Africa’s Continental Free Trade Area and the Political Kingdom

The African Continental Free Trade Area (AfCFTA), signed by 52 of the 54 states, and ratified by 24, came into force yesterday (29 May). Implementation is slated to begin from 7 July. In terms of market size, of Africa’s total estimated USD2.3 trillion economy in 2018, the 52 signatories account for 82%, while the 24 ratifying states hold 47% i.e. USD1.1 trillion. Of Africa’s total 1.3 billion population, the 52 states represent 83% and the 24 that have ratified the agreement are 43% i.e. 542 million.

There are significant hurdles before the envisaged single market for goods and services, and free movement of business persons and investments, from Cairo to Cape Town, becomes a reality. But it is worth looking at the above figures to see the scale of the prize, even without the participation of the West African hegemon, Nigeria.

Situation Report

Among the remaining hurdles: Nigeria has not yet signed the agreement. Nigeria’s absence is of course significant. It is the largest economy in the region in terms of population and GDP alike - an estimated 194 million (15.5% of the African total) and USD 397 billion (17.1% of the African total).

President Muhammadu Buhari has taken the heat for it but there are significant local stakeholders calling for restraint. Groups such as the Manufacturers Association of Nigeria (MAN), the Nigeria Association of Chambers of Commerce, Industries, Mines and Agriculture (NACCIMA) and the Nigeria Labour Congress (NLC) have expressed concern about the competitiveness of local business and labour against regional/international competitors.

And indeed, it is not irrational to be concerned about domestic firms’ ability to take advantage of the single market. See for example the fall in the number of local entities in the annual Most Admired Brands rankings from 25% in 2013-14 to 14% this year. It is possible for consumers to benefit from price reductions and choice, while producers struggle. It’s also possible that this is the price for the economic and political opportunities inherent in the Pan-African ideal. Still if that is true, the next question must be what can be done to protect and/or compensate the losers? And whether there are adequate structures in place for the same. The market is silent on welfare i.e. questions of fairness, right or wrong. Those topics belong to the body politic.

Also, within the realm of the political are AfCFTA supporting instruments. Now that the agreement has come into force, African trade ministers will move to negotiate supporting instruments for rules of origin, tariff concessions, non-tariff barriers, digital payments and settlement platform; as well as who will host the AfCFTA headquarters.

Outlook

The AfCFTA provides for the creation of a single market in goods and services, free movement of business persons and investment, and accompanying policy harmonisation. The absence of Nigeria at the next stage of negotiations is not a fatal weakness given the size of the market already under discussion, and the fact that the game is long. It is quite possible that a future, more confident Nigeria will join the AfCFTA at a later date. In the interim, the already difficult work of negotiating the supporting instruments, and harmonising with the existing regional economic communities (RECs) can get underway.