The Advent of the African Continental Free Trade Agreement as a Tool for Development

Abstract

Modelled on the North American Free Trade Agreement (NAFTA), the African Continental Free Trade Agreement (AfCFTA), signed at the Extraordinary Summit of the African Union, which convened in Kigali, Rwanda, on 21 March 2018, is designed to facilitate a single continental trade regulation and integration framework for trade disciplines and intentioned to boost intra-Africa trade. AfCFTA came on the backdrop of not less than eight regional economic communities (RECs), which are loosely regulated. The study finds that AfCFTA can become a beacon of development in the African continent, provided an array of issues including addressing the multiplicity of RECs, putting in place a Development-focused migration and labour policy or developing a side labour agreement similar to that of NAFTA to address other issues like harmonisation of treatment and conditions of workforce and pursuing industrialisation that will help manage the negative spillovers of the Fourth Industrial Revolution (4IR).

JEL Codes: C23, F10, F13, F14, F15, F17, F19, K33, K41

Keywords

AfCFTA Intra-Africa Trade RECs job creation labour mobility and protection liberalisation

Introduction

At its 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union (AU), held in Addis Ababa, Ethiopia, in January 2012, the AU adopted a decision to establish the African Continental Free Trade Area (AfCFTA) by 2017. The Agreement establishing AfCFTA was presented for signature by the parties from 17 to 21 March 2018 an Extraordinary Summit on AfCFTA in Kigali, Rwanda. With the consolidated text of AfCFTA that had signatures from 54 of the 55 countries at the time of writing, AfCFTA is now the largest free trade agreement worldwide (Disenyana, 2019; Phakathi, 2019). Broader economic cooperation and integration have been Africa’s dream since the days of African leaders such as Kwame Nkrumah of Ghana, Sekou Toure of Guinea, Tafawa Balewa of Nigeria, and Julius Nyerere of Tanzania (Amanor-Wilks, 2018; Monga, 2019; Oloruntoba, 2016), the realisation of which has now been boosted by the advent of AfCFTA. With AfCFTA the AU has arguably reached one of the major steps to realise the vision for economic liberation, integration and unity for Africa and boosted some of the flagship programmes of the AU Agenda 2063.

AfCFTA is viewed as a beacon of hope for Africa’s development (Bakare, 2014). But before Africa over-celebrate AfCFTA, it must be acknowledged that free trade inasmuch as it has benefits for member countries (Coulson, 1970; Magarinos, 1970), it can present difficulties in implementation (Anwar & Jabnoun, 2001). The intricacies of free trade agreements and member countries’ delicate interactions in free trade areas have been demonstrated in several long-established free trade arrangements like, for example, the North American Free Trade Agreement (NAFTA), which came into effect in January 1994, and the South Asian Free Trade Agreement (SAFTA), which came into effect in January 2006 (Green & Payan, 2017; Swamy, 2016). It is still to be determined if AfCFTA will take the true shape of free trade agreement or an investment agreement like NAFTA, providing to investors free access to the economic resources and industries of rich countries (Canadian Action Party, 2000). Push and pull factors must be properly addressed for AfCFTA to be successful, and the normal starting point is conducting an impact assessment. The impact assessment is critical because preferential trading agreements may carry a panoply of both positive and negative effects (Plummer et al., 2010). Unfortunately, evidence suggests that the AU did not conduct an impact assessment before establishing AfCFTA (Plummer et al., 2010; UN Report, 2017).

The Objective of AFCFTA: Bird’s Eye View

The general objectives of the AfCFTA, set out in Article 3 of the AfCFTA Agreement, read with Article 4, include, among others, the promotion and attainment of sustainable and inclusive socio-economic development; the enhancement of the competitiveness and transformation of the economies of state parties in the continent and the global market contexts; the promotion of industrial development through a variety of measures, including diversification and regional value chain development, agricultural development and food security; the resolution of the long-standing challenges of multiple and overlapping REC memberships, which tends to hinder the achievement of regional and continental integration; and the implementation of other initiatives pursuant to Agenda 2063. Collectively, the general and specific objectives of AfCFTA are geared towards spurring trade.

Major Concerns, Challenges and Impact of AFCFTA

Multiplicity of Regional Economic Communities and the Large Membership Curse

It must be noted that AfCFTA came on the back of a concern that because of its large membership with diverse levels of development, among other things, it may fall into oblivion just like the Free Trade Agreement of the Americas (FTAA). The FTAA negotiation to achieve economic unity of the Western Hemisphere, excluding Cuba, by 2005, stalled (Disenyana, 2019) because at the Miami Ministerial meeting of November 2003, the NAFTA countries ‘failed to achieve an agreement that balanced the interests of participating countries’ (Schott, 2005, p. 8) required to activate the FTAA. Not all the eight RECs recognised by the AU as supplementary to AfCFTA are effective (Geda & Seid, 2019, p. 21). This is a serious concern in the context of the effectiveness of AfCFTA. Of the eight RECS, only Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), Economic Community of West African States (ECOWAS) and Southern African Development Community (SADC) have, to date, been the most successful in terms of meeting certain objectives (Sparks, 2016). And out of these, only ECOWAS and SADC achieved above-average overall integration (Nshimbi, 2018; Phakathi, 2019). Fortunately, AfCFTA takes cognisance of the challenges of multiple and overlapping memberships and the impact these can have on enhancing trade and development in Africa. Thus, the stated objectives of AfCFTA (Article 3) are to ‘[r]esolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes’.

Countries’ Development Levels and Trade Effects and Benefits

The development levels of the continent may be both a blessing and a curse with regard the development agenda of AfCFTA. So is the reality of trade imbalances and gaps (Sikdar, 2006) that are a continuing concern in Africa. Currently, for example, East Africa is the fastest-growing region if one zooms into individual and collective economic growth of Djibouti, Ethiopia, Kenya, Rwanda, Tanzania and Uganda. This area’s projection was 5.6% in 2017, 5.9% in 2018 and 6.1% in 2019 (AfDB, 2018). In Southern Africa, economic growth has also been promising with South Africa, Angola and Zambia showing some marginal growth in 2017 (AfDB, 2018). In West Africa, particularly in agricultural and oil-producing countries, there has been an upward and consolidated growth trajectory that is expected to reach 3.8% in 2019 (AfDB, 2018). Central Africa is the only region that is reportedly underperforming with growth output in the Democratic Republic of the Congo at −4.0% and in Equatorial Guinea at −7.3% (AfDB, 2018). A number of issues are regarded as causes for the continuing low growth or declining growth in these Central African countries, including the fact that ‘[m]acroeconomic conditions have deteriorated sharply, stoked largely by the fall in oil revenues.…’ (AfDB, 2018, p. 9). The growth and income disparity in the regions and subregions of Africa is much of a concern, which may need the early activation of special and differential treatment (SDTs) by some of the AfCFTA countries. Clearly, in Africa, trade liberalisation through tools like FTAs and RECs has not always been a case of win-win situation (Ismail & Ahmed, 2019) and has not been advantageously leveraged on by all countries. The operationalisation of the AfCFTA will have to deal with how to ensure an equitable and increased welfare of smaller economies (Mandal, 2019) and to overcome the obstacles created by, and failures of, the existing RECs in the continent.

There are, of course, already comparative examples that show that the effects of free trade arrangements are not always viewed as positive. For instance, for Mexico, the NAFTA benefits included low inflation, low budget deficits and increase in non-oil exports. Also, the country’s expansion of economic activities and employment has been slow (Moreno-Brid et al., 2005). With regard to the USA, for example, NAFTA’s impact on the manufacturing sector is reportedly positive. In 2009, the value of US trade with NAFTA stood at US$1.6 trillion. In 2010 ‘exports to Mexico totalled 163.3 billion dollars’, and ‘imports from Mexico totalled 229.7 billion…’. Also, the USA reported ‘a service surplus, and a goods deficit with Mexico’ (Singh, 2011, p. 3) and the US–Mexico trade deficit within NAFTA is said to be ‘America’s second largest’ (Green & Payan, 2017, p. 2). The issue of convergence in the level of economic development of member countries has been identified with regard to SAFTA in a study that focuses specifically on the relationship between India and her trading partners (Bagchi & Bhattacharyya, 2019). The outcome of the study was that the convergence had a positive influence on intra-industry trade (IIT), and that fortunately for India, the distorted tariff regimes did not negatively affect her IIT (Bagchi & Bhattacharyya, 2019). Similarity in relative factor endowments and regional trade agreement through SAFTA is found to promote horizontal IIT.

Attracting Investment

One of the most imminent development imperatives and drivers of development in the context of AfCFTA is investment. Article 7(1)(iii) of the AfCFTA Agreement makes provision for negotiation of an investment protocol between 2018 and 2020. Hope in AfCFTA lies in how and to what extend its operationalisation will spur investment in Africa. Many other developing countries have their growth and development hinged on foreign direct investment FDI (Tran, 2013), and Africa is no exception. According to the African Capacity Building Foundation (ACBF), FDI forms the largest source of external capital (ACBF, 2017), and it is hoped that the advent of the AfCFTA will maximise this contribution. However, governance and risk mitigation must be prioritised to ensure that the investment attraction ideas of AfCFTA are realised. This may be a high mountain to climb for the AU, given the highly fragmented and politically charged conflict situations in many of the AfCFTA signatories. As correctly explicated by Tran (2013), ‘[e]conomic growth and political stability are deeply interconnected. Uncertainty associated with a fragile political system reduces investment and curtails economic development’. Having in place an appropriate and suitable legal and regulatory regime for investment is important. Investors are often attracted to the country’s stream of commerce ‘in part, because their rights are protected by law’ (Tran, 2013, p. 215).

Labour Migration and Mobility

Trade and migration are complementary and interconnected (Anukoonwattaka & Heal, 2014). Depending on the circumstances, the relationship can also be substitutive in nature. Anukoonwattaka and Heal (2014, p. 7) report that

[i]In other words, increased trade was thought of as reducing pressures for migration; conversely, increased migration would reduce the need for trade. In the African context, trade and migration are better if considered as complementarities despite the fact that empirical studies “in terms of factor arbitrage finds mixed evidence” in relation to the two positions. (Anukoonwattaka & Heal, 2014, p. 27)

A study by United Nations Conference on Trade and Development (UNCTAD) forecasts increase in migration flows that could also lead to an increase in gross domestic product (GDP) per capita to about US$3,249 in 2030, which will translate into a 3.5% growth from 2016 (UNCTAD, 2018). Migrant-sending countries received sizeable remittance inflows. It must be acknowledged that in economic terms, these are not as easy to achieve and understand as it may appear. Sending countries have to deal with other offshoots of migration such as effect on structural transformation, dwindling skilled labour and concomitant lower tax revenue income (UNCTAD, 2018).

On the other hand, receiving counties benefit from issues such as increased and improved labour productivity, particularly in the ‘agriculture, manufacturing, mining, construction and services sectors’ (UNCTAD 2018, p. 148). It is reported, for example, that South Africa and Libya have the highest levels of immigrants in Africa. The extractive/mining and construction sectors in South Africa are the drawcards of migration. Domestic work migrants from countries like Lesotho are also in high demand in South Africa, and together with informal trade, they are also significant drivers of migration. Libya has high stock of economic migrants in the oil industry, fuelling economic migration. Côte d’Ivoire and Kenya, for example, attract economic migrants in the agricultural sector (UNCTAD, 2018, p. 46).

AfCFTA provisions on job creation and labour mobility are important for many reasons, including contribution to host/destination country and origin country’s development and economic growth counted among those. In West Africa, for example, cross-border mobility is lauded for improving intercommunity development and bringing ‘tangible efforts towards the development of households and communities across the borders’ (Adeniran, 2018, p. 81). In the context of development, ‘[m]igrants could play a role in facilitating trade and investment flows’ (OECD et al., 2015, p. 1). A view, which I support, is that ‘[l]abour migration can be a vehicle for responding timely and effectively to labour market needs and changes, for stimulating innovation and development, as well as for transferring and upgrading skills’ (OECD et al., 2015, p. 3).

Not many African countries’ labour laws and policies mainstream migrant labour conditions. The pressing challenge of AfCFTA is that economic migrants need protection with regard to labour laws and basic conditions of employment, and fairness in taxation in the envisaged system of labour mobility. With continental labour mobility extolled by AfCFTA, more dynamism and complications regarding migrant work might be experienced in the same way it is the case with cross-border flows of goods, services and finance. The AU will thus have to put in place some conditionalities on protection of migrant workers and/or seek functional harmonisation of laws and regulations designed to promote labour mobility and protect migrant workers. The Joint Labour Migration Programme for Africa, which was adopted in 2015 by African Heads of State and Government, has paved a way for such a side labour agreement (Sibanda, 2008; UNCTAD, 2018). Such an agreement will promote dialogue among members to discuss important labour mobility issues as the continent moves towards a labour migration system and job creation for migrants in a manner that is orderly, fair, safe and governed with due regard to the human rights and humanitarian expectations of migrants (Anukoonwattaka & Heal, 2014; Mokoena, 2018; OECD et al., 2015). The AU must also ensure that it pursues industrialisation that will help manage the negative spillovers of the Fourth Industrial Revolution (4IR) on labour.

Trade Facilitation

The Kigali Declaration that launched the establishment of AfCFTA noted the ‘need and critical importance of creating an expanded and secure market for the goods and services of Member States of the AU through adequate infrastructure and the reduction or progressive elimination of tariffs, and elimination of non-tariff barriers to trade and investment’ (African Union, 2018 a,b). Thus, trade facilitation (TF) and liberalisation are important for the development agenda of AfCFTA through intra-trade relations (Viet, 2015). Traditionally, TF is considered from aspects such as infrastructure development, taxation, customs and excise, customs clearance systems, trade security and breaking down of trade barriers. AfCFTA and development will be served better by TF with less unreasonable strictures. Projections are that intra-African trade will gain about an additional US$85 billion if TF is realised through AfCFTA (UNCTAD, 2016). Rwanda’s TF regime is often considered as exemplary, having moved in its ranking from 131st to 87th in the World Bank’s ease of trade ranking as determined from the Logistics Performance Index (UNCTAD, 2016). This giant leap was attributed, in part, to modernisation of the country’s TF instruments and processes (TRALAC, 2016). As already indicated, one of the primary goals of AfCFTA is to achieve economic development, integration and harmonised trade liberalisation in the continent. However, the above-mentioned commitment will be meaningless if the structure of demand for, and supply of, African exports is not improved, and leveraging comparative advantage will be nullified (Geda & Seid, 2019). Yes, TF ‘reform will be a costly process’ (Capaldo, 2014, p. 7). But such costs are no reason to drag feet in ensuring that the countries’ stream of commerce will enable positive facilitation of economic development.

Conclusion

Establishment of AfCFTA is one of the first steps in addressing the developmental challenges in the African continent (Bakare, 2014) while, at the same time, helping African governments to capitalise on all prospects of improved welfare and development, and co-ordinated and effective continental trade regulatory regime. What is left now is for AfCFTA member countries to start revising and /or creating conditions that enable them and the citizenry to leverage the opportunities of AfCFTA optimally.

Footnotes

Declaration of Conflicting Interests

The author declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The author received no financial support for the research, authorship and/or publication of this article.

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