The AfCTA Two and a Half Years Later
FEATURED BLOG
The AfCTA Two and a Half Years Later
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By Martin Nkonge, Researcher at Botho
August 15, 2023
As curtains closed on the 14th African Union High-Level Private Sector Forum held at the Kenyatta International Convention Centre (KICC) in Nairobi, Kenya (10th – 12th July 2023), it emerged that Africa will see a rise in trade from $235 billion to $450 - $655 billion by 2035. Current intra-African trade at 14%-18%, lags behind Asia (59%), the Americas (44.4%), and the EU (69%). Given the projections of increased trade and trading opportunities in Africa, intra-African trade is still in the headwinds despite the official ratification of the AfCFTA in January 2021.
The preliminary indicators strongly suggest that the AfCFTA is adopting a phased approach that is heading in the right direction, but it is still a work in progress. To speed up the process of trade transformation in the continent, it is essential to invest more in awareness campaigns that will help businesses fully comprehend the benefits of the AfCFTA. Additionally, expediting the finalization of the Rules of Origin is crucial to facilitate the effective functioning of intra-African trade.
THE GOOD
Since its enactment, the AfCFTA has sought to accelerate the push toward creating more nuanced regional value chains through innovative approaches like leveraging trends in digital transformation. The Pan-African Payment and Settlement System (PAPSS), for instance, was enacted in collaboration with Afreximbank to minimize risk and contribute to financial integration across the continent by enabling efficient and secure flow of money. PAPSS will also reduce transaction costs and ease the lengthy correspondent banking relationships. According to World Bank estimates, PAPSS can increase African exports by $560 billion, and Africa’s income by $450 by 2035.
Among other initiatives by AfCTA, the launch of the Guided Trade Initiative (GTI) in October 2022 stands out. The overarching aim of the GTI was to facilitate significant trading opportunities within the AfCFTA framework, while concurrently conveying a pivotal message of optimism to African businesses about the promising advancements in the operational, and trade policy dimensions under the AfCFTA. Other policy instruments such as the Africa Trade Observatory, and the AfCFTA Adjustment Fund have been implemented to facilitate speedy and smooth operationalization of the AfCFTA.
THE BAD
Critics of the AfCFTA will be quick to point out the derailing roadblocks that have impeded the smooth operation of its instruments. Such claims are oblivious to the fact that the phase-based approach of the AfCFTA has gradually injected renewed impetus in a rather lethargic intra-African trade environment. Nevertheless, the above critique should not be entirely disregarded.
Looking back, the 2021 and the 2022 Africa CEO Trade Surveys highlighted the lack of awareness of the AfCFTA as a persistent shortcoming to its progression. In both years, it turned out that not many business owners knew the scope and advantages of the AfCFTA and, thus, were unwilling to refocus their trade in exports from other destinations such as Europe to within Africa.
AfCFTA’s development has also been hampered by the incessant haggling of the long overdue Rules of Origin that have taken considerably long to wrap up. By the beginning of 2023, 85% (46 out of 54) of member states had submitted tariff-reduction schedules per the tenets of the Rules of Origin. Textiles and motor vehicles, in particular, have proved to be a significant bottleneck in the finalization process of the Rules of Origin.
A BEACON OF HOPE
The slow growth of the AfCFTA has been far from ideal, but it is not a catastrophic failure that warrants complete reforms. Going by recent developments, there are foundations for an improved awareness campaign. The launch of the AfCFTA Hub in July 2022 was a crucial step towards ensuring that all key stakeholders including national governments, private, public, and intergovernmental are interconnected through this digital platform.
To add this development, building designated in-country offices will also provide much-needed awareness and ease the communication burden for all key stakeholders. Such a move will affirm the findings of the 2022 Africa CEO Trade Survey where 59% of the CEOs expressed the need for establishing a dedicated office within member states to handle AfCFTA-related information.
Expediting the finalization of the Rules of Origin, which are currently 88% complete, will enable the AfCFTA to empower African states to legally enforce the instruments at the national level, while also introducing procedures that allow customs departments to function by the new tariff system. Also, before the completion of the Rules of Origin, the AfCFTA can allocate its attention to various pre-established priority sectors, including tourism, transport, business services, communication services, and financial services.
Suffice it to say that AfCFTA's implementation will and has been a gradual and deliberate process of trade transformation in Africa. Thus far, the AfCFTA has made commendable progress exemplified by initiatives like PAPSS and the GTI, which have contributed to considerable advancement of intra-African trade. That said, ongoing challenges necessitate careful attention, particularly in terms of boosting awareness about the AfCFTA among African businesses.
Martin Nkonge is a Researcher at Botho Emerging Markets Group.