Free Trade Area needs cautious optimism

Last week in Niamey, the capital of Niger, Nigeria and Benin signed the Africa Continental Free Trade Area agreement bringing the countries that have committed to the Free Trade agreement to 54 out of 55, Eritrea being the only country yet to commit.

The Continental Free Trade came into force in May after 24 countries ratified the agreement, Kenya being among the countries that have ratified the deal.

Africa Continental Free Trade Area covers an area more than four times the size of the European Union creating a single market of 1.2 billion people by removing existing trade barriers across African countries’ borders presenting enormous economic opportunities.

Fact of the matter is that the future of international trade rules will no longer be set by the WTO but by such mega regionals (continental and regional trade agreements in terms of volumes of trade as well as scope of substantive rules) therefore the Africa Continental Free Trade Area arrangement will make the Africa continent a more meaningful player in influencing global trade rules.

A lot of existing intra-African trade takes place within established economic blocs and customs union, therefore, opening the continent into one single market is a huge milestone. Its estimated that if current bilateral tariffs among African countries are eliminated intra-Africa trade will increase by up to 52 percent. Also, if the continent removes nontariff barriers with countries outside Africa it could increase trade and boost the continent’s tariff revenues by up to $15 billion

But there is need for cautious optimism by analysts charging ahead with slogans like “Made in Africa” and “African solutions to African problems.” There is a lot that needs to be covered for that promising future to become a reality.

First, a continental free trade area basically means many African economies going through a bitter structural transformation. 70 percent of Africans dependent on agriculture for livelihoods meaning many African economies are what can be described as traditional economies, they are heavily agrarian centred and not economically diverse.

Therefore, many African economies will have to go through a bitter structural transformation focusing on economic diversification. This transformation will take time and the CFTA will have to come in and provide a holistic policy roadmap approach towards this attainment.

Second, phase one of negotiations in areas like rules of origin, liberalisation of trade in goods and services and digital payments and settlement systems to make the Free Trade Area operational are on-going. Synchronising financial governance frameworks across Africa by harmonising payment systems will go a long way in facilitating movement of funds across borders. But one of the sticky issues in the implementation of the Free Trade Area will be agriculture since many African economies are agrarian centered. Liberalising their agricultural sectors will come at a political cost to governments.

Since the agreement allows countries to exclude a list of products from liberalisation over a ten-year period, many agricultural products the most traded commodities within intra-African trade will be on that list, delaying the benefits of the Free Trade Area.

Third is a lesson we can draw from the EU, which is not only a capital exporter but also a capital importer. Investment agreements whose negotiations will be coming in the Phase II will have to structured towards investment governance than investment protection. In the EU, a country like Germany is a capital exporter and tends to protect investors whilst capital importers like Poland tend to protect regulatory scope so a balance must be struck.

In Africa, countries like Egypt, Kenya, South Africa and Nigeria are known to be capital exporters within their respective economic blocs, with the CFTA bringing all countries to one level of integration, there will be need for a balance between capital importers and exporters.

Lastly, more importantly, the implementation of the Africa Continental Free Trade Area primarily lies with the political will of government if we are to take lessons from Africa’s established regional economic communities.