9 April 2018

Intra-African trade gets streamlined: What does this mean for Least Developed Countries?

by Lynsey Grosfield / in News

Forty-four African countries have signed on to an African Continental Free Trade Agreement (AfCFTA), twenty-eight of which are among the world’s Least Developed Countries (LDCs)

“We have come here to lay a new milestone, to take another step in the Pan-African journey, whose intellectual seeds were sown more than a century ago,” said Moussa Faki Mahamat, Chairperson of the African Union Commission.

Signed in Kigali, Rwanda on March 21, 2018, this landmark agreement brokered by the African Union — and signed by 80 percent of AU members — will see tariffs removed from 90 percent of goods moving within the signatory areas, and is the largest trade agreement signed since the establishment of the WTO. The trade bloc created represents 1.2 billion people, and a combined gross domestic product (GDP) of more than $2 trillion.

According to Deputy Executive Director of the Enhanced Integrated Framework (EIF) Annette Ssemuwemba, “the AfCFTA provides an great opportunity for African countries to deepen Intra-African trade and consequently trade with the rest of the world.”

Intra-African trade remains low, but according to a 2017 study by the African Development Bank Group, it expanded from 10 percent in 2000 to about 16 percent in 2014.

In a release, ADB stated: “[c]ontrary to popular notion, the heterogeneity of national exports helps intra-African trade as the spread of products across the continent allows for more trade between regions with large food demands.”

The Agreement also aims to reduce non-tariff barriers to trade, such as customs delays and technical barriers. According to The United Nations Conference on Trade and Development (UNCTAD), “cutting intra-African tariffs could bring $3.6 billion in welfare gains to the continent.”

The Free Trade Area may one day also include a single currency and freedom of movement, much like the regional economic integration agreements of the EU.

A joint statement from the European Commission in support of the AfCFTA reads: “The EU is ready to support the implementation of this impressive achievement in the spirit of the African Union-European Union partnership and our joint political declaration of the Summit in Abidjan in November 2017.”

David Luke, coordinator of the African Trade Policy Centre at United Nations Economic Commission for Africa (UNECA) told Al Jazeera, “Colonialism created a situation where neighbours stopped trading with each other. The main trading route was between African countries and European countries and between African countries and the US."

“It is notable that twenty-eight out of thirty-three LDC countries signed up for the AfCFTA, representing around 54% of the countries that receive Aid for Trade support through the EIF,” adds Ssemuwemba.

The EIF is the only global Aid for Trade programme exclusively designed for LDCs, and is specifically mentioned in Target 8.A. of the Sustainable Development Goals (SDGs), aiming to "increase Aid for Trade support for developing countries, in particular least developed countries."

“The EIF remains committed to supporting the trade and competitiveness agenda enshrined in the Agreement, with a view to contributing to sustainable development for the LDCs,” says Ssemuwemba.

It hasn’t all been smooth sailing for signing on. Several LDC governments — including those of Benin, Burundi, Eritrea, Guinea-Bissau, Lesotho, Sierra Leone, and Zambia — opted not to sign until further consultation. Many were concerned about an increasingly competitive marketplace for countries with less-developed manufacturing, transport and export infrastructure.

A 2018 UNCTAD research paper on the AfCFTA points to potential implementation issues of significant tariff revenue losses, an uneven distribution of costs and benefits, and short run costs of adjustment for structural changes through the relocation of labour, capital and other factors of production.

Nigerian President Muhammadu Buhari cancelled his trip to the signatory Summit two days before, citing a need to consult further with Nigerian small businesses on the implications of the Agreement. Nigeria is the largest oil producer in Africa, and — with a population of 186 million — is also the largest market.

South Africa also declined to sign the Agreement at the Summit, but has been supportive throughout the negotiations. In an editorial, South African Minister of Trade and Industry Rob Davies said, “[t]he African continent consists of small and fragmented markets due to colonialism. Individually they do not have a significant market size that will propel their economies into sustainable growth.”

“For the continent, regional economic integration is not only a political but also an economic imperative. The underlying rationale for African economic integration is that domestic markets are small by global standards, certainly too small to support economic diversification and industrialisation.” 

Any views and opinions expressed on Trade for Development News are those of the author(s), and do not necessarily reflect those of EIF.