Authored by Utsav Biswas and Aryan Chowdhury, II Year Students, National Law University, Odisha
Introduction
The African continent, a landmass teeming with potential, boasts a vibrant tapestry of cultures, resources, and a population exceeding 1.3 billion. For decades, the dream of a unified African market, popularly called pan-Africanism, fostering economic prosperity and regional integration, has captured the imagination of leaders and citizens alike. This dream is rapidly taking shape with the implementation of the “African Continental Free Trade Area (AfCFTA)” – a landmark initiative poised to transform the economic landscape of Africa.
One of the flagship projects of the African Union (AU) Agenda 2063: The Africa We Want; it marks a significant step towards boosting intra-African trade, and creating a single continental trade market.
However, realizing the full potential of AfCFTA requires addressing various challenges, including infrastructure deficiencies, regulatory barriers, capacity constraints, uneven distribution of assets and geopolitical concerns between these nations.
In this article, we shall be delving into an in-depth analysis of the AfCFTA, providing a brief overview of the new framework, addressing the glaring loopholes, and then providing solutions that may be implemented.
Background
Established in 2018 and came into force in 2019, the AfcFTA marks the largest free trade area in the world, spanning all 55 state-members of the AU as well as 8 Regional Economic Communities (RECs). These bodies have been joined together to create a single market for the continent. This pursuit is to ease the passage of goods and services between regions of Africa and better align the continent as a whole with emerging world trading systems.
The core purpose of AfCFTA is to decrease trade tariffs and increase internal trade among African nations, by shifting focus on advancing trade through value-added aspects in all service sectors across the economy of the African continent. AfCFTA seeks to boost value chains at the regional level by attracting investments to Africa and creating more jobs. It also established the Pan-African Trade and Investment Agency (PATIA), an independent body which will determine regulations for intra-continental trade.
It aims to “elevate 30 million people out of extreme poverty and increase the wages of approximately 68 million others who survive on less than $5.50 each day, increasing Africa’s income to $450 billion by 2035 (a 7 per-cent increase) while increasing global income by $76 billion, boost African exports by $560 billion, encourage higher wage increases for women (10.5 per-cent) than for men (9.9 per-cent), increase pay for both skilled and unskilled workers by 10.3 per-cent for unskilled workers and 9.8 per cent for skilled employees.”.
Teeming With Inherent Issues
Firstly, the 1991 Abuja Treaty established the African Economic Community (AEC), the predecessor of the African Union, with the same cause that the current trade agreement is looking to secure – an integrated African trade apparatus, with an EU-style free market, given the success that the EU saw with its free trade framework, which were formulated just two years after the collapse of the Soviet Union.
However, at the same, it recognises the contribution that Regional Economic Communities (RECs) have made till now. The progress under these RECs, such as the Economic Community of West African States (ECOWAS) has been steady, sustaining several small and medium enterprises (SMEs). It must also be noted that many of these RECs have different tariffs and different support schemes, according to the economic environment of different nations or regions. The AEC hoped to integrate them but development was slow, and the AfCFTA aims to accelerate the same. However, as Nwuke states- (it is) a forced, poorly timed continental free trade area imposed from the top.
At the very outset, we need to understand the economic disparities that plague Africa. The oil-rich Northern and Southern African nations have the most wealth, while Sub-Saharan Africa struggles with one of the world’s highest average Gini Index.
This, along with the historical political instability in Africa, raises fears that the Agreement can act as a Trojan Horse for foreign actors to infiltrate through the weaker nations and disrupt the economic market of Africa negatively, as has been seen in China’s use of its chequebook policy in Africa. This fear is further substantiated by the fact that several African nations are dependent on foreign aid and technical assistance.
Most nations lack competitive democracy, which can mean the mere imposing of the new framework on the people may adversely affect several small industries that provide employment to the people of that particular region and have been dependent on economic support by the RECs. There are also fears that the new agreement will benefit only a few nations.
Imposing a new Regional Integration Agreement (RIA) atop the various RECs has various negatives, provided the differing needs of each region. While West Africa suffers from issues with business connectivity, East Africa suffers from low agricultural output and poor financial governance.
Due to the same, it is extremely difficult to build trans-national infrastructure, which is expensive to establish and costly to maintain. Africa also lacks an integrated trade terminal, the absence of which can lead to inequitable trade distribution. This defeats the main purpose of the AfCFTA- to promote the prosperity of every African.
South Africa for example, can enjoy a monopoly on its products in the market under this Agreement, which is already the leading trading nation in the South African Customs Union (SACU). This will widen the already increasing economic inequality among nations. Even at the national level, this agreement will benefit the cities more, which have better infrastructure and are better integrated into trade chain values, leading to uneven development, as the rural enterprises will not be able to compete with the bigger industries in a fully liberalised ecosystem.
The growth impedance of SMEs is another concern, as the cost of transportation in Africa is quite high and larger industries will be able to expand their territories more affordably since higher trade volumes will decrease the unit cost of transportation. This will also lead to an aggravated wealth gap in African nations, as a few elites will enjoy the benefits of reduced tariff rates and easy customs clearances. Africa is also already home to some of the most unequal societies in the world.
Secondly, the new Agreement’s over-dependence on an EU-style intra-trade policy is illogical as the varied levels of political insurgencies taking place in Africa, such as the one in the Central African Republic (CAR), greatly discourages the prospect of thriving intra-African trade without sanction. The new agreement fails to take into regard the political landscape in Africa, which plays a major role in deciding a nation’s foreign policy.
Lastly the third issue, the promise to provide free mobility to people within Africa is difficult to achieve. Additionally, this may lead to an unwanted refugee crisis, where Africans from poorer nations may move to more industrialised nations such as South Africa and Nigeria, to escape political instability, furthering the already deepening refugee crisis in Africa. The same was even admitted by the AU in 2012– “Although the movement of labour across countries within some African regions is a sensitive issue that has been a source of tension…”
Plausible Solutions: The Africa We Need
At the onset of the first issue, the authors feel that there is a need for Inclusive Policy Implementation that ensures the benefits of the AfCFTA are distributed equitably across all African nations. This may include targeted support for SMEs, rural industries, and marginalized communities to ensure they can compete in the liberalized market and create a Regulatory Framework that safeguards against monopolistic practices and ensures fair competition within the market while taking into consideration regional trade practices. This may include competition policies promoting fair competition and mechanisms for dispute resolution such as arbitration before litigation.
Also, the AfCFTA lacks provisions for sustainable development, merely promising to promote it. Given Africa’s rich tribal culture, such as the famous Maasai Mara in Kenya and Tanzania, and several wildlife reserves, it seems incoherent to not have specific provisions for their development while preserving their cultural heritage.
The remedy for this lies in allowing regional blocs to retain certain trade arrangements or regulations that better suit their specific circumstances while still aligning with the overarching goals of the agreement. SMEs can be supported by receiving financial assistance from the African Development Bank (ADB), technical support, and access to markets which will help to overcome barriers to their entry and expansion. This can include initiatives such as microfinance programs, business incubators, and access to trade finance facilities.
Capacity-building programs should also be conducted focusing on enhancing the skills and capabilities of SMEs to compete effectively in the regional market. There can be also the establishment of assessment mechanisms for monitoring and evaluation purposes and the information collected through this mechanism can be used to make policy adjustments and interventions to address emerging challenges.
To resolve the second issue, there is a need for a flexible implementation of the AfCFTA which recognises the diverse needs and challenges of different regions within Africa and adopts a flexible approach to the implementation of the AfCFTA.
For addressing political insurgencies and conflicts, such as those in the Central African Republic (CAR), there is a need to invest in conflict resolution mechanisms, peace-building efforts, and strong governance institutions which can help to mitigate the risks associated with political instability and promote regional stability. Governments must be incentivised to focus on the development of home-grown peacekeeping forces, rather than looking out for help from outside resources.
There is also a need for investment in transnational infrastructure projects, by altering taxation structures in some countries to align with the taxation scheme pan-Africa. This includes improving transportation networks, developing trade corridors (which can act as temporary substitutes for integrated trade terminals till one is created) to ensure equitable trade distribution and reducing logistical barriers.
Another solution could be to provide targeted support and technical assistance to address specific challenges faced by different regions, such as the solving the issues of West and East Africa respectively. An institutionalized universal tax scheme, decided by the ADB and AU, is necessary to achieve this goal. The scheme must consider existing REC tax schemes.
Hence, a fine balance is required between regionalism and Pan-Africanism to keep all the stakeholders content. At the same time, the focus needs to be set on the deprived and impoverished, given the aim of the AfCFTA is poverty alleviation.
It could involve training programs, knowledge-sharing initiatives, and capacity-building measures to strengthen institutional capacities and improve governance frameworks.
Promotion of closer collaboration and integration among regional economic communities (RECs) to harmonize trade policies, reduce trade barriers, and promote intra-regional trade, complementing the objectives of the AfCFTA by building on existing regional initiatives and fostering a more coordinated approach to economic integration is required.
Finally in the last issue, gradual implementation of free mobility provisions must be done by the AU, allowing countries to strengthen their institutions and address underlying political and economic challenges. A phased approach can help mitigate the risks associated with sudden demographic shifts and refugee crises. Nations facing political instability and economic challenges can be provided with monetary assistance for better education, vocational programs, and social welfare initiatives to address the root causes of migration and provide alternatives to forced displacement.
Additionally, efforts to foster greater regional cooperation and coordination on migration issues, including developing common migration policies, mechanisms for labour mobility, and refugee protection frameworks can be formulated. This can help manage migration flows more effectively and protect migrants’ rights across borders.
Stronger border management and security measures are required to prevent irregular migration and human trafficking. Another unconventional measure might be having a policy of incentivisation for nations having higher refugee inflow so that they could build rehabilitation infrastructure and assimilate them into that nation’s society, such as education programs, and specialised boarding facilities among others.
This includes investing in border infrastructure, training border officials, and enhancing cooperation between countries to combat cross-border crime and ensure the safe and orderly movement of people.
CONCLUSION
While the AfCFTA represents a monumental step towards economic integration for the African continent, it is imperative to acknowledge and address the challenges that could impede its success. As we navigate through the complexities of implementation, it becomes evident that a one-size-fits-all approach is inadequate in the face of Africa’s diverse economic, political, and social landscape. Africa needs to keep in mind that AfCFTA is not a panacea for all its problems and challenges. It might only get worse if not handled properly.
In navigating these challenges, African leaders, policymakers, and stakeholders must adopt a holistic and collaborative approach. By prioritizing inclusivity, flexibility, and sustainability, AfCFTA can become a catalyst for transformative change, unlocking Africa’s vast potential and ushering in a new era of shared prosperity and unity on the continent, making sure they are flexible in their approach towards the challenges and issues that will come with progress and be ready for resolving it.
Picture Credit: LiveLaw