Wednesday, January 15, 2020

CFTA Deal Revives Pan-African Dream

If fully implemented, the African Continental Free Trade Area will be the world’s largest trading bloc

Can Africa’s lion economies stand up to the Asian Tigers? Is there a genuine possibility of Africa forming a trading bloc that would rival the EU, China and the US markets? The African Union (AU) would reply in the affirmative. And they have some success to back up their Pan-Africanist dream. In 2012, the AU and its member countries agreed to develop a Continental Free Trade Area (CFTA). On 21 March 2018, close to 50 African Union member states signed the African Continental Free Trade Area agreement in Kigali, Rwanda. The signings took place during the official opening ceremony of the 10th Extraordinary Summit of the AU Assembly of Heads of State. ‘I wish to acknowledge all the leaders, past and present, involved in bringing us to this point,’ Rwandan President Paul Kagame and current Chairperson of the African Union said. ‘We are reaping the rewards, of their foresight.’

The CFTA aims at creating a single market for African goods and services by eventually removing tariffs on 90% of items and facilitating the free movement of business people and investments. 44 out of the 55 countries immediately signed up for it, which created the framework for a free-trade area with over 1.3 billion people and a combined gross domestic product of over USD $3.4 trillion. However, for the agreement to come into effect, it will have to be ratified by the parliaments of at least 22 member states. There are other challenges as well. In the short term, individual economies are expected to take a hit due to the removal of tariffs but thereafter enjoy such benefits as economies of scale. According to a study by the United Nations Conference for Trade and Development (UNCTAD), conducted in February 2018, if all tariffs were to be fully eliminated in the CFTA, there would be ‘substantial welfare gains’ of about US$ 16.1 billion, even after deducting US$ 4.1 billion of tariff revenue losses. That said, non-tariff barriers to trade (NTBs) could still slow down the overall pace of business. NTBs include rules of origin, quotas, embargoes, technical and administrative regulations, and licensing procedures for individual countries. Internationally, CFTA will have to contend with the protectionist policies of some major powers. US President Donald’s Trump ‘America First’ policy, for example, affects countries wishing to do business with the world’s largest economy.

But the AU remains optimistic. The gains clearly outweigh the challenges. According to the UN Economic Commission on Africa, intra-African trade could increase by 52.3 per cent under CFTA (and double if non-tariff barriers are also eliminated). Intra-African exports stood at a measly 18% in 2016, according to the Brookings Institution, far below Asian and European internal trade averages. And CAFTA is not just good for the economy – it has the potential to accelerate continental integration. It’s underpinned by a Pan-African philosophy.  During the historic CFTA signing, the Africa Union Commission Chairperson, Moussa Faki Mahamat, said:

‘We have come here driven by the conviction that integration is not an option, but an imperative. To paraphrase Emperor Haile Selassie at the May 1963 Summit, the giant Africa cannot wake up if it remains divided…Therefore, we are here to fulfill the aspiration of our peoples for integration and unity….We have come here to lay a new milestone, to take another step in the Pan-African journey, whose intellectual seeds were sown more than a century ago.’

Marcus Garvey would be pleased.

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