What’s up with free trade area?

African economies at the start of the year began officially trading in a bloc that brings together more than 1.3-billion people. In an interview with Business Day’s Bekezela Phakathi, the secretary-general of the African Continental Free Trade Area (AfCFTA) secretariat, Wamkele Mene, gave an update on the negotiations to fully implement the free trade agreement and the challenges it faces.

African economies at the start of the year began officially trading under the largest trading bloc since the establishment of the World Trade Organization, bringing together more than 1.3-billion people in a R50-trillion economic bloc.

Under the African Continental Free Trade Area (AfCFTA), tariffs will be gradually reduced or phased out within a decade.

The World Bank estimates that once AfCFTA has been fully implemented, it will facilitate trade measures that will cut red tape and simplify customs procedures that will drive close to $300bn of the $450bn in potential income gains and will help boost long-term growth initiatives in African countries.

According to the secretarygeneral of the AfCFTA secretariat, Wamkele Mene, the trade pact will be crucial in the drive to boost the continent’s economic recovery after the devastation caused by Covid-19.

In an interview with Business Day’s Bekezela Phakathi, Mene gave an update on the negotiations to fully implement AfCFTA, the challenges the project faces and the measures in place to ensure that all countries benefit from the agreement.

What is the latest on the negotiations to implement AfCFTA?

We now have 40 countries that have ratified the agreement. That is an encouraging number, and so we have a critical mass of African countries that have accepted the legal obligations to break down barriers to trade and invest in Africa and, more importantly, to establish a single set of rules for trade and investment.

As far as the negotiations are concerned, we were told by the [AU] assembly head of states to start trading with the minimum 90% rules of origin agreed. We are now at about 86%. What it means is out of 8,000 products, we have now reached and agreed to the same local content rules of 86% of those 8,000 products.

We have three more important areas for Africa’s economy to conclude to reach the 90%, and that is textiles and clothing, automobiles and sugar. In the next few weeks we will conclude the negotiations.

When you look at African countries, it is Egypt, SA and Ghana who have the necessary customs procedures and infrastructure to trade under AfCFTA. So there are still a number of countries, even though they have ratified it, that still need to set up the customs infrastructure and procedures to implement AfCFTA.

Are we moving fast enough to implement infrastructure projects necessary for the success of AfCFTA?

There is a realisation that we can reduce barriers to trade — tariff and non-tariff barriers — but if we do not have infrastructure that supports trade, then we are not going to see the full benefits of this agreement.

The most important thing that we should be focusing on outside our immediate mandate is infrastructure development. Already we have identified a number of infrastructure projects to support trade. We were on a mission in Angola and we identified the need for a railway connection between the country and the Democratic Republic of the Congo.

There are opportunities for investors, but at the same time governments will benefit from improved infrastructure. It is obviously not happening as fast as we would like.

How did Covid-19 derail implementation of AfCFTA?

In 2020, as a result of lockdown, no goods were transiting through borders and so it was a difficult environment in addition to the normal transit of goods challenges that Africa has. We continue to be in that difficult mode. The AfCFTA should have been launched in 2020 in July. That didn’t happen because of Covid-19 and so we could only launch this year on January 1.

AfCFTA is the best opportunity Africa has as a whole to boost intra-Africa trade and therefore boost the continent’s economic recovery.

Could vaccine passports be the way to go to ensure that the continent recovers quickly and AfCFTA is implemented sooner?

I do not want to express a view on that because I do not know enough about vaccine passports. I do not know what their impact would be, nationally or continentally.

What I will say is that as a continent and as individual countries, we have to take drastic measures to accelerate Africa’s economic recovery. That means we must get back to normalcy as soon as possible. I don’t know if a vaccine passport will facilitate that. Individual governments will have to consider their options.

The riots that rocked parts of SA recently spooked many people and investors. Is political instability here and in parts of the continent a threat that could hamper the implementation of AfCFTA?

Yes, it is a big concern for us. We cannot trade under conditions of instability. The AU has been clear [in condemning instability]. Instability undermines trade and so we have to work together with the peace and security department of the AU so that in the long term we can have stability on the continent. Where there is instability, it does affect the trade objectives that we have in mind.

What plans are in place to ensure that AfCFTA does not fall apart due to concerns about unfair trade?

There has to be inclusivity to ensure that the benefits are shared across AfCFTA countries. It’s about inclusive development. Let’s admit that there will be immediate beneficiaries in the implementation of AfCFTA. Those countries that have the industrial capacity, the export capacity, will be the immediate beneficiaries. Here I am talking about SA, Morocco, Egypt, Nigeria and maybe Kenya.

Beyond that, we have to ask ourselves what it is that we can do to ensure that benefits are inclusive. The first step we have taken as AfCFTA together with African Export-Import Bank (Afreximbank) [a multilateral trade finance institution] is to establish an adjustment fund with a seed amount of $1.2bn.

We want to raise $40bn in the next few years, which will be targeted at boosting the productive sectors of the countries that may record short-term revenue losses as AfCFTA is implemented. The fund will be in the form of a grant or credit.

The idea is that we will be investing in productive sectors in a particular country. It will not be for budget support or things unrelated to trade. If you say as country X, your textiles and clothing sector has suffered, for example [as a result of reduction or elimination of tariffs], if you qualify under the criteria you will be able to draw from the adjustment fund as a country. That is one step we have taken to address the issue of inclusiveness in the agreement. In the long term, we must ensure inclusive benefits by establishing regional value chains across countries, not just in countries that are already hubs.