Time for upgrading Sino-African cooperation
Free trade agreements between Chinese and African leaders can be of huge advantage to both sides
The African Union agreed in January 2012 to develop the African Continental Free Trade Area. It took eight rounds of negotiations to finally reach an agreement. This historic pact, nearly four decades in the making, represents major progress for African integration and unity.
The AfCFTA was signed by 44 African nations on March 21, under the theme “Creating One African Market”, and if all African nations come on board, it will bring together more than 1.2 billion people and $4.2 trillion (3.6 trillion euros; £3.2 trillion) in combined consumer and business spending, according to the Brookings Institution. In addition, Brookings estimated that by 2030, Africa may emerge as a $2.5 trillion potential market for household consumption, up from $1.1 trillion in 2015. It would then be the world’s largest free trade bloc since the establishment of the World Trade Organization in 1995.
The establishment of such a continentwide trade area is one of the 12 flagship projects of the African Union’s Agenda 2063. The AfCFTA will progressively eliminate tariffs on 90 percent of goods in intra-African trade and, according to the United Nations Economic Commission for Africa, this could boost intra-Africa trade by 53.2 percent. The removal of tariffs will create a continental market that will allow companies to benefit from economies of scale. Intra-continental trade in Africa is around 16 percent, compared with 21 percent in Latin America and the Caribbean, 51 percent for Asia and 70 percent for Europe.
The AfCFTA aims to change that, dealing with problems that include local business laws, security and poor infrastructure. AfCFTA is expected to generate growth that could support economic diversification of African economies away from low-value-added products and commodities as well as the development of regional value chains with considerable upgrading potential.
The trade area is anticipated to bring an upsurge in GDP of between 1 and 6 percent, broadening the tax base and boosting revenue collection from other sources. The most important and urgent action involved would be providing the necessary infrastructure and creating the fiscal space required to foster public and private investment alike while ensuring economic diversification with the view to creating jobs. The picture is not of a continent that less than 130 years ago had no artificial boundaries and where its people traded and migrated freely. The African Union has embarked on an initiative that is ambitious but also necessary for upgrading China-Africa trade cooperation.
The signing of the AfCFTA comes as Africa is preparing for the Forum on China-Africa Cooperation Summit in September in Beijing. During the FOCAC meeting, new policies and measures promoting China-Africa cooperation will be discussed to align the African Union Agenda 2063 and the Belt and Road Initiative. This will provide an opportunity for both sides to upgrade China-Africa trade in order to promote the actualization of a community with a shared future between Africa and China.
Since its formation in 2000, FOCAC has become a game-changer in Africa’s development narrative. Africa’s image has dramatically changed from the pessimism of a “hopeless continent” to the optimism of “Africa rising”. This is partly as a result of China’s heavy investment across Africa through dramatically augmented trade, foreign direct investment and loans from the China Export-Import Bank, which have deepened cooperation in a wide spectrum of areas.
The bilateral trade between Africa and China has seen speedy growth recently. China customs statistics show that Africa-China trade was “off to a flying beginning” of $170 billion in 2017. Trade volume increased by 19 percent compared with an 18 percent drop in 2015. The increase was propelled by the construction sector. Since 2013, China has been implementing the Belt and Road Initiative, enabling China to pump billions of dollars into infrastructure such as Kenya’s monumental standard gauge railway. The newly signed agreement to create the AfCFTA is likely to bolster China’s confidence in Africa as an investment destination and an emerging market. In addition, Africa is likely to benefit from China’s newly created international development cooperation agency, designed to coordinate China’s foreign aid program.
In this context, African leaders and Chinese leaders are facing historic opportunities for bolstering their trade cooperation, which can help improved integrated and globalized development in Sino-African cooperation. Conversely, a trend of anti-globalization has occurred in the international community, with soaring trade protectionism. Therefore, it is essential for China to consider launching free trade agreement negotiations with African leaders. It is of great importance for China’s and Africa’s leaders to sign free trade agreements via negotiations. While negotiating free trade agreements, both sides could set detailed and feasible stipulations on trade in merchandise, particularly in areas of mutual concern such as intellectual property and dispute settlements, tariff exemption, customs processes and trade facilitation. This can assist in fostering China-Africa trade and African integration, boost development of globalization and actualize future prosperity for both sides.
Based on China’s second Africa policy paper issued in December 2015, the Chinese leadership has said that China will continue to support the development of the African free trade zone and regional integration and discuss creation of institutionalized trade agreements with member states of the African Union.
The 30th Ordinary Session of the African Union Summit, held from Jan 22 to 29 in Addis Ababa, Ethiopia, noted that creating the AfCFTA, promoting the formation of a single African air transportation market and promoting the free movement of people and merchandise are the three key measures for actualizing African integration. For that reason, it will make economic sense for African leaders to accelerate their free trade agreement negotiations in order to foster sustainable development for the continent of Africa.
It makes economic sense for China and Africa to pursue stronger regional trade agreements which in turn can help form the building blocks for both sides’ free trade deals. Also, it can help further enhance the African regional market and promote transformation as well as upgrade Africa-China trade cooperation. Increasing trade will not only help both sides’ economies develop, but also will drive growth around the world as the financial crisis recedes. At present, African trade with China is based on bilateral trade agreements, and China’s leadership has yet to reach any concrete free trade agreements with African leaders.
Free trade agreements between Chinese and African leaders can be of huge advantage to both sides, helping China’s merchandise to go to African markets freely. Chinese and African leaders should realize that if both sides can reach a free trade agreement, both sides could greatly expand their markets and, in turn, help Africa bolster its economic cooperation globally. China and Africa should also know that through institutional trade agreements with regional organizations in Africa, Sino-African trade will be more balanced and stable.
The international community stresses the launching of investment and trade with African nations and regions via economic and trade arrangements as a free trade agreement. For example, the European Union launched a series of negotiations on economic partnership agreements with African regional organizations. The United States also signed such pacts with some regional organizations in Africa.
These pacts stipulated detailed arrangements on market access, trade and related matters. In the same way, Chinese leadership should consider launching a free trade pact with African leaders in order to enhance the partnership between Africa and the world. China’s leadership can begin by considering launching negotiations with various regional organizations. The signing of the AfCFTA means the African Union wants to achieve Agenda 2063 by encouraging intra-Africa trade and promoting a unified market.
African leaders broadly see China as a healthy counterbalance to Western influence but, as ties mature, there are rising calls from policymakers and economists for balanced trade cooperation. In order to further expand China-Africa trade, China’s leadership can consider launching free trade negotiations with the various African regional organizations and the AfCFTA.