Wednesday, 11 April 2018

On Africa’s Free Trade Initiative: Grand Illusion or Breakthrough?

African leaders during the AfCFTA Summit.
Image: Courtesy

On 21st of March 2018 in the city of Kigali, 44 member states of the African Union (AU) ratified the establishment of the Continental Free Trade Area (CFTA). Ratification of the CFTA was the main agenda during the Extraordinary Summit on the African Continental Free Trade Area.

The Extraordinary Summit was a culmination of a series of meetings seeking to boost the intra-African trade which, according to the 2017 African Economic Outlook report, is estimated to be at 15% of Africa’s total trade. Comparatively, Africa’s trade with China and the European Union is at 15% and 30% respectively of the continent’s total trade.

Countless efforts have been made in the past to boost the intra-African trade, but it was during the 18th Ordinary Session of the Assembly of Heads of State and Government of the AU held in Addis Ababa in January 2012, that a definite plan was formulated to increase trade among African countries.

For instance, the Action Plan on Boosting Intra-Africa Trade (BIAT) was launched during the 18th Ordinary Session, and it highlights seven key clusters to promote trade among African countries. The pillars include trade policy, trade facilitation, productive capacity, trade-related infrastructure, trade finance, trade information and factor market integration.

Basis of CFTA Establishment
The overarching objective of the CFTA is the creation of a single continental market for commodities through the free movement of people and investments across Africa. CFTA is deemed as the precursor of the yet to be established Continental Customs Union and the African Customs Union.

With hindsight, approval of the Lagos Plan of Action in 1980 signaled the intention of African countries to promote economic development with the major highlight of the blueprint being the proposal to establish the African Common Market by the year 2000.

Furthermore, the foundation of the CFTA can also be traced to the Abuja Treaty of 1991 on establishing the African Economic Community (AEC), ratified by 51 heads of governments and states under the auspices of the then Organization of African Unity (OAU).

The Abuja Treaty envisages the establishment of the AEC by strengthening the regional economic blocs in the continent. As such, the Treaty outlines the establishment of the AEC within a period not exceeding 34 years from 1991, through a series of six stages.

Thus, as per this policy document, the AEC should be fully established by 2025 which is impossible bearing in mind the current realities.

More categorically, the sixth stage of the Abuja Treaty outlines that the establishment of the AEC will involve setting up of: the African Common Market, the African Monetary Union, the African Central Bank, and a single African currency among other integration activities.

Additionally, CFTA also has its foundations in the Tripartite Free Trade Area Agreement (TFTA) consented to on 10th June 2015 by 26 member states of the Common Market for Eastern & Southern Africa (COMESA), the East African Community (EAC), and the Southern African Development Community (SADC).

TFTA is expected to hasten trade activities between the ratifying states through elimination and harmonization of tariffs and non-tariff barriers.

African countries hope to achieve socio-economic development through cross-border trade enhanced by the CFTA framework.

Possible Opportunities?
For decades, Africa has been referred to as the continent with a very high potential in regards to socio-economic prosperity. Afro-optimists have even taken the game of potentiality to another level, a higher one of course, by coining the term ‘Africa Rising.’

A disturbing fact is that Africa has only lived to be defined on the basis of the aforementioned description. It is a subtle affirmation of why the ‘Africa Rising’ narrative is an amorphous view of the purported progress that Africa is making.

I do not endorse the general perception that Africa is rising. Africa cannot be rising as a whole when civil strife is the order of the day in a number of African states. Africa cannot be rising when poverty levels are on the increase. Africa cannot be rising when neo-colonialism is on an upward trajectory. It is that simple.

Far from that, African countries are set to unlock their high economic potential through the CFTA. With a population of 1.2 billion people it is expected that such a population will be a catalyst for the continent’s structural transformation - at this juncture it sounds as if the CFTA is the continent’s magic moment for socio-economic prosperity.

A high population can be advantageous as well as disadvantageous. It is advantageous in the sense that it offers a ready market for commodities and the European Union (EU), China and lately India have shown us that. However, this has to be reinforced with other factors critical in promoting economic growth and development such as innovation among others.

A high population is only disadvantageous when rates of economic growth and development registered are poor. And this has been the challenge facing African countries for decades.

The United Nations Conference on Trade and Development (UNCTAD) estimates that operationalization of CFTA first by cutting the intra-African tariffs could generate $3.6 billion in welfare gains to Africa majorly through increased production and cheaper goods.

Africa’s economic potential will be unleashed by the CFTA primarily if free movement of people and commodities will take place. But during the launch of the CFTA in Kigali only 30 states signed the free movement protocol. This restricts the movement of people from one African country to another, with the mobility regarded as beneficial at least to some extent.

Challenges to CFTA
Establishment of the CFTA has been lauded as a crucial step towards the economic transformation of Africa, but there are challenges which threaten its take-off.

One of the challenges is neo-colonialism advanced by foreign powers. With China’s heightened global ambitions and take-over of Africa, in addition to the geo-political activities of nations such as USA and others, the expected rollout of the CFTA is set to falter.

An ambitious Africa is a threat to the global ambitions of the foreign states that control political and economic activities in the continent.

It will only take a few Forum on China-Africa Cooperation (FOCAC) conferences and the United States-Africa Leaders Summit meetings to change the CFTA equation, with Beijing and Washington organizing these conferences on the basis of “renewed interest in Africa” theme.

In addition, the flippant nature of majority of Africa’s political leaders is a challenge to the success of the CFTA. On several occasions, Africa leaders have gracefully appended their signatures to a number of declarations seeking to promote social, economic and political development of the continent.

But amid all the fanfare witnessed during such declarations, implementation of the approved policy proposals is done in an erratic manner and dubious fashion. Take the case of the Malabo Declaration and the Maputo Declaration meant to address Africa’s food insecurity and food production levels.

Political leaders in Africa have to endear themselves to the ideals of the CFTA and show unrivalled commitment. CFTA is bound to fail with subpar political goodwill.

The notion of open borders is not only a threat to the success of the CFTA but also to the unity of Africans. There are various research studies in support for open borders with one such study being a working paper by the National Bureau of Economic Research.  

A common argument for open borders is the increase in productivity for a country where immigrants settle with such people remitting a significant proportion of their earnings or transferring essential skills and technology to their mother countries.

However, various dynamics must be taken into consideration regarding the notion of open borders in view of free movement of people among African countries. African countries have higher rates of unemployment and this is dangerous with the idea of open borders.

Africa’s largest economies by GDP, the most advanced economies, and generally economically stable countries are naturally bound to attract immigrants. But such countries including Nigeria, South Africa, Botswana, Kenya and others have high rates of unemployment.

So, an influx of immigrants to such countries will create tensions with the citizens who will harbor perceptions of their jobs being taken away by non-citizens. The xenophobic attacks in South Africa over the years offer insight into this matter, and perhaps it informed the decision by the governments of South Africa, Nigeria and others not to sign the free movement protocol.

Nationalist sentiments centred on immigration spawned by open borders may occasion some of the African countries to withdraw from the CFTA arrangement or maybe the AEC in the event that the envisaged transition takes place. Brexit and USA’s imminent exit from NAFTA offer insightful lessons.

CFTA will create economic prosperity in Africa, but its success depends on institutional factors such as eradication of corruption, peace, economic and political rights, and generally, competent political leadership.

And depending on what happens next, CFTA can either be a grand illusion or a breakthrough for Africa’s economic prosperity.

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