AfCFTA and the way forward

(Photo: Anteneh Aklilu)

Kebour Ghenna is Executive Director of the Pan African Chamber of Commerce and Industry (PACCI), which represents the interests of business and trade associations in Africa. He talked to Capital about the status of CFTA currently. Excerpts;


Capital: Where do we stand on the AfCFTA today?

Kebour Ghenna: From public information we learn that the African Continental Free Trade Area (AfCFTA) which was officially launched in Niamey in 2019 is heading in the right direction with 54 African states signing the AfCFTA Agreement and over 40, I believe have ratified it. Thirty member states also signed the Protocol on Free Movement of Persons, Right of Residence and Right of Establishment at the Niamey Summit.
So far, only Phase I negotiations on Trade in Goods, Trade in Services, and Dispute Settlement have been concluded. Phase II negotiations – on investment, competition policy, intellectual property rights, and e-commerce – are currently under way. In any case, the start of trading under the Trade Protocol on January 1, 2021, marks a major milestone in operationalizing the AfCFTA Agreement. In any case this is a process, the successful implementation of this trade agreement is going to be a long and uphill path.

Capital: Why is the AfCFTA so important for Africa?

(Photo: Anteneh Aklilu)

Kebour Ghenna: The AfCFTA is an initiative that brings together 54 countries, more than 1.2 billion people and a GDP in excess of US$3 trillion. This is a good starting point for Africa, with the AfCFTA as instrument to address Africa’s persistent marginalization in the global economy and in making Africa’s voice better heard across major platforms. At the continental level, it can help overcome the numerous challenges to regional integration and substantially increase intra-African trade and investment. By leveraging trade as an engine of growth, the AfCFTA can boost opportunities for industrial diversification, generating jobs for men and women, including Africa’s teeming youths, thus contributing towards the development goals African Union’s Agenda 2063.

Capital: But on the ground can we say the AfCFTA is operational?

Kebour Ghenna: African countries opened their markets on 1st January under the continental free trade agreement and duty-free trading of goods and services. Officially business is therefore open under the AfCFTA. Pilot trading is now being conducted with 7 or 8 countries selected from each subregion. Members are expected to phase out 90% of tariff over five years for more advanced economies or 10 years for less developed ones. Another 7% considered sensitive will get more time, while 3% will be allowed to be placed on exclusion list. Many countries have finalized those schedules and have communicated them to businesses, others, including Ethiopia, have yet to submit their tariff proposal.
So, on the ground we’re still not there yet, as I said we’re just a year or two since the entire operation has been officially launched.

Capital: What are the main challenges of the AfCFTA?

(Photo: Anteneh Aklilu)

Kebour Ghenna: As for the challenges we can mention protectionism, customs and trade facilitation bureaucracies, the mix of exchange rate regimes from one sub-regional market to another, the poor logistics and telecommunication infrastructure. Perhaps the two greatest challenges of AfCFTA are, first, whether SME’s and startups will be able to compete with larger and more financially superior companies. This agreement breaks up barriers that would typically protect smaller local players from being annihilated by larger corporations. Second, eliminating tariffs could wipe out substantive income in custom duties earned by small and weaker African countries. The impact of this on government’s revenue cannot be overemphasized. If governments do not mitigate this by attracting increased export proceeds from the sale of goods to other African countries, then we could expect a mess.

Capital: How is Ethiopia going to benefit from the AfCFTA?

Kebour Ghenna: As a minimum Ethiopia must increase production for exports, and this cannot happen in a vacuum. It takes time. By signing AfCFTA, Ethiopia attempts to address production issues through a single African market and by attracting foreign investors in the context of a single African market. The logic, is that a larger market will improve the business case for foreign direct investment, bringing much-needed capital and technology into Ethiopia.
Still, many entrepreneurs are unaware of the advantages and harms of the agreement. We at PACCI would be launching a continental campaign on the benefits of the AfCFTA’s entry into force, and provide information on, for example, how to improve the business environment and how to carry out reforms in industry, mainly manufacturing, as it adds value to raw materials and opens up employment opportunities. In short, the AfCFTA will allow Ethiopian or African-owned companies to enter new markets. This expands their customer base and leads to new products and services, making investing in innovation viable.

Capital: What are the downsides of the AfCFTA?

Kebour Ghenna: It’s difficult to put so many diverse economies under one agreement. For example, over 50% of Africa’s cumulative GDP is contributed by Egypt, Nigeria and South Africa, while Africa’s six sovereign island nations collectively contribute just 1%. Also, larger economies with stronger companies can avail cheaper products to the market. This may lead to local producers losing sales to foreign suppliers, because the latter can lower the cost of their products by leveraging the reduced tariffs imposed on imported goods. Anyway, a CFTA that does not support Africa’s poorer economies could end up being a force for economic divergence, rather than a force for good. It is therefore important that participating countries make sure solidarity is present at all levels of the AfCFTA to avoid leaving any economies behind. Furthermore, individual countries under the agreement should introduce policies that address the concerns of labor unions and encourage healthy competition without killing local businesses.

Capital: Are African private sector associations working together to advance the AfCFTA?

(Photo: Anteneh Aklilu)

Kebour Ghenna: We at PACCI work closely with local chambers of commerce and industry associations. We claim to be the largest business organization serving Africa’s businesses on the continent. Through our members at national level we can mobilize the private sector to get involved and make sure that we get there. But our members on the ground are also diverse in terms of capacity, that’s why we launched a new initiative called ‘Africa Connect’ to realign the services chambers of commerce provide their members and to help remain effective advocates of businesses. ‘Africa Connects’ explores how the next generation of chambers of commerce can help businesses harness new technologies to continue the digital transformations that were accelerated during the Covid-19 pandemic. This is an exciting period for our members and SMEs to modernize and boost their efficiency to meet new business requirements.