African Continental Free Trade Area comes into effect
The African Continental Free Trade Area came into force on paper today – this after 22 countries ratified the deal a month ago. Ultimately, when recognised by all 55 nations which form part of the African Union, it will cover a market of 1.2 billion people and a combined gross domestic product of $2.5 trillion.
The deal would help the continent move away from mainly exporting commodities to build manufacturing capacity and industrialize, Jakkie Cilliers, head of African Futures and Innovation at the Pretoria-based Institute for Security Studies told Bloomberg. Boosting intra-regional trade would spur the construction of roads and railways, reducing the infrastructure gap in Africa, he said.
Trade between African countries is not as high as in other developing regions at only 15%, compared with 20% in Latin America and 58% in Asia, the African Export-Import Bank reports. However, the Free Trade Area agreement could increase this by 52% by 2022 and can more than double within the first decade after implementing the deal.
The agreement should be fully in operation by 2030 as non-trade barriers, such as delays at ports, and politics, have to be navigated before the plan to remove tariffs on 90% of goods can be realised.
“This is a technocratic agreement,” said Ronak Gopaldas, a London-based director at Signal Risk, which advises companies in Africa. “It’s aspirational in nature and while the direction is positive, translating what has been agreed by the technocrats and the policy makers into stuff that has a material impact on the ease and the cost of doing business and fosters more integrated markets” will remain challenging, he said.
One hurdle to that Nigeria hasn't signed up to the agreement. However, President Muhammadu Buhari is said to be reviewing an impact assessment report since his re-election.
Nigeria is one of three countries, including Benin and Eritrea, that hasn’t signed the deal.
Twenty-two nations, including South Africa, have ratified the text, but the agreement could still come under pressure due to political considerations.
According to Tshepidi Moremong, the head of Africa coverage at Rand Merchant Bank“In each of our countries, there are proper issues that one needs to deal with and where people need to see that the government is focused on their day-to-day issues,” she said. “Opening up a market for the people from other parts of the continent to freely come and do commerce and trade in your country is going to take a lot.”
This article was originally published in a slight different format by Bloomberg.
Join key decision makers in September in Nairobi to understand potential impacts of this and other policies on the development of transport infrastructure in Africa. Taking place in Nairobi, Kenya from 10-11 September 2019, the Africa Road Infrastructure and Investment Congress this year will explore the theme "Boosting Investment in Road Infrastructure".
The Congress will analyse new public-private partnership projects (PPPs), new infrastructure projects that promote regional integration and competitiveness of countries, new technologies and financing challenges in the road and highway industry across Sub-Saharan Africa.