Strategy ConsultingNovember 3, 2022by fieconAfCFTA Pilot Operational Phase; Key Instruments and Kenya’s Readiness

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The African Continental Free Trade Area (AfCFTA) envisions a continental market of about 1.3 billion people with a combined GDP of over $3.4 trillion.  In the 12th extra ordinary meeting of the African Union held on July 2019 in Niamey, the operational phase of AfCFTA was launched. What characterized the launch was the adoption of 5 key instruments that were to guide trade under the regime. The instruments are Rules of origin, Tariff concessions, Online mechanism on monitoring, reporting and elimination of non-tariff barriers (NTBs), Pan-African payment and settlement system and The African Trade Observatory information portal.

Trading was scheduled to kick off in January 2021, but a year later not much trade has been recorded under the AfCFTA regime. In July this year, the AfCFTA council of Ministers selected seven countries in the continent for a piloting phase of trading under the AfCFTA framework with the goal of testing the environmental, legal and trade policy basis for intra-African trade. Dubbed the AfCFTA Initiative on Guided Trade, it is set to identify products, companies, custom procedures and logistic processes required to enable trading under AfCFTA.

Among the selected pilot countries include, Kenya, Rwanda, Cameroon, Egypt, Ghana, Mauritius and Tanzania. Of the 36 countries that had expressed interest in trading under the schedule, the seven had submitted tariff schedules. According to the AfCFTA Secretariat, the initiative is to also serve as a reminder to other member states to submit their provisional schedules of tariff concessions as per the agreed AfCFTA modalities.

In this piloting phase the 5 key instruments will be helpful in guiding trading processes are executed. Rules of origin provide criteria for determining the national source of a product to determine how duties are charged on them. By incorporating the Rules of Origin that are simple, transparent, business friendly and predictable preferential trade liberalization will be observed. The Tariff Concessions are critical in the implementation of a free trade area as they help in reducing the cost of imported goods. The AfCFTA provides that members must phase out 90% of tariff lines over the next five to 10 years and that there will be an additional 7 % for “sensitive products” that must be liberalized.

A wide range of restrictive regulations and procedures imposed by government authorities that make importation or exportation of products difficult and/or costly; generally referred to as Non-Tariff Barriers (NTB) are a key hindrance to intra-Africa trade. In the piloting phase, NTB’s are anticipated. However, the online mechanism on monitoring, reporting and elimination of non-tariff barriers as an instrument that will guide trading in AfCFTA will make it easy to identify the NTBs and eradicate them from the regime. Since trade involves exchange of goods and services which in turn triggers payments, the AfCFTA developed the Pan-African Payment and Settlement System (PAPSS) to facilitate the processes. As a cross-border, financial market infrastructure enabling payment transactions across Africa, banks, payment service providers and other financial market intermediaries will get to enjoy instant and secure payments; as payments can be made in local currency, with a net settlement at the end of the year.

Lastly The African Trade Observatory will also be instrumental in the piloting phase. As a repository of trade information, it allows for real time monitoring of the pace of trade and economic integration in Africa; and it will help solve the challenge of lack of information on market opportunities and market access conditions. This trade information portal will help unlock opportunities, trade statistics as well as information about exporters and importers in countries. All the information and any other relevant data provided by the AU member states will be availed in the portal.

Already, Kenya has listed 14 goods and service sectors for trade under this piloting phase. The Industrialization, Trade and Enterprise Development agency lists these sectors as priority sectors for competitiveness under the AfCFTA. These sectors include agriculture, livestock, fisheries, mining, oil and gas, handicraft, business, tourism, education, health, financial services, ICT, cultural and sports services as well as transport and logistics.

The selected priority sectors are aligned with the Integrated National Export Development and Promotion Strategy (INEDPS) and the Big Four Agenda. Kenya has already curated and National AfCFTA Implementation Strategy and unveiled the National Implementation Committee for the pilot phase.  The strategy seeks to grow the GDP, increase the production and consumption of locally produced goods and services, increase the size and scope of the manufacturing sector and other value added exports, develop and strengthen regional value chains. This will help boost Kenyan exports beyond the East Africa Community and other Regional Economic Communities (RECs).

Author: Inzillia Sasi

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