AfCFTA

The AfCFTA Journey – One year on

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As Greg Anderson, an American author would put it: “focus on the journey, not the destination. Joy is found not in finishing an activity but in doing it”

Africa has since January 1, 2021, been on a journey to create the world’s largest single market with a population size of 1.3 billion people and a combined Gross Domestic Product estimated at USD 3.4 trillion.

The idea for this journey was mooted in Addis Ababa of Ethiopia when the Assembly of Heads of State and Government during the 18th Ordinary Session held in January 2012, decided to establish a Continental Free Trade Area by 2017 as a flagship project of Agenda 2063 of the African Union (AU).

The trade area was seen as a catalyst for economic growth, industrialisation, and sustainable development in Africa.

It was until March 21, 2018, at Kigali in Rwanda when 44 of the 55 members of AU brokered and signed an agreement establishing the African Continental Free Trade Area (AfCFTA).

This was after a series of negotiations that began in 2015 and lasted for about three years.

Amid the COVID-19 pandemic that caused a global human catastrophe in 2019 and the years that ensued, Ghana as host to the Secretariat managed to commission and hand over the facility to AU in Accra on August 17, 2020, with a South African becoming the first Secretary-General of the Secretariat.

Trading under the AfCFTA commenced on January 1, 2021, in line with the decisions of the 13th Extraordinary Session of the African Union Assembly in December 2020.

This was against the July 1, 2020 date that was abandoned due to the ravages of the novel coronavirus that made in-person negotiations highly impossible because of travel restrictions, disruption in supply chains, and the inadvertent shutdown of economies.

This development forced African governments and heads of state to reassess their priorities as they focused on managing the health crisis in home countries.

For many, the commencement of trading was largely symbolic as major negotiations that bothered on matters of tariffs, dispute resolution mechanisms and rule of origins had not been completed.

Steps taken by automobile giants and other businesses to set up assembly plants and factories on the continent at a time when AU members had agreed on AfCFTA got cynics worried over the ‘infiltration’ of companies from outside the continent to leverage on the benefits that the single market has to offer.

This was believed to hamper Africa’s homegrown agenda of industrialization that would erode the effort of the local indigenous firms to grow and compete with giants, especially within the automotive industry.

“With the new trade agreement, localisation should stretch beyond the South African borders,” said Ms. Philisiwe Buthelezi, the Chief Executive Officer of the National Empowerment Fund of South Africa, at a recently held Ghana-South Africa Business Forum in Accra.

As of December 2021, however, about 87.8 per cent of the tariff line has been agreed upon under negotiations on Rules of Origin with outstanding issues on the automotive sector making 1.43 per cent and textiles making 10.53 per cent yet to be agreed upon.

With future work on Rules of Origin set to focus on the completion of the Rules of Origin manual and the development of regulations on Special Economic Zones (SEZs), much of suspicion on multinational companies trying to take undue advantage of the trade area would have been diffused.

Another setback to the full implementation of the agreement has also been the fear of huge tariff losses that will affect the revenue generation capacities of governments since most countries like Ghana for instance have tariff and import duties making 12 per cent of its tax revenue in 2019.

So far, 43 African countries have submitted their initial tariff offers, of which 29 initial offers had been technically verified and certified as ready to commence commercially meaningful trading under the AfCFTA preferences.

The Council of Ministers Responsible for Trade in October 2021 adopted the Ministerial Directive on the Application of the Schedules of Tariff Concession that will ensure the

application of the 29 tariff offers on a provisional basis across the 29 countries, pending the conclusion of all outstanding issues on the Schedules of Tariff Concession.

The concession provided modalities for tariff liberalisation, which were adopted with a level of ambition of 90 per cent of tariff lines to be liberalised in a linear form over different periods for LDCs (Least Developed countries) and Non-LDCs.

“We are taking necessary steps to produce tariff books and the tariff offers have also been posted on the AfCFTA website” Wamkele Mene, Secretary-General, AfCFTA Secretariat told the Ghana News Agency (GNA).

Other necessary trading documents such as the certificates of origin, the origin declaration, and the suppliers’ and producers’ declarations are also ready for the commencement of trading.

Despite the services sector being the largest contributor to GDP of most African countries, Trade in Services (TIS) on the continent remains far below its potential.

Services as of 2017 accounted for only 22 per cent of African trade with African exports remaining highly concentrated on agriculture and primary goods according to the United Nations Conference on Trade and Development (UNCTAD).

Issues of migrants taking over the jobs of locals, strict immigration control, the influx of foreign goods, and non-tariff barriers have been discussed under the Free trade Area to facilitate Trade in Services, which consist of cross-border supply, consumption abroad, setting up of commercial presence abroad and movement of natural persons.

So far, 43 African countries have submitted their services offers, with ongoing technical verification to ensure that the offers are in line with the adopted modalities and guidelines for negotiating Trade in Services under the AfCFTA.

It will be interesting to see how committed AU members states are towards improving the state of infrastructures such as road, rail, and ports to develop trade routes and expedite cross-border trade of goods and services.

On Investment, the Secretariat has developed modalities for negotiating the investment protocol and a draft Protocol on Investment.

Work is also in progress on the other areas of Phase II negotiations, including Intellectual Property Rights, competition policy, digital trade, and women and youth in trade, with the establishment of committees and preliminary capacity-building efforts.

Work to operationalise the Dispute Settlement Mechanism has also begun in earnest with three meetings of the Dispute Settlement Body (DSB) and a workshop this year, 2021.

It is insightful to note that an Indicative List of Panellists (ILP) which is a roster of African trade experts that will be the first tier in dispute settlement mechanism, has been developed with 10 State Parties making up the first 20 nominations.

The meetings also led to the establishment of a standing Appellate Body- the second-tier tribunal of final instance that will hear appeals from panel reports and guarantee their legal certainty.

The DSB also held its first workshop in what the AfCFTA hopes will be a series of Dispute Settlement Workshops led by eminent African lawyers with experience in dispute settlement.

Within the period under review, the AfCFTA Secretariat in collaboration with Afreximbank has mobilised a facility of USD 1 billion for the development of the automotive sector, to support industrialisation in Africa through an automotive fund.

Progress has also been made with the successful piloting and execution of monetary transactions in the West African Monetary Zone (WAMZ) under the Pan-African Payments and Settlement System (PAPSS), with launching set for January 13, 2022.

Meanwhile, work is underway for the development of the necessary protocol to operationalise the AfCFTA Adjustment Fund- a USD10 billion-dollar fund, aimed at cushioning countries that are likely to suffer short-term tariff revenue losses because of the implementation of the AfCFTA.

On the Permanent structure of the Secretariat, the Secretariat has also completed recruitment for the initial four Director positions and other management positions approved as part of the Phase I Structure which include Trade in Services, Investment, IPR, and Digital Trade; Trade in Goods and Competition Policy; Administration and Human Resources Management; and Finance.

Recruitment under the phase II structure of Secretariat comprising 265 positions is awaiting approval by the Assembly of Heads of State and Government of the African Union in February 2022.

In total, the AfCFTA Secretariat will comprise 296 positions that will be available

for both State Parties and non-State Parties.

There has, however, been calls for the Secretariat to set up a functional unit to manage youth and women-owned businesses as highlighted in thematic group discussions at the recent Ghana- South Africa Business forum.

The Secretariat has also intensified its resources mobilisation drive by relying on partners such as Afreximbank; African Development Bank; and some bilateral contributions from partner countries.

The resources-both financial and technical are geared towards making AfCFTA an African-owned and African-led process.

The question of sustainability, however, comes to bear as to what the long-term plan would be to make the Secretariat sustainable technically and financially as it is expected to play the role of an independent referee in free and fair trade on the continent.

On the first anniversary, 54 African countries are signatories to the AfCFTA Agreement with 42 countries ratifying the Agreement, and 39 becoming State Parties.

This signals a strong sense of belief in the effort of the Secretariat and stakeholders towards getting all hands on deck to make Africa great.

For now, the biggest hurdle for the Secretariat appears to be how to get the private sector to own the implementation process as it is said that it is the private sector that does trade and not governments.

In that regard, a private sector engagement strategy has been developed to help identify initiatives to facilitate the development of the regional value chain on the continent through the inclusion of women and the youth.

“This strategy focuses on four initial priority sectors of values chains that include Agro-processing, automotive sector, pharmaceuticals, transport and logistics based on the potential for import substitution and existing production capabilities,” said Mr. Mene at the Ghana-South Africa forum.

So far, so good and cheers to more success under AfCFTA.

GNA

Source: gna.org.gh

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