The economic and geopolitical exigencies globally are now characterized by the emergence of new trade agreements in response to fast-changing global dynamics. One such pact is Agenda 2063; it was adopted at a summit convened by the African Union in 2015, with the aim of setting out a plan for fostering development across Africa up to 2063. As one of its many goals, Agenda 2063 has set an ambitious target for African industrialisation through diversification and value addition.
AfCFTA, a product of Agenda 2063, is an ambitious trade agreement between the 55 states of the African Union. It proposes free trade by removing barriers to trade, and seeks to achieve a common African market for goods and services – reducing tariff and non-tariff barriers, as well as establishing a legal framework for stronger investment, competition policy, intellectual property, e-commerce and foreign direct investment.
For African countries, it is important to understand that Agenda 2063 and AfCFTA are not exclusive, but complementary frameworks that need to be aligned to create synergies between them. That’s to say, the objectives for Agenda 2063 and AfCFTA are rather aligned with the aims of most African governments. The former is an agenda that lays out a vision for Africa in 2030 and the latter is a trade agreement that will give African countries freer access to markets in other regions. Indeed, it has been noted how these two strands of policy will bring together endeavours around industrialisation, poverty eradication and good governance by focusing on shared infrastructure investment as well as how they can provide broader benefits to Africa’s economy.
Agenda 2063 is a framework for African countries and is based on the premise that Africa will not be able to achieve its development goals on its own; rather, it will need the help of other nations. Therefore, its mission is to identify those areas that need investment and regional collaboration in order to provide Africa with the necessary resources to perform adequately in international markets.
Although Agenda 2063 has been presented as a national strategy, it also seeks to align national industrialisation strategies across African countries by providing them with a common framework for management of their economies. This alignment should result in international competitiveness and sustainable development.
Agenda 2063 aligns national industrialisation strategies in three different ways. First, it provides countries with a common set of rules and regulations, as well as a mandate to cooperate on trade, investment and competition policy. Second, it seeks to promote connectivity across all African countries by establishing the African Continental Free Trade Area (AfCFTA). Thirdly, it seeks to achieve full integration through the establishment of a single market which is initially limited to goods but is envisaged to evolve into one including services.
In addition to facilitating trade between African countries and integrating the continent’s economy through the AfCFTA, Agenda 2063 also aims at establishing momentum for other economic initiatives, such as ICT development and energy conservation efforts.
The AfCFTA is an agreement between African countries for the establishment of a free trade area through the removal of barriers in terms of goods, services – including intellectual property rights, investment and competition policy.
AfCFTA consists of two main parts: a Common Market Access (CMA) part, which deals exclusively with goods; and a Common Market Rules (CMR) part, which deals with both goods and services. CMR provisions are based on WTO rules relating to investment, competition policy and intellectual property. These areas have been chosen because they are important for investments needed to achieve industrialisation.
This agreement will create a single market for goods and services throughout the African continent. This could lead to increased trade levels in Africa and an increase in competitiveness for African goods on global markets by lowering non-tariff barriers (NTBs) and reducing customs duties across the continent. Non-tariff barriers are those that are not included in the official tariff regimes but act as de facto trade restrictions – such as sanitary or phytosanitary standards. It is hoped that the AfCFTA would also lead to full integration between African countries, eventually eliminating all NTBs.
The implementation of AfCFTA requires both political will as well as economic incentives. On the political level, African countries will have to agree on a common set of rules and regulations that are suitable for all parties. Such policies will affect sectors such as agriculture and textiles, where protectionist measures are still in force. In order to create the strongest commitment among all parties, AfCFTA provides a strong political framework: it establishes the AfCFTA Secretariat as the executive body responsible for monitoring the implementation of AfCFTA, binding dispute settlements and implementing decisions taken by member-states. In addition, the AfCFTA provides a forum for dialogue between member-states and a dispute settlement mechanism for consultation and arbitration.
The AfCFTA requires a set of economic incentives to be successful. One important incentive is the removal of tariffs between countries, which will allow intra-African trade to grow. In general, the process of removing tariffs is complex as it requires negotiations with each country on an individual basis as well as individual treaty negotiations with external partners. The latter is not possible due to the massive diversity of countries with which African countries want to trade. The AfCFTA aims at addressing this problem by enabling member-states to remove tariffs collectively through a joint decision-making process. This could reduce the time needed for negotiations, thereby reducing the cost of removing tariffs.
The AfCFTA also requires incentives at a more micro level – those that promote private investment and economic growth. To achieve this, the AfCFTA establishes a uniform competition policy in order to provide fair market access. This is particularly important for Africa, which has a high ratio of informal production and trade, resulting in high levels of corruption and non-adherence to rules on the part of government officials. The creation of uniform competition policies should therefore discourage costs associated with informal market entry, thereby promoting private investment and economic growth throughout Africa.
The AfCFTA will also establish a single common market for goods and services, which will cover all African countries. This would allow African companies to compete on the same level as their competitors from other continents by allowing cross-border trade between African countries. It is hoped that this increase in competitiveness would lead to increased exports and imports on the continent, thereby leading to increased jobs for Africans and a stronger industrial sector throughout Africa. This would also open doors for potential new investors from abroad, who could then invest in Africa because of its lower cost of doing business compared with the other continents.
The AfCFTA is also expected to provide an entry point for increased intra-African trade by removing customs duties and other NTBs between African countries. In general, the removal of these NTBs will improve competitiveness for African firms by reducing transaction costs. This is particularly important for intra-African trade in industrial products, where regulatory costs are high and often increase with distance. As a result, exporting between African countries has been tricky because of border costs and logistics associated with trading across borders, which have led to higher transaction costs compared to external trade.
As Africa’s economic and geopolitical situation continues to evolve, such trade agreements and initiatives also prompt the establishment of special economic zones (SEZs) in Africa, such as the Dawa Industrial Zone in Ghana, which provide conducive spaces for investors to leverage the AfCFTA, set up shops and enjoy its benefits. SEZs offer investors attractive tax incentives, a streamlined regulatory environment, and access to strategic infrastructure such as airports and ports, making them well-positioned to participate in regional trade under the AfCFTA. As a result, these zones provide a strategic platform for regional integration and economic growth, allowing investors to harness the opportunities provided by the AfCFTA to promote sustainable development and regional competitiveness.
The AfCFTA represents a strong potential improvement for Africa’s trade and foreign investment, but realising this potential requires political will from all parties as well as an efficient and reliable institutional framework. Although there are a number of challenges – not least the fact that external trade is still predominantly informal – it is hoped that the AfCFTA will spur further changes in Africa’s trade policy, which will lead to continued growth for its economies and people as well as its burgeoning middle class.
It is also hoped that the AfCFTA will not only attract external trade, but also prompt domestic entrepreneurs to focus on intra-African trade, thereby creating jobs and wealth in Africa. This would help spur change throughout the continent and encourage greater private and public investment. Again, this is particularly relevant to Africa’s informal markets, which are difficult to penetrate because of the high costs associated with them.
To this end, the AfCFTA is also expected to create a more level playing field for local producers by removing NTBs and improving access to financing for African small and medium enterprises. This would provide local producers with a better opportunity to compete in Africa’s growing markets, which are anticipated to drive intra-African trade market growth.
Thus, an increased competition among companies, reduced costs of doing business due to the harmonization of trade policies across Africa, reduction in tax burdens, streamlined customs regulations, and an overall improved investment climate can be realized through the AfCFTA. If effectively utilized, the AfCFTA could become Africa’s most important instrument for integrating African economies, thereby improving the continent’s infrastructure, and setting the scene for further intra-African trade and growth.