Corporate InnovationsStrategy ConsultingTax AdvisoryTransaction AdvisoryJanuary 6, 2022by fieconTowards A Successful AfCFTA: The Challenges Ahead

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The aspirations of the founding fathers of the African continent post-independence converged on a united Africa under the spirit of Pan Africanism and Ubuntu. Fast forward about six decades later, trading under the African Continental Free Trade Area (AfCFTA) was launched in January 2021; marking the beginning of trade liberalization across the continent. As Africa celebrates the new dawn which is hoped to usher in the long awaited African Renaissance, it also needs to reflect on and interrogate the challenges that it will face when implementing the AfCFTA.

To date, 54 out of the 55 countries in Africa have signed the AfCFTA agreement and more than 30 countries have ratified the same.  Under what is the largest free trade area in the history of the world in terms of the number of countries involved, the AfCFTA seeks to connect more than 1.2 billion people across the continent. It also connects all African economies with a combined GDP of USD 3.4 trillion; and it is poised to be a catalyst to bring more than 30 million people out of extreme poverty.

The overriding goal for AfCFTA is to integrate and liberalize trade across Africa in order to boost industrialization and end extreme poverty. The continental free trade area is an anchor project under the African Union (AU) Agenda 2063: The Africa We Want.

Agenda 2063 envisions a free and prosperous Africa that espouses self-determination and collective prosperity under the Pan Africanism and African Renaissance philosophies. To achieve these aspirations, the AfCFTA seeks to address the economic pillars that will be the anchor for sustainable growth and development; and hence lead to a secure, democratic and united continent.

Tariffs & Non-Tariff Barriers to Trade

With average tariffs of 6.1%; trading within Africa is more expensive than trading with other countries outside Africa. As of 2016, intra-Africa trade accounted for about 18% of the total export trade in the continent; compared to 69% in intra-Europe and 59% in intra-Asia export trade.

In addition, businesses in Africa face non-tariff barriers (NTBs) such as bureaucratic customs procedures and excessive paper work that slows down the movement of goods and people across boarders; hence discouraging intra-Africa trade. Technical barriers to trade (TBTs) such as sanitary and phytosanitary standards are also applied selectively and in a more punitive manner among African countries; thus worsening the already bad intra-Africa trade situation.

Building economic bridges across Africa will require a thorough interrogation of the above barriers to trade within the continent and intensive negotiations among member states for the AfCFTA to be successful.

Economic power disparities

The continent has a huge economic power disparity among its member states too. Out of the 55 countries in Africa, 33 of them are Least Developed Countries (LDCs), 16 are landlocked countries and 6 are small island countries. Bringing together these different countries with varying national priorities for a common economic agenda at the continental level will be a tough undertaking. Trade liberalization and opening of boarders for a free flow of goods and services will be a slippery slope where each country will have to tread carefully.

To deal with the economic power disparities, trade remedies need to be to negotiated and enforced in order to offset the economic loses that some smaller member states will experience in the short run as AfCFTA is being implemented.

Political instability and insecurity

Insecurity and political instability in some Africa countries will also be a huge barrier to cross boarder business. Civil wars and military coups in member states cut off trade routes and frustrate movement of goods and people.

In a continental free trade area with interconnected trade infrastructure, lasting peace and democracy must be a precursor of the AfCFTA for it to be successful.

The challenges highlighted here are the few obvious ones that need urgent attention. Besides these, we expect more challenges to come up over the implementation period. To ensure all the challenges among member states are resolved amicably, a Dispute Resolution Mechanism was established and it will be a critical element for the success of the AfCFTA.

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