The continent of Africa comprises of 55 countries with about 1.35 billion people (16.72% of the global population) calling it home. The continent has a combined GDP of more than $3.4 trillion, a vast untapped potential and some of the fastest growing economies of the world.
But trade within the African continent is the lowest globally with more trade done from Africa outwards rather than inward.
The African Continental Free Trade Area (AfCFTA) agreement which started as a journey over four decades ago with the adoption of the Monrovia Strategy in 1979, the Lagos Plan of Action in 1980, the Abuja Treaty in 1991 and subsequent Decisions and Declarations adopted during various summits has finally come to fruition with the commencement of trading as of the 1st January 2021.
As per the World Bank, “The African Continental Free Trade Area (AfCFTA) agreement will create the largest free trade area in the world measured by the number of countries participating. The pact connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion.
It has the potential to lift 30 million people out of extreme poverty, but achieving its full potential will depend on putting in place significant policy reforms and trade facilitation measures.
As the global economy is in turmoil due to the COVID-19 pandemic, creation of the vast AfCFTA regional market is a major opportunity to help African countries diversify their exports, accelerate growth, and attract foreign direct investment.
The scope of AfCFTA is large. The agreement will reduce tariffs among member countries and cover policy areas such as trade facilitation and services, as well as regulatory measures such as sanitary standards and technical barriers to trade.
It will complement existing subregional economic communities and trade agreements in Africa by offering a continent-wide regulatory framework and by regulating policy areas— such as investment and intellectual property rights protection that so far have not been covered in most subregional agreements in Africa.”
Speaking at the 13th extraordinary session on the AfCFTA where the The Assembly of the Union adopted the decision on the start of trading from the 1st of January 2021, Cyril Ramaphosa, President of South Africa and the Outgoing Chairperson of the African Union stated “Today we stand on the cusp of a new era in the progress of our continent. The moment that we have all been working painstakingly towards has finally arrived…
We are all filled with a great sense of pride at how far we have come to reach this moment. We are about to witness the realisation of one of the flagship projects of Agenda 2063.”
“Throughout this process, we have stood united, with 55 sovereign AU Member States rallying together, despite different levels of economic development and diverse strategic priorities.
The commencement of trading under the AfCFTA on the 1st of January 2021 is one of the most significant milestones in the continental integration project”. he added.
He underlined that this is going to be the clearest affirmation that Africa is determined to take charge of its own destiny, and that its success and development is fundamentally tied to harnessing the potential and energies of her citizens.
There is more trade done from Africa outwards rather than inward and the African Continental Free Trade Area agreement, which was signed by 44 of its 55 member states in Kigali, Rwanda on 21 March 2018, for implementation from 01 January 2021.
This agreement is predicted to increase trade flows within the Africa continent with an expected boost of intra Africa trade by 52.3% by eliminating import duties and to double this trade if non -tariff barriers are also reduced.
As of July 2019, 54 of the 55 AU states had signed the agreement, with Eritrea being the only country to have not signed the agreement.
Barriers to entry within the continent such as challenges at borders, complex customs clearance procedures as well as various administrative issues deter cross border trade with most opting to trade outward as it has proven to be less complex but the purpose of AfCFTA is to bridge that gap by “Creating one African market”.
If we take Europe for example, 70% of Europe’s trade is within the continent and the plan with AfCFTA is to create a single African market to increase jobs and reduce poverty.
The idea of AfCFTA according to the IMF and ECA, is to establish a market of 1.2 billion people with a combined GPD of over US$3 trillion on the African continent. Small and medium businesses are responsible for 80% of Africa’s trade and 50% of its GDP and these businesses are expected to benefit the most.
The AfCFTA or Free trade Area is the largest in the world based on the participating countries since the formation of the World Trade Organization (WTO) according to various publications, and Accra, Ghana serves as the Secretariat of AfCFTA and was commissioned and handed over to the AU by the President of Ghana, Nana Akufo-Addo on the 17 August 2020.
In summary, the agreement which is now signed by 54 of its 55 members, will require its members to remove 90% of its tariffs from goods, allowing duty free access to commodities and services across the African continent. A list of changes to the duty of goods imported into RSA under the AfCFTA are available on the SARS website and a copy of the agreement available by clicking here.
What does this mean for us in South Africa?
South African has been a leader in the inter African trading environment and has lead and entered into other duty free initiatives in the Southern African Customs Union (SACU) and the Free Trade Agreement in the SADC region.
In 2019, the South African President issued a statement to announce the Country’s ratification of the AfCFTA and this solidifies the countries vision to strive towards a single, unified and diversified African market that is free of trade barriers and with the implementation of AfCFTA, has the opportunity to do so on a much larger scale with the added value of support from the AU and its members.
According to the Institute for Global Dialogue, “South Africa accounts for 27% of all intra-African exports and 12% of all intra-African imports, thus accounting for most of intra-African trade in 2019.
South Arica’s intra-African exports are fairly diverse, however, some of the main exports to other African countries in 2019 were: Petroleum Oil (excluding crude oil), Electric Energy, Goods vehicles and steel products; These products accounted for 20% of all South African intra-African exports in 2019.
In total, the country counted US$34.4 billion from intra-African trade with exports amounting to US$24 billion and imports amounting to R10.4 billion, see Figure 1; thus, resulting in a trade surplus of US$13.6 billion.”
South Africa, being a leading exporter of petroleum oils (with the exception of crude oil) and electric energy, could use the zero rated duties to expand the Country’s National Development Plan’s sustainable development and energy security initiatives (National Development Plan 2030: Our future – make it work (poa.gov.za)).
According to the Institute for Global Dialogue, “SASOL already exports a great number of petroleum oils to parts of Africa and ESKOM already provides electricity for some of the SADC member states. South Africa’s intergovernmental panel on climate change is having negotiations on how to transition to a climate sensitive economy without mass casualties of livelihoods.
The transition in pursuit of the NDP and Sustainable Development Goals will create new value chains through the manufacturing, maintenance and construction of the renewable energy infrastructure which may be exported across Africa with minimal charge in the era of the AfCFTA.”
South African company’s reach into the North and West African markets have been hindered due to steep import duties but with the implementation of AfCFTA and relaxation of import duties on several products, it could open up new markets for South African companies thus adding to employment creation and the country’s GDP.
About the Author : Anup Rampiar is based in South Africa and is the Operations Manager for a renowned Agri-Business firm and also a Chartered Member of the Institute of Logistics and Transport (CMILT). Anup is passionate about International Trade and Logistics..
The post What is AfCFTA (African Continental Free Trade Area) and what it means for South Africa appeared first on Shipping and Freight Resource.