Economic Policy Dialogue African Continental Free Trade Area (AfCFTA)

23rd October 2019

Program Director:      Eustace Mashimbye – CEO Proudly SA

Speaker:  Ambassador Xavier Carim, DDG International Trade and Economic Development, the Dti

  • The purpose of the AfCFTA is to enhance intra-Africa trade and investment.
  • It was formalised by the OAU in 1980 at the Lagos plan of action.
  • Tariffs are not the only constraint to AfCFTA but also the under development of production structure and infrastructure;
  • All existing regional trade agreement are preserved and unaffected (e.g. SACU);
  • So, negotiations for the AfCFTA are with countries outside SACU and SADAC;
  • We are looking for reciprocity under this agreement, it will not be one-sided;
  • Africa’s share of world trade is 3%
    • Intra-Africa trade 16-18% (could be double with informal trade according to Faizal Ismail)
    • Intra-EU trade 70%
    • Intra-Asian trade 50%
  • This intra-Africa trade number can be doubled in five years, it is estimated, and we are well placed to take advantage of it;
  • SA’s intra-Africa trade was 23% of its total trade in 2018, but trade with SADAC accounts for about 80% of this amount;
  • Our key trading partners are Botswana, Namibia, Mozambique, Zambia and Zimbabwe;
  • We need to facilitate customs, trade and transit and in doing this we will:
    • Enhance the investor climate in Africa;
    • And, create due process in resolution of trade disputes.
  • 54 of the 55 African countries have signed the AfCFTA (not Eritrea);
  • As of October 2019, 28 countries have ratified the agreement;
  • AfCFTA entered into force on the 30th May 2019, in a legal sense;
  • There are various Annexes to the agreement, see attached document supplied by Tralac;

Phase II of negotiations

This has not yet commenced but will cover the following issues:

  • Competition;
  • Intellectual Property

Phase I

  • This has been adopted by the Heads of State and contains the following:
    • A Protocol on Trade in Goods;
    • A Protocol on Trade in Services;
    • A Protocol on rules and procedures for the settlement of disputes;
    • Modalities for tariff liberation and trade in services;
    • Adoption of rules of origin where consensus was agreed.
  • In terms of the current tariffs prevailing:
    • 90% of the scheduled tariffs will be liberalised to 0% over 5 years;
    • For Least Developed Countries this will be over 10 years;
    • 7% of these tariffs, deemed to sensitive, will be liberalised over 10 years and for LCD countries this will be 13 years;
    • Of the remaining 10% (i.e. initial 100% minus the 90% in point one above) 7% will be liberalised over 10 years and the balance of 3% will have no cuts/liberalisation.
  • All of the above should have been submitted for approval by the end of September 2019, but we have missed the deadline.
  • Reductions in tariff commence on the 1st of July 2020;
  • For the South African side, we have agreement for 87% of the tariff codes but we need further negotiations to finalise the rest;
  • We expect final tariff to be endorsed at the AU meeting in December 2019, if everyone is ready.

Speaker:  Dr Faizel Ismail, Director: Nelson Mandela School of Governance and former Ambassador to the World Trade Organisation

  • No other international trade agreement has so many countries participating;
  • The WTO consists of 160 countries of which;
  • Of the 55 countries in Africa that are participating:
    • 34 are Least Developed Countries (LDC’s);
    • 6 are Small island developed states (SIDS’s);
    • 16 are Land locked developed countries (LLDC’s) – and thus need infrastructure in order to trade.
  • So very few of the African countries have the ability to trade on their own.

Tri-partite Agreement

  • This is an agreement being negotiated by SADAC, COMESA and ECOWS;
  • Negotiations started in June 2011 and by 2015 a framework agreement was in place;
  • This launched the CFTA and merge both agreements (CFTA and the AfCFTA) together;
  • In March 2018 the agreements were finalised;
  • The agreements should be handled according to UBUNTU.

UBUNTU – a term used by Nelson Mandela – the definition is:

“Ubuntu means love, truth, peace, happiness, eternal optimism, inner goodness, etc. Ubuntu is the essence of a human being, the divine spark of goodness inherent within each being. From the beginning of time the divine principles of Ubuntu have guided African societies.”

Africa should walk on “Four Legs”

The conflict in the EU is because all nations are not equal, the Greeks blame their job losses on the highly mechanised Germans, for example, so in order to avoid this in terms of the AfCFTA, Africa should walk on the following four legs:

  1. Fair trade – one must look at the differences between countries;
  2. Cooperation on transformative industrialisation – i.e. all smaller countries to create regional value chains so they can get some benefit;
  3. Cooperation on cross-border infrastructure investment (and trade facilitation);
  4. Cooperation on democracy, governance and peace and security.

Part of securing these is “The African Peer Review Mechanism” (APRM) which has 37 members.

“The African Peer Review Mechanism (APRM) is a mutually agreed instrument voluntarily acceded to by the member states of the African Union (AU) as a self-monitoring mechanism. It was founded in 2003.”

Speaker:  Trudi Hartzenberg, Executive Director: Trade Law Centre (Tralac)

  • Afreximbank has announced $1 billion as an adjustment facility, under the AfCFTA, to support countries that may suffer revenue losses due to the implementation of the agreement;
  • It has also introduced PAPSS, Pan African Payment and Settlements System for intra-Africa cross border payment and exchange problems;

“Afreximbank’s president, Benedict Oramah, explained that PAPS, which will be available on mobile devices, would facilitate the clearing and settlement of intra-African trade transactions in African currencies and significantly reduce the dependence on US dollars and other hard currencies in the settlement of regional trade.

According to Oramah, the bank has partnered the West African Monetary Institute (Wami) to launch a pilot in six West African countries by the end of the year. The West African Monetary Zone is the continent’s only economic community that does not already have a settlement platform – hence Afreximbank’s decision to pilot the new solution in the region.

Previously referred to as the Intra-Africa Trade Platform, it is one of a number of new initiatives that the bank is currently implementing as part of its strategy to facilitate greater volumes of intra-African trade as well as formalise the continent’s informal trade, which is estimated by the bank to be close to $40 billion.

“Africa’s challenge when it comes to payments and settlements,” Oramah explained, “comes down to the fact that it has multiple local currencies, meaning that cross-border payments typically involve a third currency, such as the US dollar or Euro. This leads to a high cost of intra-African payments, which can take weeks to process.

“Governments want to build their reserves, so they tend to prefer exports to markets that issue hard currency. For this reason, a significant amount of cross-border trade occurs informally. The issue is compounded by the fact that most traders currently do not have a system that enables them to settle in a secure way,” Oramah said.

He explained that with the new platform “a buyer in country A buying from a seller in country B can pay in his or her own currency for the goods, while the seller will receive his or her own currency. At the end of the day, the only countries that will have to pay dollars will be those in deficit”. Although the president conceded that it might not be possible to completely eliminate hard currencies in trade settlements, he believed that through the platform it will be significantly reduced.  (Business Day, 1st July 2019).

  • Another part of this monitoring system will be the “Africa Trade Observatory”;

The European Commission, the African Union Commission and the International Trade Centre (ITC) join forces today to set up the African Union Trade Observatory, a key pillar of the African Continental Free Trade Area.

The EU provides €4 million from the Pan-African Programme for the Observatory to be established.

Commissioner for International Cooperation and Development Neven Mimica said: “The new African Union Trade Observatory is another step towards the African Continental Free Trade Area, which will help the continent harness its economic potential. It will provide the African Union, the African countries and the private sector with data and statistics that are essential for the sound monitoring of continental trade and evidence-based policy-making. Our support of 4 million euros to this Observatory is another example of the Africa-Europe Alliance in motion.”

The Observatory will collect data and analyse trade across borders in Africa, addressing the current lack of up-to date-and reliable data and statistics. This information will be made available for policymakers and interested stakeholders, including economic operators. This will enable them to identify promising market opportunities and will facilitate the effective monitoring of the African Continental Free Trade Area implementation and impact once in place.

Background

The African Continental Free Trade Area (AfCFTA) is one of the key priorities of Africa´s Agenda 2063 and a flagship project for the continent. It aims at providing a single continental market for goods and services, with free movement of people and investments. Its goal is to boost Intra-Africa trade from an existing level of about 13% to 25% or more over the next decade, thus contributing to economic growth and attracting investments from both within Africa and the world.

The EU, with its extensive experience in setting up an internal market, has been supporting the Continental Free Trade Area since its inception in 2015 and remains committed to support its ratification and implementation.

The support to the African Continental Free Trade Area one of the pillars of the recently launched Africa-Europe Alliance for Sustainable Investment and Jobs, which aims to deepen economic and trade relations between Africa and Europe. The EU recently allocated €50 million support to the AfCFTA for the period 2018-2020.

(European Commission Newsletter, 9th February 2019)

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