If you build it they will come – the bridge to free trade across Africa

Tuesday 30 June 2020 - The African Continental Free Trade Area Agreement (AfCFTA) was due to implemented this week, 1 July 2020, before the impact of COVID-19 caused its inevitable delay. However, AfCFTA Secretary General Wamkele Mene confirmed recently at a Bloomberg Invest Global virtual conference that the pandemic would not impact the agreement and that public health protocols would be developed if necessary to allow the AfCFTA secretariat to push forward with its implementation.

Virusha Subban, partner specialising in Customs and Trade at Baker McKenzie in Johannesburg, says that AfCFTA’s successful implementation was vital to assist in Africa’s recovery and renewal after COVID-19.

“At a high level, AfCFTA is focused on stimulating growth, creating employment and diversifying economies across the African continent, through the creation of a single African market for goods and services,” she notes.

“According to Baker McKenzie recent research with Oxford Economics - AfCFTA's US$ 3 trillion Opportunity - AfCFTA's pending implementation means there are now unprecedented opportunities for Africa to reap economic and social benefits on the back of the possible future improvements in transport infrastructure, reduction of red tape for cross-border dealings, renewed funding and improved liquidity,” Subban explains.

Subban notes that AfCFTA will provide the opportunity for African countries to diversify their economies, scale production capacity and widen the range of products made in Africa, in particular boosting the production of manufactured goods. Closer integration of neighbouring economies is one potential avenue for creating scale and competitiveness through domestic market enlargement, thereby promoting development through greater efficiency. This relates to both intraregional trade and trade with non-African nations.

“Taking a longer view, regional trade cooperation could potentially become a successful bridge for connecting the region’s wealthier and poorer nations, promoting the growth of value chains and laying the foundations for increased international exports, especially given existing strong trade ties with the European Union (EU) and Asia,” she says.

The report shows that currently, regional integration in Africa is largely an unattained goal, despite the continent’s Regional Economic Communities (RECs). Overall, the RECs have complex and often conflicting policies and have achieved very different levels of integration to-date. And while African nations may trade within their respective RECs under preferential terms, trade beyond these regional agreements is generally subject to most-favored nation (MFN) tariffs, which are much higher and have acted as a disincentive to trade integration.

“Despite the challenges, however, some RECs have successfully created effective trade bridges between member countries. For example, Côte d’Ivoire, Kenya, Morocco, Senegal and South Africa have become regional trading hubs, having leveraged the alliances they established through their RECs. One of the ways forward for African economies to further implement effective intraregional trade may be to draw on the lessons learned from the successful RECs,” she notes.

“The Report also underscores the importance of not only lowering tariff barriers, but also addressing non-tariff barriers to intra-regional trade. Some of the most significant obstacles to AfCFTA are inadequate infrastructure, poor trade logistics, onerous regulatory requirements, volatile financial markets, regional conflict and complex and corrupt customs procedures. These can be even more detrimental to trade expansion than tariff measures,” explains Subban.

AfCFTA is already acting as a strong impetus for African governments to overhaul regulations relating to tariffs, bilateral trade, cross-border initiatives as well as capital flows. Domestic policies will also play a crucial role in alleviating some of the current trade barriers that are not related to tariffs, such as corruption, lack of investment in infrastructure development (most notably transport and utilities) and security threats.

There is a strong consensus that the vast infrastructure gap in Africa, including transport and utilities infrastructure, must be urgently addressed so as not to restrict increased trade integration. Developing infrastructure is also key to addressing the devastating economic impact of COVID-19.

“For example, In his supplementary budget speech in late June 2020, South African Finance Minister Tito Mboweni noted that infrastructure would be the fly wheel by which South Africa’s grew the economy post COVID-19. Mboweni said that building a bridge to a post‐lockdown future would require that the country builds high‐quality physical bridges, roads, railways, ports and other infrastructures.

“As such, it is fair to say that if the barriers to AfCFTA’s successful implementation can be sufficiently addressed, it could help facilitate the construction of a bridge to a post lockdown future, right across the continent,” Subban adds.