The African continental free trade area and its implications for India-Africa trade

10/08/2018

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Abhishek Mishra | Observer Research Foundation

Introduction

The vision of “pan-Africanism” and “collective self-reliance” has long been an integral component of attempts by African leaders and policymakers to find Africa-driven solutions to African problems. However, due to weak political, economic and governance structures, these attempts have largely failed to facilitate a structural transformation of the continent and today, the African nations continue to be fragmented economies working in isolation. Therefore, in order to achieve an African resurgence, virtually all the African countries have embraced the notion of “regionalism” and “regional integration” as part of their broader aspirations towards continental integration.[i] Over the years, various pan-African organisations have been working towards deepening economic, social and political integration in Africa.[ii] One such attempt was made at the 18th ordinary session of the African Union (AU), held in Addis Ababa in January 2012, with a decision to launch a Continental Free Trade Area (CFTA) by 2017. This was followed by eight rounds of negotiations between 2015 and 2017. A major breakthrough was achieved on 21 March 2018 when leaders from 44 African countries met in Kigali, Rwanda, and signed a framework agreement to establish what is being called one of the world’s largest trade blocs.[iii] The agreement declared that the African Continental Free Trade Area (AfCFTA) would “come into effect 30 days after ratification by the parliaments of at least 22 countries. Each country has 120 days after signing the framework to ratify the agreement”.[iv] The first section of this paper discusses the objectives of the CFTA agreement and its expected benefits for the African countries. The second section describes the history of African regional integration efforts and the establishment of Regional Economic Communities (RECs) over the past decades. The third section highlights the status of intra-African trade within the eight officially recognised RECs by the African Union using the 2016 African Regional Integration Index report as reference. The fourth section charts out the earlier African initiatives aimed at enhancing regional integration, such as the New Partnership for African Development 2002, Minimum Integration Programme 2009, Boosting Intra-African Trade 2012, and Tripartite Free Trade Area 2015. The fifth section explains the opportunities for and challenges facing the AfCFTA agreement. The sixth section examines current trends in India-Africa trade and the potential impact of the AfCFTA agreement.
  1. Aims and objectives of AfCFTA

The CFTA is an attempt by the African governments to “unlock Africa’s tremendous potential” to deliver prosperity to all Africans.[v] It seeks to create a single continental market for goods and services with free movement of business people and investments.[vi] By 2030, the African market size is expected to reach 1.7 billion people, with a combined and cumulative consumer and business spending of US$6.7 trillion.[vii] The CFTA aims to expand intra-African trade through better harmonisation and coordination of trade liberalisation and facilitation regimes and instruments across subregions (RECs) and at the continental level.[viii]  As part of the agreement, “countries have committed to remove tariffs on 90 percent of goods with the remaining 10 percent of items to be phased in at a later stage”.[ix] A study by the UN Economic Commission for Africa (UNECA) estimates that successful completion and implementation of the CFTA agreement – complemented with efforts to improve trade-related infrastructure, reduced import duties and transit costs – could lead to a 52.3 percent increase in intra-African trade by 2022, from the 2010 levels. The figures are expected to double upon further removal of non-tariff barriers.[x] An increase in intra-African trade will “drive the structural transformation of economies from low productivity and labour intensive activities to higher productivity and skills intensive industrial and service activities”.[xi] This will subsequently help in generating better paid jobs, leading to poverty alleviation. The AfCFTA also seeks to “foster a competitive manufacturing sector and promote economic diversification”.[xii] At present, manufacturing represents only about 10 percent of the total GDP in Africa, on average, lagging behind other developing nations.[xiii] Given the CFTA’s enormous “market size of 1.2 billion people and over $3.4 trillion of cumulative GDP”, if implemented properly, the CFTA could reduce this gap by increasing growth in the manufacturing sector and its value added products.[xiv] Prof. Landry Signé of the Stanford University’s Centre for African Studies says that “the continental free trade area is expected to offer substantial opportunities for industrialisation, diversification and high skilled employment”.[xv] He further says that such a market would also “offer the opportunity to accelerate the manufacture and intra-African trade of value-added products, moving from commodity based economies and exports to economic diversification and high-valued exports”.[xvi]  

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