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GREAT insights Magazine

Preparing for trade under the AfCFTA Agreement

26-03-2020

H.E. Amb. Albert Mudenda Muchanga, ECDPM Great Insights magazine, Volume 9, Issue 1, 2020

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Trading under the AfCFTA Agreement is meant to begin on 1 July 2020. But the AfCFTA State Parties still have critical issues to address to create an integrated, active and efficient AfCFTA market.


Where are we with the AfCFTA?


The Agreement establishing the African Continental Free Trade Area (AfCFTA) was negotiated from 2016 to 2018. It was opened for signature on 21 March 2018, at the 10th Extraordinary Summit of African Union (AU) Heads of State and Government in Kigali, Rwanda. At that Summit, 44 AU member states signed the agreement, with others signing later. By February 2020, 54 of the AU’s 55 member states had signed the AfCFTA Agreement.

The Agreement entered into force on 30 May 2019, 30 days after deposit of the 22nd instrument of ratification. AfCFTA’s operational phase was then launched on 7 July 2019, at the 12th Extraordinary Summit of AU Heads of State and Government in Niamey, Niger. The first day of trading under the continent-wide free trade area is set for 1 July 2020.

There is much still to be done to meet the July 2020 deadline. AfCFTA State Parties have crucial issues to address to bring an integrated, active and efficient AfCFTA market into existence.


What is in the AfCFTA market?


The AfCFTA Agreement aims to create a single market of 1.27 billion consumers with an aggregate GDP between US $2.1 and $3.4 trillion. It’s a fast-growing market too, as consumer numbers are expected to increase to 1.7 billion by 2030. The AfCFTA market has a growing middle class as well, currently standing at 350 million and expected to rise to 600 million by 2030. African e-commerce is also on the rise. McKinsey & Company forecasts that African online retail business growth will reach US $75 billion by 2025. Currently, private and business-to-business consumption is estimated at US $4.0 trillion. By 2030, business-to-business consumption alone is expected to grow to US$ 4.2 trillion, with private consumption reaching US $2.5 trillion.

From these figures, it is clear that the AfCFTA is an apt response to the reluctance of companies to invest in small, fragmented and uncompetitive national markets in Africa. Such a large and attractive market opens opportunities in many areas, not least, public-private partnerships in investments in the infrastructure and logistics that will connect African economies.


Getting the private sector ready for the AfCFTA


It is crucial that the African private sector is encouraged to scale up investments and production to supply the AfCFTA market. In this regard, the AU Commission has since 2018 organised AfCFTA Business Fora, to sensitise the African private sector to the opportunities offered by the AfCFTA. These meetings have drawn active participation and contributions from African private sector organisations such as the Pan-African Chamber of Commerce and Industry, the AfroChampions Initiative, the Pan-African Private Sector Trade and Investment Policy Committee and the African Electronic Trade Group.

Another important initiative to engage the private sector is the Intra-African Trade Fair (IATF), jointly organised by the AU Commission, the African Export-Import Bank and the African Development Bank. The inaugural IATF was held in December 2018 in Cairo, Egypt, and was a great success. The second IATF will take place in Kigali, Rwanda, from 1 to 7 September 2020.


Preparatory work at all levels


Beyond engaging the private sector, national, regional and continental policymakers are working intensively to prepare for the AfCFTA.

At the national level, the top priority is finalisation of schedules of tariff concessions on trade in goods and schedules of specific commitments on trade in services by each AfCFTA State Party. As of 15 December 2019, 11 countries had submitted their tariff offers. Work is under way to finalise market access offers and to train officials in the use of the online negotiations tool. On trade in services, an incremental approach was adopted starting with five priority sectors: business, communication, financial, transport and tourism services. Initial offers were to be completed by 31 January 2020 with a view to finalising the work by May 2020.

The second national-level priority is production of the necessary trade documents based on existing templates, including certificates of origin, an AfCFTA origin declaration and an AfCFTA suppliers and producers declaration. Each State Party is expected to distribute these documents to all points of trading in the AfCFTA, ensuring they are accessible to the business community.

Third on the national to-do list is development of clear national AfCFTA implementation strategies with participation of all stakeholders. This work is being supported by the United Nations Economic Commission for Africa (UNECA). UNECA is also producing an annual AfCFTA Business Index to measure and monitor business experiences with AfCFTA implementation at the country level.

The fourth national priority is to enhance coordination, keep track of the progress achieved, and identify and address issues affecting implementation. For this, the AfCFTA Interim Secretariat is developing a reporting format and template for use by the State Parties. In addition, the AfroChampions Initiative has commissioned an assessment of the readiness of all 55 AU member states for the start of trading under the AfCFTA. Key indicators of readiness are AfCFTA signing and ratification, commitment to free movement of persons and completion of a publicly accessible AfCFTA country implementation strategy.

At the regional and continental levels, the top priority is the development of a framework for collaboration involving the AU Commission, the AfCFTA Secretariat and the regional economic communities. The final document is expected to be presented at the AU Extraordinary Summit in South Africa in May 2020. It will largely focus on trade facilitation and promoting transparency to enhance collaboration.

At the continental level, there are three additional priority activities. The first is the operationalisation of the permanent secretariat of the AfCFTA in Accra, Ghana. This involves working with the host government on issues such as hosting agreements and logistics. The AfCFTA Secretary-General was appointed by AU Heads of State and Government at the 33rd Ordinary Session of their Assembly. Four directors and essential staff are currently being recruited. They are expected to assume their duties by the end of April 2020.

The second priority activity is the finalisation and activation of the five key operational instruments unveiled at the 12th Extraordinary Summit in Niamey, Niger. These are the AfCFTA rules of origin; the password-protected online negotiations portal; the online mechanism for reporting, monitoring and eliminating non-tariff barriers; the pan-African payments and settlements system; and the African trade observatory. All these instruments are vital for AfCFTAs implementation. They are expected to be fully functional by the start of trading on 1 July 2020.

The third continental priority is establishment of the other key institutions foreseen under the AfCFTA Agreement. These include the AfCFTA Council of Ministers, which held its first two meetings in October and December 2019; the various committees on trade in goods and trade in services and their respective sub-committees; and the dispute settlement body, which will initially operate within the AfCFTA Secretariat.


From the AfCFTA to an African single market


To realise the AfCFTA objective of creating a single market for goods and services, work has commenced to negotiate protocols on investment, intellectual property rights and competition policy. The target date for completion of these ‘phase two’ negotiations is December 2020. Negotiations towards an e-commerce/digital trade protocol will commence soon after the conclusion of the phase two negotiations.

Several flagship projects related to the AU’s Agenda 2063 will complement AfCFTA implementation. These include the single African air transport market, the high-speed train network project, the African commodities strategy and a protocol on free movement of persons, to name just a few. These further demonstrate the path Africa is on towards deepening continental integration and structural transformation.

Finally, work is under way towards an African customs union, targeted to be in place by 2023. Getting an African customs union up and running will further strengthen the African single market’s foundations.


Critical issues for an active and efficient AfCFTA market


To make progress towards these objectives, AfCFTA stakeholders have some critical issues to address. The first is the need to quickly generate tangible results from AfCFTA integration in order to ensure continued momentum.

Second, a conducive enabling environment needs to be created in order to attract investors and sway them to deploy large-scale, long-term investments in the AfCFTA market. In this respect, African governments are working resolutely to meet investor expectations for stability, scale, predictability, fair treatment and combatting corruption. It is with this in mind that the AU theme of 2020 – ‘Silencing the Guns: Creating Conducive Conditions for Africa’s Development’ – was conceived. The commitments made under this theme will, when implemented, contribute to the peaceful, safe and secure environment that is needed for people, goods and services to move freely and cost-effectively across Africa.

The third priority relates to supportive complementary measures for the productive sector. SMEs, in particular, will need assistance in scaling up their operations to supply the AfCFTA market with high quality goods and services. On this, the AU Commission is working with the African Electronic Trade Group to develop a continental platform on e-commerce to promote the development of export trading companies, among other things.

The fourth priority is mindset change. Policymakers, policy implementers and market players now need to see the AfCFTA as their new home market. Sharing this mindset will help facilitate the creation of a single African market.


Shaping Africa’s future


The AfCFTA is shaping Africa’s future. The increased trade and investment it will bring, can create job opportunities for millions of Africans. We are, in this respect, offering alternatives to young Africans risking their lives in search of decent livelihoods outside the continent. We are fully aware that this task will not be an easy one. However, we will remain focused and not be discouraged. Africa is committed to making the AfCFTA work.


About the author

H.E. Amb. Albert Mudenda Muchanga was elected African Union Commissioner for Trade and Industry in January, 2017 for a four year term. He took up his post on 15th March, 2017. He previously worked in the Zambian Civil Service at home and abroad, including at the Secretariat of the Southern African Development Community.


This article was published in Great Insights Volume 9, Issue 1

Economic Transformation and TradeAfrican Continental Free Trade Area (AfCFTA)Africa

External authors

H.E. Amb. Albert Mudenda Muchanga