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Highlights of the African Continental Free Trade Area (AFCFTA) Agreement

Updated: Feb 13

BACKGROUND OF THE AFCFTA

The AFCFTA agreement was established and signed on 21stMarch 2018 in Kigali, Rwanda by 44 heads of state and government of the 55 African Union (AU) member states. The theoretical framework for establishing a continental free trade area was first discussed in the Abuja treaty of 1994, that lay down the progressive plans of establishing an African Economic Community. However, substantive efforts for establishing the AFCFTA agreement has its roots in the 18THsession of the African Union (AU) which took place in Addis Ababa Ethiopia on 29th-30thJanuary, 2012. It was agreed that a continental free trade agreement would be a fundamental factor in building a sustainable economic base and creating employment opportunities in the continent.


In 2013 during the 50th anniversary of the Organization of African Unity (OAU) the African heads of states and government launched Agenda 2063.Agenda 2063 is a framework meant for progressive realization of sustainable growth and development for Africa. Establishing the CFTA by 2017 became one of its flagship projects. AFCFTA agreement was established after rounds of negotiations which commenced in May 2016 and ended in February 2018. The first phase of negotiations which concluded in 2018 covers trade in goods and services and the second and final phase which is yet to commence will cover investments , intellectual property matters and competition policy. The AFCFTA is the overarching legal text but there are two protocols under it namely.-

· Protocol of Trade in Goods

· Protocol of trade in services


PURPOSE OF THE AGREEMENT

AFCFTA agreement is one of the key steps towards realizing;-

  • An integrated African economy that is economically self-reliant.

  • A development framework that effectively utilizes Africa’s human and material resources sustainably.

  • An African economic community that has harmonized laws and policies.


HOW WILL AFCFTA FULLFILL ITS AIMS?

AFCFTA plans to fulfil its aims by.-

  • Progressively eliminating tariffs and non-tariff barriers in goods: includes getting rid of import &export duties and quota bans. Non-tariff barriers that will be eliminated include sanitary and phytosanitary measures.

  • Liberalizing trade in services progressively: Includes eliminating restrictions and regulations imposed on services and service providers.

  • Fostering cooperation in trade related aspects of intellectual property, investment and competition policy.

  • Establishment of a dispute settlement body dealing with rights and obligations of members.

  • Establishment of a sound institutional framework for administration of AFCFTA.

POWER STRUCTURES UNDER THE AFCFTA AGREEMENT

1. The Assembly: Made up of heads of states and governments. Plays the oversight role and is the highest decision making body.

2. THE Council of Ministers: Made up of minsters of trade of member states. Its main role is to effectively implements and enforce decisions made by the assembly.

3. Senior Trade Officials-Made up of principal secretaries of member states. Responsible for implementing decisions that have been delegated to them by the council of ministers.

4. The secretariat– shall be established by the Assembly and its roles will be determined by the council of ministers.


KEY PRINCIPLES OF AFCFTA

Found under article 5 of the AFCFTA agreement,-

1. Driven by member states of the African union

2. Variable geometry:-Allows states to implement decisions at their own pace.

3. Regional Economic Community’s (RECS) as building blocks for AFCFTA;- RECs like COMESA and IGAD have achieved substantial liberalization in trade and AFCFTA will only build up on this.

4. Flexibility and special differential treatment:-Depending on the level of development of the member states will have different transitional periods. LDCs will get a longer time span as compared to developing members.

5. Transparency and disclosure of information-Notification of all agreements that state parties sign with other parties.

6. Preservation of acquis- All obligations that AU parties have with RECs and international organizations will still stand.

7. Most favoured nation (MFN) treatment- State parties to treat all state parties in the Continental free trade area equally and accord all special treatments to all members equally without discrimination.

8. National treatment- State parties to accord similar treatment to goods and services of other member states that they accord to goods and services in their own jurisdiction.

9. Reciprocity

10.Substantial liberalization

11.Consensus in decision making

12. Best practices in the RECs, in the state parties and international conventions binding the African Union.


POTENTIAL ECONOMIC BENEFITS &IMPACT OF AFCFTA ON AFRICA & BUSINESS ENTERPRISES

The UNCTAD projects that AFCFTA could potentially increase intra-African trade to 22% form 12% by 2022 and double this trade if non-tariff barriers are also reduced. This would be beneficial as currently, tariffs average at 6.1% and business enterprises face higher tariffs when they export within Africa than outside Africa.

UNCTAD also projects that AFCFTA will result in welfare gains of USD 16 billion-24 Billion (+0.97% GDP 1.17% employment). This is particularly poignant because Africa’s population is projected to rise to 2 billion by 2050 (will compromise 26% of worlds working age population) and currently it is estimated that about 70% of Africa’s population is under 30 with women making up more than half of this.

AFCFTA is also projected to play a major role in the evolvement of small and medium sized enterprises in Africa. It is imperative to note that SMEs account for about 80% of Africa’s businesses. Most SMEs usually struggle to penetrate to more advanced overseas markets due to lack of an integrated economic framework. AFCFTA agreement if implemented effectively can be an ideal platform that:-

  • SMES can use to penetrate into regional export destinations and in turn use this as a stepping stone for expanding into overseas markets.

  • SMES can utilize to supply inputs to larger regional companies that export to overseas markets.

  • Creates a legal and safe environment for women traders (women account for about 70% of informal cross boarder traders). Women are usually vulnerable to harassment, violence, and confiscation of goods and imprisonment and by reducing tariffs AFCFTA can make it more affordable for traders to operate in formal channels which offer safer environments.

  • Simplifying trading regimes by providing simplified clearing procedures to small-scale traders who might have little formal education.


SIGNATURES AND RATIFICATIONS

On 21stof March 2018 the AFCFTA agreement was signed by 44 heads of state out of 55 African states. Notably the two super economies Nigeria and South Africa failed to sign it. Nigeria had no representative at the conference and President Buhari reckoned that Nigeria needed more time to consult with its private sector whereas South Africa cited that it had to follow its internal constitutional process. However, South Africa and 51 other AU countries have signed the agreement. Nigeria, Eritrea and Benin are the only countries that are yet to sign the agreement.

Under article 23 of the agreement it is stipulated that the agreement can only come into force 30 days after 22 countries have ratified the document and deposited their ratifications instrument to the chairperson of the Africa Union Commission (AUC). On 4THof April 2019 Gambia became the 22ndcountry to ratify the agreement and on the 29thof April 2019 the last two countries to ratify the document deposited their ratification documents with the depositary.

The 22 countries that have deposited their instruments are Ghana, Kenya, Rwanda, Niger, Chad, Congo Republic, Djibouti, Guinea, eswatini (former Swaziland), Mali, Mauritania, Namibia, South Africa, Uganda, Ivory Coast (Côte d’Ivoire), Senegal, Togo, Egypt, Ethiopia, The Gambia, Sierra Leone and Sahara Republic. Additionally, Zimbabwe has received parliamentary approval for ratification but has yet to deposit its ratification instruments with the AUC Chairperson. The (AFCFTA) Agreement is therefore set to enter into force on 30 May 2019.


DYNAMICS OF NEGOTIATIONS BETWEEN AU MEMBER COUNTRIES

Africa is made up of developing member states (22 out of the 55) and least developing member states (33 out of the 55).The super economies of Africa are Nigeria, South Africa and Egypt. The level of development among member states shaped the dynamics of negotiations of the first phase and this has manifested itself in the agreement. The AFCFTA agreement subjects more advanced economies and less advanced economies to different transitional timelines.

The AFCFTA agreement aims to liberalize 90 % of the tariff lines, however more advanced member countries have a transitional time frame of 5 years to achieve this whereas LDCs have been granted 10years.The negotiations also included the issue of liberalization of sensitive products and non -LDCs were given a time frame of 10 years and LDCs were given a time frame of 13 years. The principle of variable geometry was included in the principles of the agreement allowing different member states to implement decisions at their own pace. This is perhaps the reason why LDCs have been particularly enthusiastic in ratifying the agreement.

Currently out of the 22 member countries that have ratified the agreement LDCs account for 15 member countries. However there is no small island state that has ratified the document. Ashiki Hassan, Seychelles trade minister has argued that AFCFTA agreement might not be beneficial to small island states like Seychelles that have a small export percentage and would like to seek more clarifications on the implication of rules of origin. According to rules of origin as stipulated in the agreement countries can only receive preferential rate of tariff only if their export goods originate from Africa.

The private sector has also influenced the dynamic of negotiations. Notably Nigeria Africa’s super economy has neither signed nor ratified the agreement despite spearheading the negotiations. Nigeria has become quite protectionist and nationalistic in its stand that has been mainly been influenced by its private sector. Prior to the Kigali conference the federal cabinet had approved the signing of the agreement but it seems the private sector had not adequately been consulted.

The Nigeria Labour congress (NLC) was the driving force behind President Buhari not attending the Kigali conference The NLC cautioned the president against signing the agreement by terming it as an“extremely dangerous and radioactive neo-liberal policy initiative,”and added that“it would make Nigeria a dumping ground for repackaged manufactured goods from Europe and developed countries.”

President Buhari has opined that consultations with the private sector are still being carried out but it remains to be seen if Africa’s super economy will sign and ratify the document.



Patricia Kahura
Patricia Kahura, Advocate

pattykahura@gmail.com


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