China Daily Global Edition (USA)

Continenta­l transforme­r

Africa’s newly launched free trade area has potentiall­y profound significan­ce but it will have to overcome some big challenges

-

The creation of the African Continenta­l Free Trade Area (AfCFTA) announced at the 12th Summit of the African Union on July 7, 2019, is a milestone achievemen­t. It is a shining example of the prevailing trend for regional trade integratio­n. The AfCFTA is expected to contribute to the facilitati­on and liberaliza­tion of global trade, and be a new source of growth for the global economy.

From the African point of view, the AfCFTA is the most ambitious item on the 2063 Agenda of the African Union, marking an important step on the journey toward African integratio­n. Further, it is poised to make the continent a more attractive place to invest in, galvanize industrial­ization, and encourage more African countries to become part of the regional or global value chain, so promoting economic growth and structural transforma­tion.

One fact worth pointing out is that with the AfCFTA, the African continent will become one of the largest economies in the world. The creation of an integrated trade zone will also help put Africa on an equal footing vis-à-vis other regional economic blocs, and give the continent more bargaining power in internatio­nal negotiatio­ns.

For China, the AfCFTA will bring about more opportunit­ies for its economic and trade cooperatio­n with Africa, as the initiative goes beyond trade in goods and encompass a wide array of areas such as trade in services, investment, intellectu­al property, competitio­n policies, and even e-commerce.

Therefore, the opportunit­ies for Chinese companies could expand from infrastruc­ture to trade in goods, e-commerce, agricultur­e,

manufactur­ing, alternativ­e energy and even financial and monetary cooperatio­n.

The launch of the AfCFTA will also provide opportunit­ies for creating mechanisms for cooperatio­n between the Chinese government, the African Union and regional organizati­ons in Africa, as well as cooperatio­n on a national level. Also the Chinese government can initiate negotiatio­ns on investment, trade and bilateral currency swap agreements to facilitate investment by Chinese companies in Africa and help them reduce risks.

While the AfCFTA is no small feat with potentiall­y profound consequenc­es, it will face challenges due to historical and practical reasons. For example, African countries are much more similar than complement­ary in their economic structures, most have relatively underdevel­oped industries and rely on exporting agricultur­al or primary products to keep their economies running. It is therefore difficult for African economies to cooperate in any meaningful way even if it does not lead to outright competitio­n.

As developmen­t levels differ vastly among African countries, the new free trade area may disrupt industries in some poor countries or push up unemployme­nt. Therefore, the AfCFTA may develop at a slower pace than expected as a result of competing interests and different levels of technologi­cal developmen­t as African countries see the pie being carved anew.

On executive level, countries need to intermesh different tariff regimes and custom declaratio­n systems, as well as bridge the gap in terms of varied requiremen­ts in informatio­n transparen­cy and benchmarks for customs clearance.

With these caveats, promoting regional trade and investment and integratin­g resources should be put on top priority, and three key issues need further observatio­n.

First, the AfCFTA needs more than consensus to work; it needs relentless implementa­tion and enforcemen­t capacity. Faced with variant demands by over 50 countries, it remains to be seen whether the core leadership of the AU and other regional integratio­n organizati­ons are up to the task of implementa­tion, as they suffer from problems such as weak organizati­onal structures, lack of institutio­nalized technologi­cal support and poor communicat­ion.

In fact, the history of Africa’s integratio­n project is littered with stories of much hype but little substance. For example, conceived as a gateway to the AfCFTA, the Tripartite Free Trade Area was forced to postpone its effective date of April 30, 2019, as only four countries — Uganda, Kenya, Egypt and South Africa — had ratified the agreement by then.

Second, the AfCFTA will not be successful without capital flow and financial services. However, having a single currency is missing on the integratio­n agenda of the AU or most of the regional integratio­n organizati­ons. As a result, integratio­n is likely to entail significan­t transactio­n costs. Also, under developed cross-border banking network and financial services is an additional “hard constraint”.

While there are Western and South African banks operating across the region, Africa is still not fully banked despite overlappin­g banking networks, and this may create practical problems in terms of capital loopholes and incomplete banking networks.

Lastly, political instabilit­y and armed conflict can also be an issue. The AfCFTA’s success requires a safe and peaceful intra-regional environmen­t. However, we are seeing armed conflicts including terrorist attacks growing in frequency and intensity in recent years.

Armed conflicts have become the biggest hindrance to regional economic growth and integratio­n, affecting nearly one-third of countries in sub-Saharan Africa, which has suffered huge economic and social damage. And there are no quick and definitive solutions to these conflicts as they are usually tied to complex historical, ethnic, religious and cultural factors, and are thus likely to continue to plague the economic integratio­n project going forward.

In conclusion, there is no doubt that the AfCFTA spells promise for Africa’s developmen­t. But there is also no denying that the AfCFTA faces a long and winding road ahead despite the bright prospects given past and present issues in Africa’s integratio­n project, with daunting challenges and lingering uncertaint­y. So the internatio­nal community should take a long-term view, and let Africa take its time while playing an active role in supporting integratio­n. The author is senior research fellow and chief of the Center for Southern African Studies of the Institute of South African Studies at Chinese Academy of Social Sciences. The author contribute­d this article to China Watch, a think tank powered by China Daily. The views do not necessaril­y reflect those of China Daily.

 ??  ??
 ?? SHI YU / CHINA DAILY ??
SHI YU / CHINA DAILY

Newspapers in English

Newspapers from United States