African leaders set to launch continental free trade area

THE EXTRAORDINARY Summit of AU Heads of State and Government will meet on March 21 in Kigali, Rwanda to launch the African Continental Free Trade Area (AfCFTA). This marks the conclusion of negotiations on the legal framework that will underpin the AfCFTA.

The AfCFTA is being launched at a time when there are rising sentiments of anti-trade and anti-globalisation in some countries, as the benefits of globalisation and trade liberalisation have not been distributed in an inclusive manner. It is also taking place at a time of an increase in protectionism and populism, especially in developed countries, that will have significant implications for global trade.

This has resulted in some countries being inwardly focused, thus prioritising their domestic market.

The African continent consists of small and fragmented markets due to colonialism. Individually they do not have a significant market size that will propel their economies into sustainable growth.

For the continent, regional economic integration is not only a political but also an economic imperative. The underlying rationale for African economic integration is that domestic markets are small by global standards, certainly too small to support economic diversification and industrialisation.

The establishment of the AfCFTA will create a larger market of 1 billion people with a gross domestic product of $2.6 trillion (R30.6trln). This represents a critical mass that will enhance the African investment proposition. It is also the only way Africa will be able to firmly move up the value-chain and become a more effective player in the global economy.

This is critical to reduce the vulnerability of African economies to global shocks, a vulnerability which results from their heavy reliance on commodities.

Regional integration is therefore critical to accelerated, inclusive and sustainable growth in Africa.

Initiative The AfCFTA is therefore a strategic initiative for South Africa and the African continent and will open new market access opportunities for traders for goods and services, thus unlock economic growth and manufacturing across the continent. South Africa’s total trade with the rest of Africa amounted to R421bn in 2017.

The AfCFTA will boost intra-Africa trade and investment.

In the context of increased competition for access to the African market, it is not surprising that African countries are striving for greater regional integration. Despite geographic proximity and cultural affinity, African countries’ trade is still low by global standards and accounts for only 16 percent of Africa’s total trade.

The AfCFTA is based on a development integration approach that combines market integration with industrial and infrastructure development. This is essential to enhance productive capacity and the development of regional value-chains; as well as, through infrastructure development, promote connectivity and reduce the costs of doing business.

The interventions sought include policy and regulatory harmonisation, development of physical infrastructure and trade facilitation.

Most importantly, the AfCFTA is expected to improve the movement of goods and services through trade liberalisation and better customs co-operation among African countries. It will also result in harmonisation of customs documentation and processes, thus enhancing trade facilitation. In addition, it will enhance co-operation in certain trade-related areas, such as intellectual property and investment.

The economic importance of the services sector in the economy has grown considerably in most African countries, including South Africa, and is therefore a critical contributor to employment. In the rest of Africa, services sectors such as telecommunications, construction, financial, business services and tourism are growing at a rapid rate.

Trade disputes The AfCFTA will also establish an effective and functional dispute settlement mechanism to deal with trade disputes arising from the commitments countries will take under the AfCFTA.

The launch will be followed by negotiations on tariffs and rules of origin, as well as negotiations on trade in services that are critical to a functional AfCFTA.

The AfCFTA, if properly utilised, can be a springboard that catalyses a wave of growth in the manufacturing sector. The challenge for the member states is to ensure that they take advantage of the opportunities and proximity to fast-growing African markets.

For South Africa, the African market already absorbs a significant share of South Africa’s exports. In 2017, the country’s exports to the rest of Africa constituted approximately 30 percent of our global exports, thus contributing to South Africa’s industrial and employment objectives.

The AfCFTA is one of the flagship projects for Agenda 2063. It’s a decisive step towards the regional economic integration project that African leaders have dreamt about since the Abuja Treaty in 1991. It builds on integration already achieved in the regional economic communities such as the Southern African Development Community (SADC), and the Tripartite Free Trade Area between the Common Market for Eastern and Southern Africa, the East African Community and SADC.