AfCFTA to yield substantial benefits to African trade 
Africa EAC Industry

AfCFTA to yield substantial benefits to African trade

AfCFTA to yield substantial benefits to African trade 

Most African economies will grow by 4.1 per cent in 2018, according to The Africa Trade Report 2018: Boosting Intra-African Trade: Implications of the African Continental Free Trade Area Agreement, a new report launched by the African Export-Import Bank (Afreximbank) on 11 July.

The report was launched by South African President Cyril Ramaphosa, Amb. Albert M Muchanga, the Commissioner for Trade and Industry of the African Union Commission, and Dr Benedict Oramah, President of Afreximbank, during Afreximbank’s Annual Meetings and 25th Anniversary Celebrations in Abuja.

The report states that the implementation of the African Continental Free Trade Area (AfCFTA) Agreement will create opportunities for intra-African market access and will significantly increase trade flows, arguing that tariff removal and cost reduction under the AfCFTA will reduce production costs and induce economies of scale, spurring higher domestic production and investment into different sectors of the economy, which will boost value addition in production and enhance export growth across sectors.

It advises that the AfCFTA arrangement needs to go beyond a 100 per cent tariff reduction in all goods, as non-tariff barriers are also major constraints on intra-African trade.

Such non-tariff barriers include standards, custom procedures, technical barriers, licenses, prohibitions, distribution restrictions, procurement restrictions, competition measures and rules of origin. The removal of those barriers, which add costs to intermediate import for domestic production and investment, would spur domestic production and increase the value chain integration of export products, said the report.

Dr. Benedict Oramah, President of Afreximbank, said: “Intra-African trade is only 15 per cent of Africa’s total trade, compared to Europe’s 67 per cent and we need a sustained strategic shift to industrialisation, increased intra-African trade, and de-commoditisation through increased value addition and export diversification. The African Continental Free Trade Agreement and Afreximbank’s Fifth Strategic Plan both emphasise the need for this structural transformation of African economies.”

“Afreximbank is committed to weaning the continent from overdependence on commodities and our programmes, notably the Africa Commodities Initiative, contribute to higher value addition by supporting processing and industrial capacities in various commodity sectors.”

Dr. Hippolyte Fofack, Afreximbank’s Chief Economist, said: “The AfCFTA must emphasise policies promoting export diversification for each member country. In addition, efforts must be increased to motivate more technology-intensive manufactured goods. Given the current average technology and skill content in intra-African trade, the AfCFTA seems to be well positioned to help achieve and deliver more technology-intensive manufactured goods.”

The report notes that the African continent relies on the rest of the world for more than 80 per cent of its trade whereas its share of global trade remains at less than three per cent, in part, due to the small size of many African economies which limits their individual global bargaining strength.

It further notes that 16 of the 55 African countries are landlocked and rely on their coastal neighbours for extra-African trade and development, using ports and shipping lines. But trade among the landlocked countries and their neighbours is low, with much of what goes across the borders being destined for, or being inward bound, from other continents.

In contrast, trade in the EU is mainly in manufactured products and intra-industry trade is the dominant form of trade within its single market. Additionally, most countries in Africa have been members of at least one economic bloc. Yet, like trade by Africa’s landlocked countries, most trade seems to find its way around the blocs to partners outside the continent.