Promoting continent-wide free trade

When fully operational, the free trade area created by the African Continental Free Trade Agreement (AfCFTA) will bring together 55 African countries with a combined population of more than 1.2bn people and a combined GDP of more than $2.5 trillion, making it one of the world’s largest free trade areas. It is designed to be a single continental market for goods and services, with free movement of business, persons and capital. There are already a number of regional trade agreements and blocks on the continent but it hoped that AfCFTA will be an important step towards rationalising these into a continent-wide structure. The AfCFTA came into force on 30 May 2019, one month after Sierra Leone and the Sahrawi Arab Democratic Republic brought the number of member states which have ratified the agreement up to the required 22. Another six have ratified it since then and only Eritrea has yet to sign it. Trading under the Agreement was due to begin on 1 July 2020 but was postponed because of the impact of the coronavirus pandemic. It is important to emphasise that the implementation of the Agreement will be a process with different elements introduced at different times rather than something that will happen on a single day. It is hoped that talks on sticking points in Phase 1, including on rules of origin and trade in services, will be concluded this year. Negotiations on Phase 2, covering investment, intellectual property and competition, are also due to begin this year. Several mechanisms have been set up to aid the process, including the creation of an online platform to monitor and eliminate non-tariff barriers. In addition, Afreximbank and the African Union have developed the Pan-African Payment and Settlement System (PAPSS), a platform that will make it possible for intra-African trades to be settled in local currency. Afreximbank has set up the AfCFTA Adjustment Facility to help member states adjust to the new trade regime and the sudden significant losses in tariff revenue as a result of the implementation of the agreement. It will provide supplemental financing to support governments; continue their trade facilitation and investment programmes; and meet fiscal obligations as their economies adjust to AfCFTA trade reforms. There are 2,862 possible combinations of bilateral trade relationships between Africa’s 55 national markets – allowing for trade in both directions – but only 29% of these are currently subject to any form of active free trade relationship. The remainder are governed by general trade protocols or most-favoured nation rates. The removal of tariffs on the vast majority of goods creates huge opportunities for existing trade relationships to grow and new relationships to materialise, hopefull leading to economic transformation. The process could also help develop regional value chains and could boost intra-African trade, which is expected to more than double within the first decade of its implementation. AfCFTA is just one example of regional and preferential trade agreements being made around the world, including the Regional Comprehensive Economic Partnership (RCEP) between the ten Association of Southeast Asian Nations (ASEAN) member states on the one hand, and Australia, China, Japan, South Korea and New Zealand on the other.