Tough hurdles lie in the path of Africa free trade area deal

After months of delays caused by the Covid-19 scourge, the African Continental Free Trade Area finally launched formally last week.

The agreement signed by 54 of the 55 countries on the continent, is set to unite an estimated Sh300 trillion market and potentially help unlock more than Sh8.4 trillion in untapped intra-African exports, according to the African Export-Import Bank.

Similar confidence is shared by the UN’s Economic Commission for Africa.

It specifically estimates that Eastern Africa stands to generate up to Sh180 billion in welfare gains and benefit if the deal is successfully implemented.

But like all high and lofty goals, this too will take time to achieve.

There are still many challenges that need to be overcome. Some of the issues include the fact that African countries need to be exporting finished products rather than unprocessed commodities in order for other nations to want to buy more African-made goods.

Moreover, most countries are yet to harmonise custom and tariff regimes— there are currently eight regional economic blocs on the continent each with its own regime.

Poor communication and wanting transportation infrastructure between African nations equally remains a huge problem affecting intra-African trade.

Add the ongoing pandemic, and it shows why a lot of work lies ahead.

Currently, Africa tails other regions of the world in terms of continental trade. According to the African Development Bank, intra-Africa exports amount to only 16.6 percent of total trade.

More obstacles in the form of entrenched protectionism still stand in the way.

Fears of significant tariff revenue losses by some governments and an uneven distribution of costs and benefits are key obstacles to the continent’s integration.

Furthermore, inadequate export product diversification and goods sophistication are other challenges to overcome. Suffice to say, for the deal to attain its full potential, diversification and value addition in products are key to unlock the value of the deal.

As it is now, many African countries are producing the same raw materials, and, therefore, there is no cross-border demand, leaving them to export to other continents at low prices.

Nonetheless, by giving a boost to intra-regional trade, Africa has an opportunity to shift its trade position.

Although still highly dependent on international markets (for both its imports and exports), with time, the continent has the chance to gradually alter global supply chains.

And the timing could not have come at a better time. Most of its source markets are not in a position to deal.

CRITICAL PRODUCTS

It’s estimated 53 percent of African imports originate in countries that have been highly impacted by Covid-19 effectively interrupting the region’s access to critical products.

This has opened a window for enhanced intra-Africa trade.

With all the African countries (except Eritrea) participating, the trade deal has the largest number of member countries in any trade deal since the formation of the World Trade Organisation (WTO).

If implemented successfully, the agreement will create a single African market of over a billion consumers, provide much-needed job opportunities and more importantly alleviate poverty.

The World Bank estimates it could lift tens of millions out of poverty by 2035. We should not despise the small beginnings. A journey of a thousand miles begins with a single step.

Mr Mwanyasi is the managing director at Canaan Capital