Will opening up Africa’s trade area propel or swallow SMEs?

In its current form, AFCTA winners will be the big businesses. Small and fragile economies, will struggle to benefit from AfCTA if there is no deliberate attempts to redesign the structure to propel rather than predispose sectors that should, in the first place, be beneficiaries of AFCTA,Ismail Musa Ladu&Africa Kiiza write.

Initially set to start for July 1, 2020, the unpreparedness of state parties and Covid-19 forced postponement of the commencement of trading under the African Continental Free Trade Area (AfCFTA).

Subsequently, during a virtual meeting of the thirteenth Extra Ordinary Session of the Assembly of the Union on AfCFTA on December 5, 2020, Africa Union heads of state and government adopted a decision that trading under AfCFTA commences on January 1, 2021.

The quest for Africa’s unity and formation of African Economic Community which AfCFTA seeks to promote, goes back to independence and the struggle for economic decolonization. 

These aspirations were translated into the Lagos Plan of Action for the Economic Development of Africa (1980-2000) and the Abuja Treaty; formation of the African Union and other initiatives like Boosting of Intra African Trade, Program for Infrastructure Development in Africa, among others.  

These and other processes are the precursors of AfCFTA.
Thus, when negotiations were launched in June 2015 with a subsequent framework, AfCFTA entered into force on May 30 2019. It was envisaged that a successful implementation of the pact would be a big leap towards realisation of the African Economic Community and subsequently the “Africa We Want”.

Indeed, AfCFTA is the largest trading agreement in the world since the creation of the World Trade organization with the potential to unite more than 1.2 billion people in a $2.5 trillion economic bloc. 

It has the potential to generate a range of benefits through supporting trade creation, structural transformation, productive employment and poverty reduction.

Teething issues
However, AfCFTA hasn’t started without challenges either.
While Africa should be congratulated upon this landmark, there is more than meets the eye.

Indeed, we need to appreciate that even at birth, AfCFTA still faces a number of hurdles, which if not addressed, will make it just another wishy-washy undertaking.

At the onset, the commitment of African Union member states to AfCFTA is questionable, although this, sadly, shouldn’t be the case.

Out of 55 member states that make up the African Union, 54 have signed (except Eritrea), while 34 out of these have deposited their instruments of ratification with the Chair of the African Union Commission.

In the EAC, only three (Kenya, Rwanda and Uganda) out of six partner states have ratified AfCFTA.

Furthermore, critical elements to facilitate the actual trading are still pending.

For example, an annex to the deal outlining the rules of origin - an essential step for determining,  which products can be subject to tariffs and duties - has not been completed yet, while only 41 of the zone’s 54 member states have submitted tariff reduction schedules.

Whether this is as a result of variable geometry (soldiering on despite differences) or putting national interests first, an AfCFTA that has commenced with cherry-picking by member states, doesn’t stand to propel growth and development that Africa deserves.

It is also important to stress the role of the eight regional economic blocs such as EAC, Ecowas, SADC, ECCAS, AMU, Comesa, CEN-SAD and Igad in the actualization of AfCFTA or else it could turn out to be a stumbling block. 

If the role of the regional economic blocs is strengthened, they will indeed act as building pillars to AfCFTA.

However, as it is now, the current blocs mirror unresolved trade tensions, let alone perpetuating another long-standing challenge of non-tariff barriers, arising out of “inward-looking” following the absence or rescinding of strong pillars responsible for boosting Intra-African trade.
Tensions

In the EAC for example, February 2021 will mark two years since the Rwanda-Uganda closure of Kyaanika and Gatuna borders, while trade tensions, which often result into blockage of goods from entering a member state, have been visible, especially between Kenya and Uganda, Rwanda and Burundi and Kenya and Tanzania. 

Revealing perhaps, Kenya has resorted to negotiating Free Trade Agreements with UK and US, respectively without endorsement of EAC partner states, even when agreement have the potential to disrupt EAC integration. 

The same can be said of Nigeria-Ghana tensions, South Africa xenophobic tendencies, Egypt-Ethiopia, and Cameroon-Equatorial Guinea, among others.  

Winners and losers
In its current form, AFCTA winners will be the big businesses. Small and fragile economies, farmers, fisher folks, workers, small-scale producers and informal cross border traders, will struggle to benefit from AfCTA if there is no deliberate attempts to redesign the structure to propel rather than predispose sectors that should, in the first place, be beneficiaries of AFCTA.

Caution 
Whereas AfCFTA is an African initiative, it should be viewed as just a tool for Africa’s transformation, and thus should be designed and negotiated in a way that reflects the challenges facing Africa’s development and economic integration with measures to address them.

The hasty launch of AfCFTA without addressing critical challenges will not fulfil the intended objectives of structural transformation of African economies. 

On the contrary, it will simply contribute to creating a bigger African market for further domination by foreign products and investors over African products and investors, and bigger producers over smaller ones.

For example for Uganda to be a useful player and the region as whole to be competitive, the African Trade Report 2019 notes that Africa’s contribution to global trade must improve from the current marginal 2.6 percent while at the same time increases intra-African trade currently hovering at about 17 per cent compared to intra-regional trade in Europe (6 per cent) and Asia (59 per cent).

 The success of the implementation of the AfCFTA will require accompanying measures such as the Plan for Infrastructure Development of Africa (PIDA). 

This will enable the increase in the stock of infrastructure in terms of land, air and maritime transport, energy and ICT, which will improve interconnectivity and reduce the cost of doing business.

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