“Our peoples, our business community and our youth, in particular, cannot wait any longer to see the lifting of the barriers that divide our continent, hinder its economic take-off and perpetuate misery, even though Africa is abundantly endowed with wealth,” AU Commission Chair Moussa Faki Mahamat.
On March 21, 2018, 44 African countries signed the Africa Continental Free Trade Agreement (CFTA) in Kigali, Rwanda, setting the tone for what is expected to be one of the largest free trade areas in the world (the continent’s combined GDP is US$2.5 and has a projected population of 2.5billion by 2050). The CFTA will come into force when parliaments of least 22 out of the 54 African countries ratify the agreement.
Objectives of the CFTA
When in force, the CFTA will create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Customs Union. The agreement will also eliminate tariffs and boost intra-African trade by 52.3 per cent through the elimination of import duties and tariffs on 90% of goods traded within the continent. Intra-Africa trade under the CFTA will bring better harmonization and coordination of trade liberalization and facilitation and instruments across the Regional Economic Communities and across Africa in general. The CFTA is also expected to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for large scale production, continental market access and better re-allocation of resources.
Components of CFTA
Three key components of the CFTA has been agreed: Protocol on (i) Trade in Goods which addresses the elimination of tariffs and quantitative restrictions on imported goods, (ii) Trade on Services to ensure transparency and provide for liberalization of the services sectors on the continent and (iii) Rules of Procedure and Settlement of Dispute to address trade disputes when they arise. The next phase of negotiations after implementation of the agreement is the protocol for the protection of intellectual property rights, investments and competition policies.
Expected Impact of the Agreement
UNCTAD has indicated that a fully implemented CFTA would add US$ 17.6 billion (2.8 per cent) to Africa’s overall trade with the world and would stimulate Africa’s exports by US$ 25.3 billion (or 4 per cent). The highest positively impacted sectors according to UNCTAD would be agriculture and food, with a projected growth of 9.4 per cent. Industrial exports would see a boost of US$ 21.1 billion, a projected growth of 4.7per cent. UNCTAD also indicated that, a fully implemented CFTA would initially negatively impact customs revenue resources, it would however, augment real income for Africa by US$ 296.7 million (or 0.2 per cent) as a result of stimulated exports.
Potential Benefits for Business on the Continent
The African Trade Policy Center of the Economic Commission for Africa (ECA) in association with the African Union Commission compiled the following as meaning of the agreement in practical terms;
- Elimination of Tariffs and Non-Tariff Barriers: African businesses, traders and consumers will no longer pay tariffs on a large variety of goods that they trade between African countries; Traders constrained by non-tariff barriers, including overly burdensome customs procedures or excessive paperwork, will have a mechanism through which to seek the removal of such burdens;
- Cooperation and Harmonization Among Border Institutions: Cooperation between customs authorities over product standards and regulations, as well as trade transit and facilitation, will make it easier for goods to flow between Africa’s borders; Through the progressive liberalization of services, service suppliers will have access to the markets of all African countries on terms no less favourable than domestic suppliers; Mutual recognition of standards, licensing and certification of service suppliers will make it easier for businesses and individuals to satisfy the regulatory requirements of operating in each other’s markets;
- Establishment of Regional Value Chains: The easing of trade between African countries will facilitate the establishment of regional value chains in which inputs are sourced from different African countries to add value before exporting externally; To protect against unanticipated trade surges, State Parties will have recourse to trade remedies to ensure that domestic industries can be safeguarded, if necessary; A dispute settlement mechanism provides a rule-based avenue for the resolution of any disputes that may arise between State Parties in the application of the agreement; Upon conclusion, the “Phase two” negotiations will provide a more conducive environment for recognizing African intellectual property rights, facilitating intra-African investment, and addressing anti-competitive challenges.
Implications for Ghana
- There is the urgent need to re-consider our manufacturing and agro-processing policies to reflect the new opportunities within the free trade area. Ghana’s pharmaceutical sector stands to benefit immensely from this initiative, as the sector appears competitive by exporting within the Sub-Region. This agreement will make it much easier for them to consider other regions of the Continent.
- This Agreement will also have significant impact on the ability of the Country to attract FDI’s beyond the extractive industry. FDI’s upon successful implementation of this Agreement will now choose the Countries with minimum restrictions to the ease of doing of business, since from those countries; they can export to other parts of the continent. Ghana will be required to carry out robust business regulatory reforms and improvement in the ease of doing business, if we are to position the Country as one of the best places to do business on the continent.
- In line with these reforms, Ghana must begin to explore the opportunity of working with other countries in West Africa to jointly pitch to investors. Instead of businesses putting up complete manufacturing plants in different Countries, this Agreement should make it possible for countries to jointly negotiate with Businesses to put different components of their manufacturing activities in their countries, instead of setting up full manufacturing plants in different countries to produce the same products.
- Finally, Ghana must now operationalize its International Trade Commission (GITC) to deal with the possible incidents of dumping, which is likely to occur when the CFTA is fully operational.
This article is written by Simon Madjie, Executive Secretary of the American Chamber of Commerce in Ghana, to provide information to Chamber Members. The writer relied on data and information from the African Union, The Economic Commission on Africa & UNCTAD.