The key implementer of Africa’s free trade agreement, which seeks to establish a single market for goods and services on the continent, says the pact will initially benefit mostly relatively wealthy nations with a strong industrial base such as SA and Nigeria.
Wamkele Mene, who heads the AfCFTA’s Ghana-based secretariat, said in an interview this week that in a bid to cushion the smaller countries that may suffer short-term losses as a result of the reduction or the elimination of tariffs, the AfCFTA, together with the African Export-Import Bank (Afreximbank), a multilateral trade finance institution, recently established an adjustment fund with a seed amount of $1.2bn.
Mene said the goal is to raise at least $40bn in the next few years which will be targeted at boosting the productive sectors of the countries that may record short-term revenue losses, as the AfCFTA is implemented. The fund will be in the form of a grant or credit.
“Let’s admit that there will be immediate beneficiaries in the implementation of the AfCFTA [African Continental Free Trade Area agreement] ... those countries that have the industrial capacity, the export capacity will be the immediate beneficiaries,” Mene said.
“Here I am talking about SA, Morocco, Egypt, Nigeria and Kenya.”
With about 1.2-billion people on the continent, the AfCFTA is set to create one of the largest free-trade markets in the world. The African Union hopes the agreement, which is expected to be fully operational within a decade, will create a continent-wide market worth $2.5-trillion (about R37-trillion).
But there are concerns that many countries, especially those with advanced economies and a large industrial base such as SA, consider the free-trade area as a way of boosting their exports without necessarily embracing the idea that for the pact to work, they will also need to import more.
In 2018, SA joined other countries in signing the AfCFTA. The SA government sees the agreement as a potential game changer for the local economy, providing a huge market for local goods and services. Exports to the rest of the continent already account for about 250,000 SA jobs, the department of trade, industry & competition said recently.
Mene said without inclusivity and ensuring that the benefits of the free-trade area are felt by all signatories, the pact is unlikely to work.
He said the idea is to invest in productive sectors in a particular country. It will not be for budget support or things unrelated to trade.
“If you say as country X, your textiles and clothing sector has suffered, for example, [as a result of reduction or elimination of tariffs], if you qualify under the criteria you will be able to draw from the adjustment fund as a country. That is one concrete step that we have taken to address the issue of inclusiveness in the agreement,” Mene said.
“In the long term, we must ensure inclusive benefits by establishing regional value chains across countries, not just in countries that are already hubs.”
He said so far 40 out of 54 countries on the continent have ratified the free-trade area agreement and negotiations are now focused on finalising the tariff schedule and rules of origin or the criteria used to determine the national source of a product. It is hoped that negotiations will be concluded sometime in October.
Mene also said the AfCFTA is not just about trade but includes industrialisation. He raised concern that many countries still need to set up the necessary customs infrastructure to be able to trade within the AfCFTA.
“There is a realisation that we can reduce barriers to trade, but if we do not have infrastructure that supports trade, then we will not see the benefits of this agreement. We need to focus on infrastructure development,” Mene said, adding that the AfCFTA, in concert with Afreximbank, had identified a number of infrastructure projects to support trade, such as improving railways and roads.
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