News — Free Trade

The underdevelopment of Africa has largely been attributed to the horrific slave trade, unfair trade practices, and lack of value addition of its raw materials.

The continent is well endowed with resources such as gold, cocoa, coffee, diamond, bauxite, among others. However, in monetary value, the continent does not make more compared to the countries that purchase these resources and add value to them.

For centuries, Africa’s economy has remained export-driven, and resources exported out of the continent are mostly in their raw state. This means that the continent loses millions of dollars in the value chain.

According to a former South African Minister of Trade and Industry, Rob Davies, Africa in 2014 exported coffee valued at $6 billion but after the coffee was roasted, blended, packaged, and branded, the final products sold abroad yielded $100 billion.

“In other words, 94% of the value chain of a primary product produced on this continent was captured abroad,” Davis said, citing a 2014 study by KPMG. The former minister was delivering the 2021 Adebayo Adedeji Memorial Lectures.

He said the figures are even starker in the case of highly knowledge-intensive products. “Take the case of the iPhone 6, that retails for $649 in the US. The cost of the mineral products used in its manufacture totals a mere $1,03 (0,16%),” he said.

Citing Adedeji’s seminal work, African Alternative Framework to Structural Adjustment Programmes for socio-economic recovery and transformation (AAF SAP), Davis said the AAF SAP has become a major beacon looked to by many then doubting that externally-imposed Structural Adjustment Programmes were the best, or only, way forward.

According to Davis, AAF SAP identified what it saw as the structural weaknesses in most African economies, including a “weak productive base characterized by low productivity and productive activities dominated by either subsistence or export-orientated primary product production.”

From this, AAF SAP identified the central task as the structural transformation of African economies, he said, adding that Africa has to “break the apron strings of structural and relational dependence on producing a limited number of cheap primary commodities for export.”

Davies noted that poor countries that have transitioned to become industrialized nations followed the path of earlier industrializers.

“Whether they were the East Asian Newly Industrialising Economies in the 1960s and 1970s (South Korea, Taiwan, Malaysia) or, more recently, China, their governments pursued active industrial policies that promoted, nurtured and protected nascent industries,” he said.

According to him, the industrialization they experienced resulted in greater output and higher incomes for those involved in manufacturing and a host of related service activities that created higher quality, better remunerated, and higher quality jobs than those that existed before.

He, therefore, urged African economies to break the dependency ties with industrialized nations and begin to add value to their resources through industrializing their economies.

Touching on the Continental Free Trade Agreement (AfCFTA) which combines the economies of Africa into a single market of 1.2 billion people, Davies said AfCFTA’s real prize would be if it supported the emergence of regional value chains involved in the production of higher value-added goods and services.

“Such an outcome could expect to see components and other intermediate inputs being produced in a number of countries before being assembled into “products of Africa” consumed by the citizens of the continent and also exported,” he said.

“Under such a scenario we could expect to see not just a quantitative increase in intra-regional trade but a qualitative change in its character. This would involve a greater absolute and relative intra-trade in components and intermediate products – which is in fact the largest and fastest-growing part of global trade in goods.”

Headquartered in Accra, Ghana, the African Continental Free Trade Area (AfCFTA) is now officially the largest free trade area by the number of participating countries since the founding of the World Trade Organization (WTO) in 1995.

The AfCFTA is based on an agreement among 54 African countries. Negotiations began as far back as 2012 but it was in 2018 at the 10th Extraordinary Session of the African Union (AU) in Kigali, Rwanda that three separate agreements were adopted to establish the free trade area.

Despite teething problems including the initial refusal of Africa’s biggest single market, Nigeria, to join the AfCFTA, the agreement came into fruition on Friday, January 1, 2021. Some 30 of the 54 countries have ratified the agreement which means that as of now, Africans and other global stakeholders can look forward to a new era of doing business in Africa.

But it is also important to see the January launch of the AfCFTA as a largely symbolic gesture. It will take a few years, even for the most optimistic, to see Africans overcoming the challenges to a free trade agreement including protectionism, national red-tapes as well as poor infrastructure across the continent.

The new AfCFTA era brings to the fore certain structural changes as well as establishes new rules that one must know. Here are three things to note under the new dispensation:

African Trade Observatory

The African Trade Observatory (ATO) is an online mechanism brought about by the African Continental Free Trade Area (AfCFTA). The way the ATO is meant to function is that it provides a dashboard to give real-time trade statistics to African users.

The ATO dashboard gives intra-continental trade flows (traded values, traded quantities, the use of tariff preferences, taxes and fees paid at the border), and information on market conditions, enabling stakeholders to make evidence-based decisions and quickly.

Rules of origin

Rules of origin in the legal documents that established the AfCFTA touches on among other things, the “Certificate of Origin” which means the documentary proof of origin; “Chapter” which refers the two-digit Chapters code used in the nomenclature; “CIF Value” which is the price paid by the importer as well as “Classified” which speaks to the classification of a Product or Material under a particular Heading or Sub-heading.

Rules of origin in the AfCFTA is supposed to standardize ambitions of intellectual property as well as ambition. These rules preempt a significant globalization process in Africa.

Freedom Of The Movement Of Persons

The ambition to have people move across Africa as freely as goods have not seen the light of day although it has been debated for well over two decades. Within the framework of the AfCFTA, the plan to allow people free movement comes with the establishment of a visa-free zone within the trade agreement area.

This obviously seems like a plan that would come to pass if there are enough willing African countries. The Economic Community of West African States (ECOWAS) has strived to employ a similar strategy for citizens of the sub-region.

The African Continental Free Trade Agreement (AfCTA) will begin operations in January 2021, although trading was originally planned for July 1, 2020, but was delayed due to the coronavirus pandemic. According to the BBC, negotiations resumed this week between countries to deal with final sticking points around rules of origin and market access.

The Agreement establishing the AfCFTA was signed in March 2018 in Kigali Rwanda, following the conclusion of the main legal texts. 54 Member States of the African Union have signed, and 30 countries have deposited their instruments of ratification with the Chairperson of the African Union Commission.

The main objectives of the AfCFTA are to create a single market for goods and services, facilitate the movement of persons, promote industrial development and sustainable and inclusive socio-economic growth, and resolve the issue of multiple memberships, under agenda 2063. It lays a foundation for the establishment, in the future, of a Continental Common Market.

The implementation of the agreement suffered an initial setback when the continent’s biggest economy, Nigeria, delayed signing the agreement. Analysts were of the view that had Nigeria failed to rectify the deal, the Pan African free trade zone would have been stillborn.

Regional integration in Africa has been hampered by the lack of political will exhibited by member states, political instability, the multiplicity of memberships to Regional Economic Communities (RECs) and inadequate funding among others.

According to the African Union (AU), intra-African trade is estimated to increase by 52.3 percent (US$34.6 billion) under the AfCFTA, compared to the current arrangement without AfCFTA. The free trade area will cover a market of 1.2 billion people and a gross domestic product (GDP) of US$2.5 trillion, across 54 member states. The continental trading bloc is expected to be the world’s largest free trade area since the formation of the World Trade Organization (WTO) in terms of the number of participating states.

In August, Ghana handed over the Secretariat of AfCFTA to the Chairperson of the African Union Commission, Moussa Faki Mahamat, at a ceremony in Accra. President Nana Akufo-Addo, who supervised the handing over ceremony, also announced at the event the provision of a residential accommodation to serve as the official residence of the Secretary-General of the AfCFTA.

In a statement, he said Africa’s prosperity depends largely on intra-African trade. “Increase in trade is the surest way to deepen regional integration in Africa. “We are now the world’s largest free trade area since the formation of the World Trade Organization, and we must make it count.”