Pakistan's Premier Multilingual News Agency

The African Continental Free Trade Area (AfCFTA) and related issues – Opportunities for Pakistan’s economic diplomacy and development

Christo Janse Van Noordwyk
Counsellor: Political and Acting High Commissioner
South African High Commission to Pakistan

The Assembly of Heads of States of the African Union launched the operational phase of the AfCFTA on 7 July 2019. Fifty-three of the 55 African Union (AU) member states have now signed the Agreement (waiting for Eritrea and Benin) and it has entered into force, with 24 countries ratifying it. It is one of the flagship programmes of the AU Agenda 2063, which is a blueprint for Africa’s sustainable development.
The AfCFTA aspires to deepen the integration of the Continent, beyond merely a free trade area. Among its objectives are to “create a liberalized market […] through successive rounds of negotiations,” “lay the ground for the establishment of a Continental Customs Union” and “contribute to the movement of capital and natural persons.” The AfCFTA is essentially a system of protocols, rules and procedures on trade, simplified customs procedures as well as dispute resolution mechanisms – all aimed at creating a single market and legal framework for trade in goods and services and for investment in the Continent.
Once fully operationalised, Africa will be one of the world’s largest single markets, with around 1.2 billion people, a cumulative GDP of around $3.2 trillion and total consumer and business spending of over $4 trillion, across all 55 member States of the African Union (AU). It is also a highly dynamic market, and increasingly urbanised. Africa’s consumer class is already more than 300 million and heavily concentrated in a handful of large metropolitan areas such as Cairo, Johannesburg, Kinshasa, Lagos and Luanda; and whose consumption is expected to hit $2.2 trillion by 2030. By 2050, it’s estimated that the Continent will host at least nine “megacities” of more than 10 million people and around 25 cities in excess of 5 million. The population of Africa is projected to reach 2.5 billion by 2050, at which point it will comprise 26% of the world’s working age population, with an economy that is estimated to grow twice as fast as that of the developed world.
With the operational phase having started, businesses (including trading and manufacturing enterprises and services companies) across Africa will be able to make use of preferential trading arrangements offered by the AfCFTA, with the understanding that the trade transactions are among the Member States that have ratified the Agreement and those that conform to the provisions on rules of origin governing trade in the AfCFTA. Critical technical components needed before the agreement can be operationalized, include schedules of concessions for trade in goods, rules of origin and schedules of specifi¬c commitments for trade in services.
Further actions that will take place include the establishment of the necessary AfCFTA institutions, such as the Secretariat being established in Ghana, and to have AfCFTA obligations incorporated into the laws and regulations of each participating state.
AfCFTA will progressively eliminate tariffs on intra-African trade and has the potential both to boost intra-African trade by 52.3 per cent by eliminating import duties, and to double this trade if non-tariff barriers are also reduced. It will also provide exporters and investors with much needed legal certainty and predictability of markets across Africa.
What does AfCFTA mean in concrete terms?
• African businesses, traders and consumers will no longer pay tariffs on a large variety of goods that they trade between African countries – in essence, member countries agreed to remove trade barriers and tariffs on an estimated 90% of the more or less 200 items that are traded in the Continent;
• 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 between customs authorities over product standards and regulations, as well as trade transit and facilitation, will make it easier for goods and 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;
• 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 – in essence, the AfCFTA will assist in the creation of an aggregate economy in the Continent, which will also attract more large scale and sustainable investments, as well as act as a buffer to global shocks with the consolidated local market offering an alternative in the event of global volatility or dips in demand for certain products / commodities;
• 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.
With their resilience and innovation and quality products and services, companies from Pakistan – including those run by overseas Pakistanis in African countries – are well-placed to benefit from this market, not only through exports, but establishing subsidiaries in African countries where they find suitable local partners, the necessary incentives, raw materials and other inputs, a skilled labour force and a conducive environment for business, supported by good governance.
By establishing bases in Africa, these companies will be well positioned to tap into regional export destinations and can use regional markets as stepping stones for expanding into overseas markets at a later point. Another way in they can benefit is by the AfCFTA making it easier to supply inputs to other, larger regional companies, who then export. For businesses based in Africa, this new phase of trade heralds a world of opportunities from reduced cost of doing businesses owing to removal of some of the most prohibitive tariffs and barriers, availability of qualified labour as skills and technology transfer becomes simplified and an expansion and diversification of goods and services, which will be crucial in turning raw materials into finished goods and products.
One of the key spin-offs is expected to be greater focus and urgency for infrastructure development across the Continent to support economic activities. The AfCFTA is already underpinned by improved infrastructure and connectivity, with many countries in Africa also benefitting from China’s Belt & Road Initiative (BRI) in major projects in the power and infrastructure sectors.
The services sector will also benefit, as more integrated markets will need joined-up business ecosystems, which will need to be integrated by technology networks, connecting companies, suppliers and customers across countries to drive results, shorten time-to-market and continually enhance Africa’s competitive positioning. The so-called “business-to-business” (B2B) and “business-to-consumer” (B2C) platforms. Furthermore, the Continent’s population growth leads to increased consumer spending which has resulted in big demand for 24/7 services. For example, e-commerce has not only helped jump-start small businesses but also helped large companies enter a market full of energized consumers. Online buying is spreading steadily on the Continent; and in 2017, e-commerce in Africa was valued at $16.5 billion, with this value predicted to go up to $75 billion by 2025, also contributing massively to the Continent’s GDP.
With regard to technology, AfCFTA is going to bring together more African and international partners with complementary interests and strength. This will permit both existing and new companies to harness various technologies more efficiently, and creating higher standards of operations in the different countries they operate in. African and international tech companies should, therefore, maximize on this new opportunity. Advanced technologies that will become increasingly crucial in this regard include Artificial Intelligence, robotics, the Internet of Things, and Big Data, especially when African countries can “leapfrog” to catch up with the rest of the world.
Companies from Pakistan have a lot to offer Africa in the fields of services and relevant technologies, and can be involved in a substantial way.
Apart from the larger economies in Africa attracting investment from foreign companies who need a base and gateway in the Continent, such as Egypt, Morocco, Nigeria, Kenya, Mauritius and South Africa, other countries such as Namibia, Botswana, Rwanda, Ethiopia, Algeria, Tunisia and Ghana, all with good governance, services, infrastructure and investment incentives, could also be considered for their potential as bases for manufacturing, trading or services and technology enterprises from abroad.
Africa has over the years also seen the development of regional economic communities (RECs), such as the Southern African Development Community (SADC), the East African Community (EAC), the Common Market for Eastern and Southern Africa (COMESA) and the Economic Community of West African States (ECOWAS) that have already made considerable progress in harnessing the power of integration. Economies of scale and standardized rules of trade by such regional trade blocs give them an added advantage within the AfCFTA. Ultimately, a single, fully liberalized, African trade area will subsume the existing REC free trade areas.
An example of what works well at regional level in SADC and could be translated to the Continental level is the Integrated Real Time Gross Settlement System (SADC-RTGS), which is hosted by the South African Reserve Bank. A total of 81 banks (central banks and commercial banks) are participating in the system. The system is promoting increased intra-SADC trade and investment to further strengthen regional financial integration. The SADC-RTGS has performed impressively since July 2013 when the system went live, with a total of 1,275,591 transactions settled as at end 2018, representing $371 billion. The benefits of the cross-border payment system are its efficiency and the reduction in transaction costs. This experience will be taken further into the AfCFTA.
Where this has not been done already, Pakistan’s diplomats posted in various countries in Africa would do well to establish close relations with the heads and senior officials of the secretariats of relevant regional and Continental bodies, such as the AfCFTA secretariat and the regional economic communities. The UN Economic Commission for Africa is also a depositary and generator of a lot of useful studies and information on the Continent.
South Africa’s commitment to the AU and its Agenda 2063 remains steadfast, and it is honoured to have been selected as the 2020 AU Chair. The theme for South Africa’s term as AU Chair will be “Silencing the Guns: Creating Conducive Conditions for Africa’s Development.” The choice of the theme is primarily based on the fact that South Africa’s term as AU Chair coincides with the final year of the implementation of the Master Roadmap for Silencing the Guns by 2020, one of the other flagship programmes of Agenda 2063. Thus, South Africa will be faced with the momentous task of leading the process of reviewing implementation of the Roadmap.
Author: Christo Janse Van Noordwyk, Acting High Commissioner, South African High Commission in Islamabad