation to create a larger market space that can attract long-term investments. If there is a return to small markets, then we lose the focus.”
Muchanga is clearly realistic, but cautiously optimistic, that Africa will achieve its objectives. “As far as the timeframe is concerned,” he says, “we have a look at the Abuja Treaty; by 2023 we should have the African Customs Union and by 2028 we should have the African Common Market. We are working on this right now, and there is a readiness assessment study on the African Customs Union.”
He doesn’t see the recent case of Nigeria closing its borders with Benin as a major setback but rather highlights that to implement the agreement, we will have to overcome certain challenges. An important issue was raised, he explains, relating to the rules of origin – rice coming from Asia was being imported through Benin into Nigeria.
Many of the continent’s economists and trade specialists have commented on the very real prospect of the AfCFTA not only growing intra-Africa trade but stimulating the continent’s industrialisation.
Muchanga underlines the central role of industrialisation in increasing trade: “When you look at the composition of intra-African trade, what is established is that about 42% is made up of manufactured goods. And when you look at the composition of international trade, about 53% of global trade is made up of manufactured goods. The message is very clear – manufactured goods play a critical role in ensuring that you have got increasing trade flows among countries.”
There are concerns that the composition of the African economy might present further challenges, in that there are a number of African countries that have very dominant economies. This asymmetry raises a number of problems.
Muchanga says that the AU’s Department of Economic Affairs has a programme aimed at promoting macroeconomic convergences. And there will also be a number of programmes to support and minimise any short-term losses related to the AfCFTA for smaller countries.
“We are working on the issue of macroeconomic convergence and within the African Continent Free Trade Area we are going to establish what we call the African Continental Free Trade Area Adjustment Facility, which is going to enable countries facing costs related to the implementation of the agreement to have some recourse to enable them to adjust. It is very important to promote a uniform economic development. If we leave the countries as they are – small and isolated – I think the disparities will be increased.
“But if we bring in a huge inflow of investments across the larger markets, then even the smaller markets will be able to be suppliers of intermediate products to the larger economies and that will facilitate the uniform growth.”
Measures of success
It goes without saying that a great deal is hinging on the AfCFTA, and many will be anxious to see the progress that is being made. For Muchanga, it’s important that Africa’s growth is measured and celebrated. A number of instruments are being developed to track progress. The AU is working with the United Nations Economic Commission for Africa to create the AfCFTA Country Business Index, which is going to measure how countries are facilitating integration.
Another metric is the monitoring of the growth in intra-African trade. “Right now, it is between 15% and 18% depending upon the sources of the statistics, but within six years, we hope to increase it to something like 30%.
“That will be a good indicator of how the market is developing. Of course, with the increase in intra-African trade, it also means that there is going to be a huge surge in investment, so we can look at the patterns in investments across Africa. That will also be a good indicator.”
Lastly, he adds, a good indicator will be the informal cross-border traders. Right now, a study is underway to see they can be mainstreamed, with a focus on how to enabe them to register their businesses, maintain their accounts and pay taxes. Once informal cross-border trade is mainstreamed, he estimates that intra-African trade could increase by a further 15%.