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Beyond tariffs

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Beyond tariffs

16th October 2020

By: Terence Creamer
Creamer Media Editor

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There are growing signals that the African Continental Free Trade Area (AfCFTA), trading under which stalled as a result of the lockdowns instituted across the continent to contain the Covid-19 pandemic, is slowly coming back to life. Ahead of the pandemic, trading under the arrangement was scheduled to begin on July 1, 2020.

South Africa’s Trade, Industry and Competition Minister Ebrahim Patel reported recently that priority was being given to completing the outstanding work and negotiations required to enable trading to begin from January 1, 2021.

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The announcement carries some weight given Patel’s recent election as chair of the African Ministers of Trade, the Ministerial body tasked with finalising negotiations on the terms of AfCFTA’s preferential trading arrangement’s.

He reports that, during a recent meeting, some 40 Ministers and senior trade officials agreed “on a succinct set of deliverables and a focussed work programme for the finalisation of the outstanding negotiations for adoption by Heads of State and Government at the thirteenth Extraordinary African Union (AU) Summit on December 5, 2020”.

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The trade deal could eventually include over 50 African countries with a combined gross domestic product of $3.4-trillion and 1.3-billion citizens. To date, however, only 30 AU member States have ratified the treaty.

More ratification will be needed if the AfCFTA is to meet the high-road scenario outlined in a recent World Bank report, which stated that the free trade area could boost regional income by 7%, or $450-billion, by 2035.

This would help offset the negative effects of the Covid-19 pandemic, which is expected to cause up to $79-billion in output losses in Africa this year.

All proponents of the AfCFTA agree, though, that ratification and tariff reductions are necessary but insufficient conditions for extracting the full benefits from freer trade.

The other critical components include the strengthening of national customs administrations to monitor the movement of goods, investment in industrial capacity and, crucially, the development of trade-supporting infrastructure.

Absent these elements the elimination of tariffs alone will not have a significant economic impact, without which the developmental spinoffs will also not flow.

As fiscally constrained African countries mull their limited Covid-19 recovery options, it would make sense to integrate both the AfCFTA and the various infrastructure plans into an African recovery framework.

In other words, the development of trade-supporting infrastructure, both soft and hard, should receive as much priority in national recovery plans as those big ticket national-champion-type projects, such as renewable power plants, broadband networks and human settlements.

By so doing, upscaled intra-African trade, could become a catalyst for attracting increased investment into Africa’s productive sectors that could, in turn, stimulate industrialisation across the continent.

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