Africa’s ambitious free-trade deal

AFrican leaders at the AfCFTA summit © Getty Images
Africa is set to become one of the world’s largest free-trade areas

Populism and trade wars have put globalisation into reverse. African nations are bucking the trend with AfCFTA, a comprehensive agreement that will create a vast new trade bloc.

What is happening?

The African Continental Free Trade Area (AfCFTA) comes into force at the end of this month. The deal creates one of the world’s largest free-trade areas by slashing tariffs across a $2.5trn market of 1.2 billion people.

Fifty-two African states are now committed to cutting duties on 90% of goods and 27 countries have signed a protocol providing for freedom of movement. Rwandan president Paul Kagame hailed the deal as a “new chapter in African unity”. The accord bucks a global trend as populism and trade wars on other continents set globalisation into reverse.

How integrated is Africa?

Poor infrastructure, elaborate customs procedures and high tariffs – currently averaging 6.1% – have long hampered the development of intra-African trade. The Gambia, for example, currently exports more to South Korea and the Netherlands than it does to neighbouring Senegal.All told, trade between African states accounts for just 15% of the continent’s trade. In the EU the equivalent figure is 67%.

The intention is for AfCFTA to be a stepping-stone to more comprehensive pan-African integration, with a customs union in the pipeline. The more distant dream is to create a frictionless single market allowing a South African factory to import parts from Niger to make into a product to be sold in Egypt, says Tom Rees in The Daily Telegraph.

AfCFTA is certainly ambitious, says Vera Songwe for the Brookings Institution think tank. It extends beyond goods – the stuff of a traditional free-trade deal – to include services, investment, intellectual property and possibly e-commerce.

Has this been tried before?

Plans for a pan-African common market date back to 1980, when the predecessor organisation of the current African Union (AU) announced the Lagos Plan of Action, which envisioned the creation of an African Economic Community (AEC) modelled on Europe’s EEC by the millennium.

In 1991 African leaders signed the Abuja Treaty to achieve that goal, but implementation has been slow. Efforts have instead been focused on sub-regional groupings. One of the oldest is the Southern African Customs Union (SACU), which dates from 1910 and sees five southern African states apply a common external tariff. Three other regional trade blocs joined forces in 2008 to start work on the African Free Trade Zone (AFTZ), a nominal free-trade area that runs up the entire east side of the continent from Cape Town to Cairo.

In west and central Africa, 14 mainly francophone nations share common currency arrangements through the CFA franc. Integration within most of these groupings remains shallow, says Olu Fasan on the International Growth Centre blog. The best performer has been the East African Community (EAC), which includes Kenya and Tanzania. It has had a common market since 2010 and a customs union since 2005.

What are the challenges?

The biggest problem is that Nigeria, the continent’s biggest economy and most populous nation, has yet to sign. The country’s manufacturing interests have been lobbying hard for special protections, citing fears of “dumping” by more competitive foreign industries. With more than 190 million people, Nigeria’s large internal market means that its leaders feel a less pressing need than smaller neighbours to secure access to a wider African market.

Even if Nigeria does eventually get on board, planned negotiations on competition rules, investment and intellectual property rights will provide plenty of opportunity for more fireworks between the continent’s protectionist powers and more liberally inclined governments in countries such as Ethiopia, Rwanda and Ghana.

Would Nigeria make a difference?

The UN forecasts that if Nigeria joins the AfCFTA then intra-African trade could grow by more than 50% in the next five years as the continent taps into latent economies of scale. Yet even without a trade deal, much has gone right in Africa in recent years. GDP per head south of the Sahara is up 40% since the year 2000, notes The Economist.

The biggest drag comes from relatively weak performance in recent years by the “big two” of Nigeria and South Africa, but the IMF forecasts that sub-Saharan growth will hit 3.5% this year, with notable strength from east African states such as Ethiopia and Rwanda.

So all good news then?

The “elephant in the room” is rising debt, says Yinka Adegoke for Quartz. Brookings reports that “at least” 14 African states are either in debt distress or at high risk after a decade of easy loans from China to finance infrastructure developments. Chinese trade with sub-Saharan Africa increased 226% between 2006 and 2018, reports The Economist, as Beijing poured money into railways, factories and ports.

More grimly, China is also now the top supplier of arms in the region. The EU remains the continent’s largest trading partner for now, with $156bn worth of trade last year, but China is not far behind on $120bn.

What about democracy?

The proportion of democracies on the continent has doubled since 1999, notes Daniel Treisman of UCLA. The 2018 Ibrahim Index of African Governance, which tracks factors such as rule of law, human development and human rights, shows that roughly three-quarters of Africans live in countries where governance has improved in the past decade.

That is good news for investment and trade. The demographics also suggest that the region will play an ever-greater role in global affairs: by 2050, one in four humans are projected to live in Africa as the working-age population booms. Successful implementation of the AfCFTA can only help enhance the benefits that will flow from these positive trends.