Africa: AfCFTA: Africa prepares for free trade in January 2021

Exciting Times Ahead for Traders Despite Anticipated Initial Issues and COVID-19

One day in February 2020, Meron Dagnew, a coffee and cocoa trader based in Accra, visited the Secretariat of the new African Continental Free Trade Area (AfCFTA) to introduce himself, even before the Secretariat was fully operational.

“I couldn’t wait,” he told Africa Renewal in a recent interview. “I need free trade in Africa to start as quickly as possible – it will be very good for my business.”

The AfCFTA Secretariat was officially opened in Accra on August 17, 2020, although, due to the COVID-19 pandemic, free trade will now begin on January 1, 2021 instead of the date originally scheduled for July 1. 2020.

Ms Dagnew is eager to take advantage of reduced tariffs and a consolidated market (possible derivatives of the AfCFTA) to expand the operations of her company, BE Kollective, which imports coffee from Ethiopia to Ghana and exports cocoa from Ghana to Ethiopia.

“I hope not to pay up to 35 percent tariffs on my products; I hope that soon I can bring my value-added cocoa and coffee to African countries without problems of rules of origin. Then I could make more profit, expand my business and hire more people, “he says.

Ethiopia is one of the largest coffee producers in the world and Ghana is the second largest cocoa producer in the world, after Côte d’Ivoire. Ms. Dagnew is particularly drawn to the West African market of 380 million people.

High tariffs and non-tariff barriers, such as delays at customs and administrative bottlenecks at border crossings, underscore the challenges faced by African traders and, at the same time, accentuate the strong desire of traders in an area free trade.

The AfCFTA eliminates tariffs on 90 percent of goods produced on the continent, addresses non-tariff barriers to trade, and guarantees the free movement of people.

Ms Dagnew’s business slowed in March 2020 just as the pandemic started to grow. As African economies begin to slowly open up as they adjust to the realities of the pandemic, Dagnew intends to restart trade soon.

However, it is concerned about other structural challenges to intra-African trade, such as competition with the big global brands that compete on an uneven playing field. For example, BE Kollective, according to Ms Dagnew, competes with Nescafé, which retailers import into Ghana.

“The problem is that Nescafé importers from European or Asian countries pay much less duty than what I pay because those countries have favorable trade agreements with African countries,” he emphasizes. “So the odds are against intra-African traders.”

Ms. Dagnew is also concerned that countries’ customs services lack adequate information on the AfCFTA.

“Not long ago, I went to the Ghana customs service and told them that I would not have to pay duties at some point because of the AfCFTA. They didn’t understand what I was talking about,” he recalls. “There are many traders who have no idea what the AfCFTA is about.”

She recommends a massive information campaign to raise awareness of the AfCFTA among customs services, traders and other key players in countries participating in the free trade area.

Lack of infrastructure

The lack of adequate modern transport infrastructure also hampers merchants’ desire to reap the full benefits of free trade, studies show. With the proper transportation infrastructure and high integration, consumer goods manufacturers could earn up to $ 326 billion a year, according to McKinsey & Company, a US-based management consulting firm.

And according to the World Bank, Congolese customs takes about three and a half weeks to clear a container of auto parts. While the East African countries Tanzania and Uganda have established a single border post to reduce the time of cargo movement between them, new delays have quickly emerged in the form of divergent rules for goods, underscoring the changing nature of non-tariff barriers.

African countries could raise $ 20 billion a year simply by addressing the non-tariff barriers that slow the movement of goods, according to the United Nations Conference on Trade and Development, the UN body that deals with trade investment and trade. development problems.

The African Union (AU) efforts to boost infrastructure through its Program for Infrastructure Development in Africa (PIDA) are expected to produce the Lagos-Abidjan transport corridor, the Zambia-Tanzania power transmission line- Kenya, the Lagos-Algiers highway and the Brazzaville-Kinshasa bridge, among others.

But experts encourage individual countries to invest in modern port, airport and rail infrastructure.

Merchant women

The challenges women traders face are widely discussed in intra-African trade talks.

Women make up 70 percent of Africa’s informal cross-border traders, and according to a 2019 UN Women study titled Opportunities for Women Entrepreneurs in the Context of the AfCFTA, African traders often face corruption, insecurity and sexual harassment. .

The AfCFTA agreement itself requires countries to protect the vulnerable, including women traders, and tackle corruption.

African states with bilateral trade agreements with foreign countries or other regions, such as the European Union, will need to walk a tightrope to meet previous commitments while implementing the AfCFTA.

In February 2020, for example, the East African economic giant Kenya started bilateral trade talks with the US, a move seemingly contrary to the country’s commitment to the African free trade zone.

Optimistic projections of the benefits of Africa’s free trade are based, in theory, on orthodox economic calculations: a linear correlation of supply and demand that may not fully encompass externalities such as the availability of countries’ implementation capacity, infrastructure necessary, policy coherence, etc. in.

The World Economic Forum notes that full and effective implementation of the AfCFTA is what will lead to its transformative impacts, meaning that its touted benefits are in no way guaranteed.

AfCFTA Secretary General Wamkele Mene recognizes the enormous tasks that lie ahead. “We have to roll up our sleeves and work,” he told Africa Renewal in an earlier interview.

However, there is much to celebrate with regard to the free trade agreement. The pact consolidates a market of 1.2 billion people and a combined GDP of 2.5 trillion dollars. It would represent the world’s largest trading bloc by number of participating countries if all AU member states ratify the agreement.

While some 30 countries have so far ratified the deal, more countries are expected to join the bandwagon when free trade begins and its benefits become tangible.

Mene estimates that intra-African trade could increase from its current 18% to 50% by 2030.

It will boost traders’ profits, strengthen Africa’s competitiveness in the world market, promote export diversification, and increase value added to produce and transform natural resources.

Due to the AfCFTA, Africa’s manufacturing output is expected to double to $ 1 trillion, creating 14 million jobs by 2025, writes Landry Signé for the Brookings Institution, a think tank based in Washington, DC.

An industrialized continent will catalyze the agricultural sector. In the coming years, Mr. Signé anticipates, manufacturing will complement “agricultural production and agricultural processing plants, which provide food and energy to meet growing African and global demand.”

He adds that young Africans involved in the development of computer software and applications will seize the opportunity to produce “leapfrog” technologies to meet growing domestic demand. In other words, well-paying jobs will be created for the continent’s growing young population.

“In all sub-sectors and countries, the industrial revolution in Africa looks imminent,” says Mr Signé optimistically.

Meanwhile, African traders anticipate the end of the COVID-19 pandemic or at least its rollback soon. They hope that the initial problems that arise will be addressed and that the AfCFTA will be a shot in the arm for Africa’s development.

“It will be a dream come true for traders like me,” enthuses Ms. Dagnew.