The AfCFTA is the world’s largest free trade area bringing together the 55 countries of the African Union and eight Regional Economic Communities.
The overall mandate of the AfCFTA is to create a single continental market with a population of about 1.3 billion people and a combined GDP of approximately US$ 3.4 trillion. The AfCFTA is one of the flagship projects of Agenda 2063: The Africa We Want, the African Union’s long-term development strategy for transforming the continent into a global powerhouse.
As the continental trading grounds continue to be sown, Capital’s Metasebia Teshome reached out to Melaku Desta, Coordinator of UNECA’s African Trade Policy Centre (ATPC) for in-depth insights on the trade progression.
Melaku has been advising the Government of Ethiopia, since 2004, on Ethiopia’s accession to the World Trade Organization (WTO). He has been a member of Ethiopia’s national technical committee on international trade negotiations, including WTO accession and participation in the AfCFTA.
The following are excerpts from the candid interview;
Capital: How would you best describe the Africa Continental Free Trade Agreement (AfCFTA)?
Melaku: I would describe the AfCFTA as Africa’s response to the many, small, and fragmented markets that we inherited from colonialism. As we all know, the political map of Africa is the creation of European colonialism. When European powers sat down at the infamous Berlin Conference in 1884/85, all they had was the African map, a ruler, and their respective national interests. They did not care whether the pieces of territory that were apportioned amongst these powers would stand on their own feet because they were not supposed to ever become independent and viable states anytime in the near future. On attaining independence starting in the late 1950s and 1960s, it was those artificially drawn colonial dividing lines on the map that became political borders for the newly formed sovereign African states. No wonder then that, soon after independence, many of these countries found themselves struggling to stand on their feet. Africa attained political freedom. But political freedom alone cannot enable Africa to realize the full potential and aspirations of its citizens. Instead, political freedom, not supported by economic freedom, only led to a situation where Africa only serves the interest of the former colonial powers, which we often call neocolonialism.
To this day, Africa lives with the consequences of that colonial division. We have more than 50 countries, most of them lacking the economy of scale to support industrialization and sustainable development. The AfCFTA is Africa’s response to this adverse colonial legacy. Through the AfCFTA, African countries are aiming to overcome those artificial political borders and lay the foundations for a continental single market. This market, when fully functional, contains over 1.4 billion people with a spending power of around USD 3 trillion. This market is attractive for businesses because a company that produces a particular item in Ethiopia, for example, suddenly finds itself in a position to supply such a large and increasingly attractive market. There lies the power of the AfCFTA.
African leaders have been aware of this from day one. They appreciate, from the start, that for Africa to become free, its economy must be integrated into a single market; they knew and declared repeatedly over the years that integration is a matter of survival for Africa; it is not an option.
African leaders have been unrelenting in their pursuit of the vision towards a single pan-African market since 1963 when they established the Organization of African Unity (OAU). The Lagos Plan of Action of 1980, the Abuja Treaty of 1991, and the AfCFTA of 2018 are all landmarks on that same road toward an African single market. The journey has not been smooth, nor could it have been. It has had its own challenges. Because it had these challenges, there are many who cast doubt on the viability of the AfCFTA project as well. To them, I have only one answer that I put in the form of a question: what is the alternative? The status quo is not an option. Africa must integrate. For those who are ready to see the glass half full rather than half empty, Africa already has a great record of integration. Just look at the East African Community (EAC) next door, or the Economic Community of West African States (ECOWAS) further afield, and many in between. The markets in these sub-regions are already co-integrated and the AfCFTA is in fact built using them as building blocks and learning from their rules, institutions, and traditions, which we technically call the REC acquis. The AfCFTA holds tremendous promise, but its realization is in the hands of all Africans.
We have faced challenges previously, but let’s learn the right lessons from those challenges. Once bitten, twice shy might be a useful maxim in some areas, but certainly not here.
Trade-led integration is good for Africa for more than merely economic reasons. There are political reasons, too. Countries that trade with each other are more likely to be at peace with each other than those that do not trade. People do not kill their customers. The main objective of the AfCFTA is to create a unified African market that permits unrestricted trade in goods and services across Africa. The goal of the AfCFTA, which our forefathers have been working so hard to achieve over decades, is to unite Africa first as a single market and then as a single political unit.
Capital: The agreement was signed on March 21, 2018. It’s been 5 years, almost 4 years since it went into force, but it is not going as planned. Of course, there have been and still are different challenges, including COVID-19 and global geopolitics, that the continent is facing. In light of this, how do you see the overall readiness of governments in the implementation process?
Melaku: In my opinion, the level of government preparedness varies by country. Typically, when we discuss about Africa, we make the erroneous assumption that all African nations are the same. That is not true. AfCFTA implementation faces different challenges in different countries, often reflecting the policies, regulations, and institutions in place prior to the AfCFTA itself. For instance, Ethiopia, a founding member of the League of Nations, the IMF, the World Bank, and later the UN, has never been a member of a single functioning trade agreement; although it is a founding member of COMESA, its participation in the COMESA free trade area has been very limited. Ethiopia is also a part of IGAD, one of the eight AU-recognized regional economic communities, but IGAD hardly deals with trade issues.
The East African Community (EAC), one of the most advanced and effective RECs on the continent, is next door, but Ethiopia is not part of it. If we look at Kenya, regional integration remains one of the pillars of the country’s economic development strategy. Some nations have both the capacity and the interest; others have the interest but not the capacity; and still others, such as Ethiopia, have the capacity but lack the demonstrated political will, understanding, and experience. The AfCFTA is a learning and trading opportunity for Ethiopia.
Several countries are moving fast. Ghana, Egypt, Rwanda, Kenya, South Africa, and Mauritius can be mentioned as good examples. These countries could not even wait to start trading under the AfCFTA until all others are on board. Within the AfCFTA itself, eight countries have launched the so-called Guided Trade Initiative (GTI) through which they are already trading on AfCFTA preferential terms. Ethiopia and others need to move fast.
AfCFTA implementation creates enormous opportunities for Ethiopia to overhaul its regulatory system and make it conducive for the business sector. It has been five years since the Agreement was signed, and it will be four years on May 1 since it entered into force. The progress so far is broadly encouraging but we all need to do more and faster.
Capital: Why are some countries taking AFCFTA as a challenge to their economies?
Melaku: I don’t believe they see it as a concern; if the political will were an issue, countries would not be ratifying or signing the agreement at the speed and numbers they have done. The primary problem often is one of technical capability. In Ethiopia, for example, the Ministry of Trade and Regional Integration has the mandate to coordinate and lead the implementation of the AfCFTA, but it also has the responsibility to ensure all stakeholders are informed and involved. The key implementation challenge in my view is more technical than political. Of course, in Ethiopia’s situation, Covid-19 was immediately followed by a deadly conflict, diverting the political attention away from AfCFTA implementation. I am seeing encouraging movements recently in this direction.
Capital: Ethiopia has been working a lot to be a member of the World Trade Organization, but it has been delayed; what is its status now?
Melaku: Ethiopia started the process of accession over two decades ago. In 1997, Ethiopia applied for and secured observer status at the WTO. Six years later, in 2003, it formally applied for membership and launched the accession process. In 2006, it submitted its Memorandum of Foreign Trade Regime, which was distributed to WTO members in January 2007. The Ethiopian Accession Working Party held three meetings until 2012, after which it paused for a long time. I suspect there might also be interest groups that didn’t want Ethiopia to be a member.
Following the change of Government in 2018, Ethiopia resumed the WTO accession negotiation process. In January 2020, after an eight-year pause, the 4th meeting of the Ethiopian Accession Working Party was held in Geneva.
I have been participating in all four working Party Meetings, and my observation is that the Government has had the interest to join the WTO, but the process itself is long while the political momentum has also been unsteady.
WTO membership negotiations follow two tracks; bilateral and multilateral. On the bilateral front, Ethiopia has commenced negotiations with interested WTO members on terms of market access, such as the level of tariffs that can be imposed on imports. Through the multilateral track, Ethiopia has been engaged in negotiations to bring its policies, laws, and institutions into conformity with WTO requirements. The process is long and challenging, but I am confident that it will be completed successfully.
The main problem I see in many countries, including Ethiopia, is that most such initiatives are dependent on particular personalities. When a particular individual occupies a particular position, you see movement; when that person moves or dies, the entire project can easily come to a halt. That is why institutions are critical.
Capital: African countries are on the same level of industrialization and mostly depend on importing items from Asia, Europe, and other non-African continents. Without strong industries and manufacturing capacity, what is the benefit of opening all the tariff barriers?
Melaku: That’s a good question. Most African economies are dependent on extractive industries like mining, oil and gas, and agriculture. We have a very low industrial base. Of course, we need to produce goods before we can speak about trading in goods. So, our productive capacity is critical.
Then there is the AfCFTA. Why is it relevant for our productive capacity? Because the large single market that nit aims to create provides a major incentive for African entrepreneurs to produce at scale.
Some have argued that there is a lack of trade complementarity among African countries. In other words, what many African countries produce and export does not match what many African countries want to import; in fact, they are competitors on the global market for the same customer. This appears to make sense at first sight. But, on closer scrutiny, it becomes apparent that, as soon as we start adding value to our primary products, differentiation starts. Trade complementarity is therefore a function of value addition and beneficiation.
Capital: Countries like Ethiopia might lose revenue due to AfCFTA-led trade liberalization and the reduction of tariffs at the border. How do you see this?
Melaku: I’m not sure what the exact number is, but Ethiopian Government’s income from goods imported from other African countries is probably less than 1%. This is not unexpected given that we rely heavily on imported goods from non-African sources. We don’t have a lot of trade relations with African countries, so we don’t have a lot to lose.
Capital: How do you see the overall understanding of the private sector about AFCFTA?
Melaku: When we speak of trade deals, we are referring to the removal of trade barriers and the establishment of a more predictable and open trading and business climate. The private sector is the primary player; AfCFTA is a start, but private sector empowerment is required to realize the advantages of freer trade. The private sector is an essential stakeholder in the AfCFTA. We acknowledge the critical role of the private sector in pushing intra-Africa trade and increasing Africa’s manufacturing capacity, and we need to ensure that the private sector is on the driver’s seat so to speak.
Of course, more effort is needed to increase awareness of the AfCFTA’s details and how businesses can benefit. For example, at the UNECA, we work closely with the business sector through its organizations, such as the Ethiopian Chamber of Commerce and Sectoral Associations (ECCSA).
Capital: Infrastructure, currency, and free movement of people are some major challenges for the full implementation of the AfCFTA. How can these issues be addressed to accelerate implementation of the Agreement?
Melaku: Yes, even though our manufacturing capacity has grown, commerce is still impossible without adequate infrastructure, including all forms of transit (air, land, rail, and water). This is a significant problem that is difficult to address because it requires a lot of capital, good project management skills, and so forth. There has been a lot of progress that we often do not recognize. For example, in Ethiopia we have the best airline on the continent; the road network which connects neighboring countries is expanding; etc. We can also take the Kazungula Bridge over the Zambezi River which connects Zambia and Botswana. I can go on and on. All these things give us hope that progress is indeed possible.
We have 42 different currencies in use in Africa. If you travel anywhere with US dollars or euros, it is okay, but if you are holding your local currency, you are likely to struggle. This has to come to an end. Africa is losing around 5 billion dollars annually due to currency conversion alone. To stop this, Afreximbank has now launched the Pan-African Payments and Settlements System (PAPSS), which is expected to enable payment across Africa using national currencies, simplifying the complexities and cost of making payments across borders and providing operational efficiency. Here, traders make payments in their local currency to beneficiaries through PAPSS, and beneficiaries will receive their payments in their own currency. It is now at an early stage, but it is promising.
Capital: In their latest meeting, the AU heads of state approved three protocols:
investment, competition policy, and intellectual property. What do you think about these moves?
Melaku: The approval of these three protocols is a major achievement. Investment is about capital movement, while competition policy aims to ensure the market is not distorted by anti-competitive business practices, such as price-fixing or market segmentation practices. The protocol on intellectual property aims to foster African innovation for the benefit of Africa and the rest of the world.
The summit had some important outcomes. It was focused on implementing the Africa Continental Free Trade Area (AfCFTA) and expediting its implementation. Once again, the summit demonstrated that the political will behind the AfCFTA remains undiminished. Indeed, accelerated implementation of the AfCFTA was declared as the theme of the year 2023. The next frontier is implementation. We are eager to see the action unfold