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LEX Africa examines the progress of the AfCFTA

The African Continental Free Trade Area (AfCFTA) is in it’s the second year of operation as Africa’s biggest trading platform. Expectations are high and pressure from African ministers may have provided the AfCFTA with much-need impetus. The AfCFTA topped the agenda at the African Union Heads of State and Government Summit in Addis Ababa, Ethiopia, on 18 February.

Speakers at the summit urged member states to double the spirit of Pan-Africanism, solidarity and brotherhood by accelerating the operationalisation of the AfCFTA.

A recent UN African Renewal article highlights that Africa trade currently stands at just 14.4% of total African exports. The United Nations Conference on Trade and Development (UNCTAD) forecasts show the AfCFTA could boost intra Africa trade by about 33% and cut the continent’s trade deficit by 51%.

But progress is markedly slow in some areas. Benin, Gambia and Seychelles are the only African countries that allow visa free entry to all Africans, although the African Development Bank (AfDB) says travel became less restricted to African citizens in 2022. 

There is now an even split between travel that is visa free, and travel where a visa may be obtained on arrival at the destination country, according to the 2022 Africa Visa Openness Index by the AU and the AfDB.

Similarly, Africa is home to 12% of the world’s population, yet accounts for less than 1% of the global air service market, according to a 2010 World Bank study on how liberalised air transport would deliver improved air safety, lower fares and increased traffic in Africa.

Part of the reason for Africa’s under-served status, according to a World Bank study titled Open Skies for Africa—Implementing the Yamoussoukro Decision is that many African countries restrict their air services markets to protect the share held by state-owned air carriers. 

In regional economic blocs such as the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA) formal cross-border trade make up to 90% of official trade flows and contribute up to 40% of total trade.

UNCTAD data shows that Africa’s current untapped export potential amounts to $21.9 billion, equivalent to 43% of intra-African exports. An additional $9.2 billion of export potential can be realised through partial tariff liberalisation under the AfCFTA over the next five years, it says.

In analysing the progress of AfCFTA in a January article, the Observer Research Foundation (ORF) said it seems to be on the right track as it pushes for a more integrated Africa.

By 1 January 2023, 44 of 55 member states deposited their instruments of ratification, over two-thirds of member states are now parties to the AfCFTA Agreement, and Somalia’s cabinet approval is pending. Eritrea is the only country that has not joined AfCFTA.

ORF said in 2022, rules of origin were resolved for 87.7% of goods covered by AfCFTA, including about 3,800 tariff lines.

The aim is to gradually diminish tariffs on 90% of goods traded within Africa, and the reduction of trade barriers in services is also anticipated. 

It says, according to the World Bank, FDI is now the most important element to supplant the dependence of Africa on aid and grants. This is important, as accumulated debts are stretching African economies.

Some analysts believe that that the lethargic reactions of African leaders towards opening up their borders and liberalising trade leaves much to be desired, with three major issues seemingly bedevilling the AfCFTA in its current phase.

But greater investment is needed in making businesses aware of the advantages of the AfCFTA, as pointed out by the Africa CEO Trade Report 2022.

And the customs infrastructure to implement the AfCFTA obligations are slow. Few countries have the infrastructure and systemic capabilities for trade facilitation as required by the AfCFTA indicators.

To encourage greater trade, an AfCFTA initiative on guided trade (GTI) was introduced at the ninth meeting of the ministers in July 2022.

Its aim is to obtain correlation among businesses across regions to identify products which could be traded among interested parties within the inclusive member states.

The GTI has obtained the participation of eight member states: Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania, and Tunisia, which cover all five regions of Africa.

At least 96 products will be traded under the GTI and the initiative will be reviewed annually to expand the list of countries.

Although not new, another plus is thatAfreximbank partnered with the AfCFTA Secretariat to set up the Pan-African Payments and Settlement Systems (PAPSS) a platform that facilitates instant cross-border payments in local currencies between countries.

PAPSS works with the systems of central banks and commercial banks, and other  banks, fintech, and payment services are indirect participants. This removes routing through hard foreign currencies to complete regional trade.

By late 2022, Phase I negotiations on trade in goods and services were complete, Phase II, which includes the protocols on investment, intellectual property, and competition, is underway and Phase III will include an e-commerce protocol. The Protocol on Investment was concluded in October 2022 and its adoption is imminent.

“This is indeed a proud, even though tentative, achievement for Africa, as the Protocol manifests a common African position on important issues of governance of investment, which are crucial to new FDI inflows,” said the ORF.

LEX Africa members from Nigeria and Tunisia are bullish about the potential of AfCFTA and the ways in which it can benefit their countries. This is despite its progress being held back by disruptions that include the Covid-19 pandemic and delays with trade protocols.

Nigeria

Nigeria became the 34th party to the AfCFTA agreement in December 2020 after formally ratifying it. As the largest economy in Africa, with an estimated population of 211.4 million people, Nigeria’s formal commitment to the AfCFTA has elicited interest among stakeholders and raised hope in Africa, says Bosede Giwa-Osagie, partner at LEX Africa member, Giwa-Osagie & Co in Lagos.

“There is no doubt that the AfCFTA provides a huge opportunity for Nigeria’s economic prosperity, especially in job creation, poverty reduction, attracting investments, and boosting its trade relationships with other countries.”

However, she says Nigeria is yet to maximise the full benefits of the AfCFTA.

This is related to the coronavirus pandemic, disagreements over trade protocols and a lack of political will. Due to Covid-19 infection concerns, Nigeria closed its land borders, particularly Idiroko in Ogun State, Jibiya in Katsina State, Kambai in Kebbi State and Ikom in Akwa Ibom State throughout 2021 and only reopened them in April 2022.

This was following the directive of President Mohammadu Buhari, who believes that under AfCFTA, Africa could double its intra-African trade by 2030, reduce dependence on imports and thereby increase job creation within the continent, says Giwa-Osagie.

However, the closure within that period affected the mobility of Nigeria’s import-export transactions with other African countries and could not address the problems that hitherto engineered the closure, which among other things, were to prevent smuggling into the country, especially rice.

Pursuant to the AfCFTA, there should be free movement of people, the right of residence and the right of establishment to allow African nationals to move and work within Africa without any restriction. “Unfortunately, no formal agreement is in place for this to materialise, thus hampering the movement of people and goods among party states, particularly Nigerians,” says Giwa-Osagie.

Furthermore, the Federal Government of Nigeria has not exhibited sufficient political will towards the full implementation of the AfCFTA. For example, despite the AfCFTA agreement, Nigeria’s trading with other African countries has shrunk. “Nigeria’s trade declined by 33.8% in trade balance with the continent from (the national currency) Naira 2.8 trillion in 2019 to Naira 1.86 trillion in 2021,” she says.

The decline is also reflected in the percentage of Nigeria’s trade with Africa compared to the rest of the world, which fell from 13.91% in 2019 to 7.45% in 2021.

Nigeria trades with Asia and Europe more than any other regions. According to data from the world’s top exporters, Nigeria exported US$47.6 billion in goods worldwide in 2021. This amount reflects a 16% increase since 2017 and a 42.6% progression from 2020 to 2021, says Giwa-Osagie.

“Some of Nigeria’s biggest trading partners are India, Spain, and France, which bought over a third (34.5%) of total Nigerian exported products in 2021, measured in dollars. In all, 39.8% of Nigeria’s exports by value were delivered to European countries, while 34% were sold to importers in Asia.”

Other of its big trading partners include the Netherlands with $2.9 billion [6%] worth of imports, Canada with $2.2 billion [4.5%], the United States with $2 billion [4.4%], Italy with $1.91 billion [4%], Indonesia $1.87 billion [3.9%] and China $1.86 billion [3.9%].

“Unfortunately, trading with African countries remains low, apart from Cote D’Ivoire where imports stood at $1.3 billion [2.8%],” says Giwa-Osagie. Negotiations on the AfCFTA Rules of Origin, which are fundamental to improving local production, are about 87.65% complete, with the remaining 10% work on textiles and 2% on automobiles,” she says.

Notwithstanding the above challenges, Nigeria is making inroads in ensuring that the AfCFTA becomes operational in the country. “In a Presidential Policy Dialogue organised by the Lagos State Chamber of Commerce and Industry, the Vice President, Prof. Yemi Osinbajo, confirmed that some level of progress had been made,” says Giwa-Osagie.

The National Action Committee on AfCFTA has been set up to coordinate the implementation. The committee has couched a national implementation strategy with particular interventions to propel the mission and strategic objectives of AfCFTA.

“It is believed that with the efforts made so far by the Federal Government and with plans underway to domesticate the AfCFTA, Nigeria will soon enjoy the full benefits of the AfCFTA,” says Giwa-Osagie. “It is also believed that the newly constructed Lekki Deep Sea Port in Lagos, will facilitate transshipment and cargo handling in transit for other destinations, with Reuters calling the project a “game changer.” This it is hoped, will bring about good results for Nigeria, she added.

Tunisia

Tunisia approvedand ratified the agreement establishing the AfCFTA in August 2020, convinced that trade under this agreement will consolidate the country’s integration into global value chains. It is also expected to provide an opportune framework for the country to enhance its export potential to African markets, considering their strong economic potential of growth, says Me Amina Larbi, Avocat Associée at LEX Africa member, Medlar Lawyers and Legal Advisors in Tunis.

“In this context, Tunisia has finalised its tariff offer for products, which was submitted and approved by the AfCFTA Secretariat. The offer was formally adopted by the African member states during the Summit on Industrialisation and Diversification held in Niamey on November 25, 2022.”

She says the Tunisian Ministry of Trade and Export Development has announced that the certificate of origin required by the AfCFTA agreement has been implemented as of January 2023. This certificate is used to prove the origin of products to meet customs or trade requirements and certifies that they originate in Tunisia. It will initially be issued by the Tunis Chamber of Commerce and Industry (CCIT).

Tunisia is also in the process of completing the integration of its offer into the customs system, with the tariff dismantling process covering 90% of products eligible for free trade. “It has, thus, entered the final stage of preparation and will be able to start the implementation phase of the agreement shortly,” says Larbi.

“Finally, we would like to add that Tunisia is currently in the process of institutionalising the AfCFTA National Committee. This committee will be responsible for providing strategic guidance for the negotiation of the agreement and its gradual implementation at national level.”

She says the success of the initiative requires a participatory approach involving various institutions and administrative departments of ministries, such as the Ministries of Trade, Transport and Foreign Affairs, as well as the Central Bank of Tunisia, Customs, the Tunisian Union of Industry, Commerce and Handicrafts, and the Tunis Chamber of Commerce and Industry, which will be verified in the very near future.

“In the meantime, the interest of the country for this project and more generally for the continent synergies will be debated in early May in Tunis during the 6th edition of the conference dedicated to Financing of Investments and Trade in Africa,” she says.

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