Introduction

I recently completed a four day short course with TRALAC on reading International Trade Agreements, with a specific focus on the AfCFTA. In my role at Imani Development, I have been involved in work on the AfCFTA and I find it extremely interesting, but it is also very intricate and multifaceted. Accordingly, I wanted to share some of my reflections and learnings from the recent course as well as from my experience working directly with Regional Economic Communities (RECs) in Africa and with the African Union. I share these reflections in the hope that they will help others understand some key aspects of the AfCFTA. Additionally, I hope to add some additional value to the conversation by making some observations about the current status of the AfCFTA agreement and linked to this what its opportunities and implications are, realistically speaking.

Observations

Let me start with two observations. The AfCFTA is unlike other FTA agreements in that it has come into force before its own negotiations have been fully concluded. This was namely for political reasons and although it creates momentum and may sustain momentum it has the disadvantage of resulting in Free Trade Area (FTA) agreement being in force legally, but not operational. This is because the content needed to allow for free trade between countries is not yet finalized, the annexes of the agreement are still under negotiation. Secondly, the AfCFTA is an additional FTA and does not consolidate all the already existing African FTAs and RECs into one single FTA. The AfCFTA will exist in parallel with these existing agreements, what TRALAC have coined as, the ‘overlapping parallelism’ of the AfCFTA.

Overlapping Parallelism

To illustrate what ‘overlapping parallelism’ means and why it is important, lets ask the question of who is negotiating with whom in the current AfCFTA negotiations? Let’s start by asking if countries will negotiate tariff phase downs with other countries bilaterally? In theory this should only happen in cases where both countries do not belong to a customs union. Now, we know that a large proportion of African countries do, in fact, belong to customs unions – SACU, UEMOA, CEMAC, and the EAC. Let’s focus on SACU and its tariff negotiations within the AfCFTA negotiations to illustrate what the implications of ‘overlapping parallelism’ are. Given the existence of the Tripartite Free Trade Area (TFTA), SACU has already concluded negotiations with the EAC because all SACU members are SADC members, and SADC and the EAC have agreed. Therefore, in the AfCFTA tariff negotiations SACU will be negotiating with ECOWAS and CEMAC and they will need to make a common offer agreed upon by all their Member States. Additionally, however, there are State Parties like Ethiopia and Egypt who SACU will need to negotiate with bilaterally, and with different offensive and defensive interests in mind, because these States do not belong to a customs union and the nature of SACU’s trade with each of them is distinct. This means that there will be negotiations within SACU, then offers from SACU to other African customs unions, and then offers from SACU to individual State Parties of the AfCFTA. Each of these will include distinct tariff offers and the first offer may not be accepted, in which case further negotiations will ensue. Now, keep in mind that tariff phase downs are one of three outstanding areas of the agreement that are still in negotiation and have not been concluded yet. This example should illustrate what the practical implications of ‘overlapping parallelism’ are for the ongoing and future negotiations of the AfCFTA. This ‘overlapping parallelism’ will also have implications for how the AfCFTA is implemented, but this is beyond the scope of this article.

Opportunities

Although the example above points to the complexity of the AfCFTA and the ongoing negotiations it also highlights inter-REC negotiations and the potential for the AfCFTA to provide a framework for trade between RECs e.g. allow ECOWAS to harmonise their standards with the TFTA. This is a significant opportunity offered by the AfCFTA and if realised it would add significant additional value by enhancing trade facilitation between RECs. This, although distinct, connects to the larger issue of trade governance and the potential that the AfCFTA has, to enhance trade governance on the continent.

Narrowing in on particular opportunities within Phase I of the AfCFTA, I have identified three categories of opportunities: liberalisation of trade in goods (TiG) and trade in services (TiS), reduction of Non-Tariff Barriers (NTBs), and enhanced trade facilitation. I have drawn on the recently published World Bank paper on the AfCFTA to quantify what it would mean if these opportunities were realised, but I have drawn on my own analysis, knowledge, and experience for how likely this is and what key challenges remain as obstacles to realising the AfCFTA opportunities.

 

Progressive Liberalisation of TiG

The liberalisation of TiG given the low levels of intra-African trade, just over 15% of total African trade in goods, has minimal benefits for most of the current State Parties of the AfCFTA. Additionally, it is not usually tariffs that limit intra-African trade, rather it is NTBs and the high non-tariff related cost of trade in Africa. Finally, where tariffs are prohibitive it is unlikely, that they will be removed given that those products are sensitive for reasons relating to food security or special national interests.

Progressive Liberalisation of TiS

This opportunity, if realised, would have significant benefits for the State Parties of the AfCFTA, but it is important to emphasize the presence of the word progressively in the agreement. The current negotiators of the Protocol on TiS have decided to interpret ‘progressively’ by committing to liberalise five priority service sectors and agree on the modalities for then determining the next priority sectors. The five priority sectors are financial services, communication, transport, tourism, and business services. It is these sectors that will be liberalised first, and although they include the sectors that the majority of intra-African TiS is in, they do not include Distribution Services, which is vital for the creation and enhancement of regional value chains within Africa. South Africa has recently announced that this is an oversight, and that Distribution Services should be included in the priority sectors. So we will see where it goes from there, but the absence of Distribution Services in the priority sectors shows that one of the specific objectives of the AfCFTA Protocol on TiS: the creation of regional value chains, will be severely hampered until trade in Distribution services is liberalised, and its currently not a priority sector.

Reduction of Non-Tariff Barriers (NTBs)

A significant reduction in the prevalence of NTBs would have a significant and positive impact for AfCFTA State Parties. We can see this by the visible increase in real income as a % relative to baseline in Figure 0.1 when the opportunity to remove NTBs is realised through the implementation of the AfCFTA. The annex on NTBs, which is part of the Protocol on Trade in Goods is complete and has been agreed upon by all State Parties. However, it is the implementation and monitoring of this annex that is the most difficult part, not concluding the negotiations on it. The process of identifying, verifying, and resolving NTBs is resource intensive and often continual. It requires the private sector to actively participate by reporting them, border visits by trained officials to verify them, and finally it requires governments to collaborate and act timeously to remove the NTB. Additionally, our experience with NTBs is that it is difficult to permanently eliminate NTBs, as they may reoccur when new border management staff come on board, or they may be eliminated at one border post but not others, or they may not take the same form as the previous NTB, but have the same effect. There is already some progress being made in realising this category of opportunity in that the AfCFTA NTB monitoring mechanism is in development and it has leveraged the TFTA online monitoring system and lessons learnt from that inter-REC system very well already. For more on this refer to my previous article. Although there is progress here, I must be circumspect and state that only a few African REC initatives and mechanisms to monitor and eliminate NTBs have been successful.

Enhanced trade facilitation

As is evident from Figure 0.1, enhanced trade facilitation is the most impactful opportunity that the AfCFTA, if implemented correctly, offers its Member States. Although this category of opportunity holds the most potential benefits it is also the category that is the most resource intensive to realise in its entirety, as it includes amongst other measures, establishing soft border infrastructure, modernisation and digitalisation of customs management and border administration systems, as well the capacity building of staff that goes along with this. Although, this is the case, it is the opportunity category that has the best RoI, as a recent study by TRALAC illustrated. The study calculated that if the time for trucks to deliver goods in Africa was decreased by just 20% this would increase intra-African trade by greater percentage increase than fully liberalising all intra-African trade. Additionally, progress made in trade facilitation has positive spill over effects for the structural transformation of Africa through facilitating the formation of regional value chains and integration of African firms into global value chains. This category of opportunity would definitely be the most impactful if realised, however, it depends heavily on the amount of resources made available to Party States as they implement the AfCFTA and how well the AfCFTA institutions cooperate with RECs to leverage and learn from what they have already done in terms of trade facilitation on the continent.

Conclusion

It is important to clearly understand that the AfCFTA is an additional African FTA and does not create a single African FTA, and that although it is in legal force it is not yet possible to trade under its terms as key annexes still need to be agreed on and then adopted by each Party State. Additionally, we have illustrated by way of the SACU example and the discussion around ‘overlapping parallelism’ just how complicated and involved this ongoing negotiation process is, which gives us reason to doubt that this will be completed by the end of the year, as is scheduled. Furthermore, we discussed the potential impact of the AfCFTA if successfully implemented, as although the negotiations may not be concluded on schedule it is safe to assume, at some point they will be. In this discussion I referred to recent World Bank quantitative analysis and my own knowledge and experience to reveal that there is limited economic gain from TiG and TiS liberalisation and that most of the gains are precipitated by enhanced trade facilitation and the reduction of NTBs, which the successful implementation of the AfCFTA will facilitate. Finally, I observed that one of the main value adds of the AfCFTA is that, if implemented successfully, it will provide a framework for trade between African RECs.

About Chad

Chad Capon is a Development Consultant at Imani Development. He holds a Masters in International Political Economy from the University of Cape Town (Summa Cum Laude). His interest and expertise lie in the Political Economy of Sub-Saharan Africa (SSA). Chad is particularly interested in the informal sector and regional integration, and the important role they play in SSA’s political, social and economic dynamics. He has experience in community development, migration and trade capacity building projects, and has worked with intergovernmental organizations such as the African Union, SADC, The New Development Bank, various other BRICS institutions and The Foreign Commonwealth Office.