The AFCFTA Will Have A Game Changing Impact On The Whole Continent-Dr. Joy Kategekwa Head, UNCTAD Regional Office for Africa
June 30, 2019
By Ajong Mbapndah L
“I am optimistic, that we are on to a game changing page in the prospects of trade improving the lives of ordinary Africans and achieving progress on meeting Africa’s Agenda 2063 and the UN Sustainable Development Goals,” says Dr Joy Kategekwa , Head of the United Nations Conference on Trade and Development Regional Office for Africa in Addis Ababa .
Responding to questions from Pan African Visions on the AFCFTA, Dr Kategekwa says its impact on the continent could be profound. Dr Kategekwa pointed to projections from the UNCTAD which indicated that should the AfCFTA lead to 100 per cent tariff liberalisation in trade in goods (alone), the continent would realise USD 16.1 billion in welfare gains, a 1 to 3 per cent growth in GDP, a 1.2 per cent increase in employment, a 33 per cent increase in intra-African exports and a 50 per cent reduction in trade deficit.
“An agreement that has, from commencement of negotiations (February 2016) to adoption (March 2018) taken a little over two years is demonstration of strong political will,” says Dr Kategekwa whose office has been a fulcrum of UNCTAD’s support to the AfCFTA
The African Continental Free Trade Agreement is now set to go into effect after ratification by the requisite number of countries, what is your take on this?
My take is one of optimism – about the game changing impact of a whole continent that dismantles barriers to intra-African trade. For way too long have analysts decried the low levels of intra-African trade. These low levels are worrisome especially from the perspective of Africa losing out on the benefits of international trade changing ordinary lives through economic empowerment. The AfCFTA promises to set in motion the application of a new body of law that will require States Parties to eliminate restrictions – laws, regulations, administrative processes, that discriminate against the products originating from other AfCFTA States Parties. This will make African products more competitive in African markets – once the hoop of high tariffs has been jumped through the AfCFTA.
The AfCFTA will also open markets for intra-African trade in services, a sector that plays a leading role in all African economies – evidenced in gross domestic product contributions, as well as the growing amount of services exports from Africa.
The AfCFTA has teeth – a regime on dispute resolution – which will strengthen trade governance and accountability in Africa. The AfCFTA will be overseen by a secretariat dedicated to it, which should help keep an eye on effective implementation.
More so, the AfCFTA is not only about goods and services. It foresees a second phase of negotiations to tackle regulatory barriers that are key determinants to how markets can effectively function. These include competition, investment and intellectual property rights. The sum total is a scope that is comprehensive and suitable to the quest for boosting intra-African trade and strengthening African integration.
Overall, I am optimistic, that we are on to a game changing page in the prospects of trade improving the lives of ordinary Africans and achieving progress on meeting Africa’s Agenda 2063 and the UN Sustainable Development Goals.
With the ratification, what next, and in concrete terms, what is expected to change for Trade in the continent with the AFCFTA?
What next is that countries will complete the unfinished business of market access negotiations on trade in goods and services according to the agreed AfCFTA negotiating modalities in order to come up with each country’s respective schedule of tariff concessions and specific commitments on trade in services. Such schedules of commitments, as well as finalization of the rules of origin, are indispensable for operationalizing trade liberalization processes under the AfCFTA.
In terms of what is expected to change for trade in Africa, once AfCFTA liberalization has become operational, it is a matter of volumes, value, and diversity in the export basket – which translate into diversity in production.
The AfCFTA is the world’s largest free trade area of our time. It brings together 55 African countries with a market of more than 1.2 billion people and a combined GDP of more than US$3.4 trillion. It is expected that the AfCFTA will increase intra-African trade by 52.3 per cent through the elimination of tariff and non-tariff barriers. These numbers are results of simulations by senior experts at the United Nations – both at UNCTAD and at the UN Regional Economic Commission for Africa. At UNCTAD, we have estimated that if the AfCFTA leads to 100 per cent tariff liberalisation in trade in goods (alone), the continent would realise USD 16.1 billion in welfare gains, a 1 to 3 per cent growth in GDP, a 1.2 per cent increase in employment, a 33 per cent increase in intra-African exports and a 50 per cent reduction in trade deficit. This is the scenario for goods trade.
But as we know – the level of trade in services in Africa is growing. According to UNCTADstat, Africa’s services exports grew by up to 14% in 2017, with figures ranging from South Africa’s almost 16 billion US dollars to Lesotho’s 2 million US dollars. The services sector plays a critical role in strengthening the continent’s leapfrogging potential to attain the objectives of structural transformation. Services sector growth is inescapable in raising productivity and value addition in agriculture (a mainstay of the African economy) and industry. A trade agreement that creates new opportunities by removing discriminatory regulations and operational conditions for market access is an urgent intervention that will set the continent on a better path to diversification and sustainable development.
What this translates to – is bigger volumes of trade – a first generation spill over of reduced tariffs/discriminatory regulations.
But there is also the value proposition. Colleagues at the UNECA have consistently tracked the level of intra-African trade. In the period prior to 2012 (when African presidents took the decision to fast track the continental free trade area and adopted the Action Plan for Boosting Intra-African Trade); numbers floated at about 10-12 percent. In more recent studies, they range from about 16 (UNECA) even going up to about 18% (UNCTAD). And so, there is already an important improvement – on which the AfCFTA is expected to at least double. In this trade is an even more interesting trend. That in these higher levels of intra-African trade, the largest composition therein is of trade in manufactures – going as high as 46% (UNECA). This tells us two important points: One that intra-African trade is already happening at encouraging levels (vis a vis the base period of 2012) and two: that within intra-African trade is the first evidence of Africa’s diversification. Evidence of breaking away from the age-old pattern of low value, low volume products – mostly agricultural commodities of little, if any, value addition – as the proposition that Africa consistently brings to the global stage. This is very important, because a 46% intra-African trade in manufactures tells us that manufacturing is happening (albeit at the lower end); and that the promise of the AfCFTA can be a reality – if there is attendant investment in the enabling environment side of issues. Further, UNCTAD has indicated that intra-African trade has a higher technological content than extra-African trade. The share of products traded among African countries with medium and high technological content is about 27% as compared to a share of 15% for Africa’s exports to the rest of the world.
Finally, there is a question of a diversified intra-African trade export basket – with the inclusion of services – which can only strengthen Africa’s economy, and in that, its women, men, youth, SMEs, etc.
Building on advances in the Regional Economic Communities (RECs) – the AfCFTA will deepen economic integration in Africa, creating a deeper integrated African market. This is particularly important when we bear in mind the fact that much of the existing intra-African trade takes place within these RECs. A new legal order that locks this in, not only vis a vis regional groupings but between and amongst them, is exactly where the first dividends of the AfCFTA may be visible – in creating opportunities for countries in Africa that currently do not have any arrangements, outside of the multilateral framework, to grant each other preferential tariff and regulatory treatment for goods and services.
Countries of the continent are in all shapes and sizes from population, to economic potential, infrastructure development, and so on, what mechanisms does the Agreement have to ensure a level playing field for all countries?
The AfCFTA is designed in what we, at UNCTAD and within the UN system – call “developmental regionalism”. Simplified – it is an approach to designing regional trade integration agreements in a manner that meets the twin objective of opening markets while ensuring industrialization, more jobs, incomes and the attainment of sustainable development. In a continent of Africa’s realities, there is no shortcut to adapting what is known as global good practices to a workable outcome in context. And so, in the case of the AfCFTA Protocol on Trade in Services for example, the calculus was less about how to liberalize trade in services for the sake of opening markets alone, but more about creating a pro-development loop in which the opening of services sectors was done in a manner that would provide real valuable and utilizable opportunities to SMEs, women and youth. It was about allowing countries to exercise their right to regulate and introduce new regulations (a right that often deals with seemingly conflicting objectives such as business opportunities on the one hand and consumer protection on the other). It was about a choice of initial priority sectors that can unlock bottlenecks related to connectivity and infrastructure readiness – so that the nexus between agriculture and industry can be fully harnessed. And yet it is also about allowing AfCFTA states parties to pace their contributions; within those selected sectors – to determine how, when and on what conditions, such access is granted. It is about creating a one Africa by seeking to frontload some of the political momentum around mobility for Africans within Africa – it being well understood that there is no regional integration without effective free movement of Africans – traders, investors, service suppliers, industrialists.
Similarly in the case of the AfCFTA Protocol on Trade in Goods, it was about shooting for as high an ambition of liberalization as possible (90% in this case) – going zero for zero as soon as possible from the start of implementation such as in 5 years while accepting that there are sensitive sectors in which certain countries/regions require flexibility (allowing them to phase in their commitments slower). The so-called sensitive products – will have a slower pace of liberalization (or a longer transition period). The additional category of “the exclusion list products” (3% of tariff lines) is one in which countries cannot accept to liberalize at this stage.
Also within the Agreements consisting of the overarching umbrella treaty, the protocol on trade in goods and the Protocol on trade in services – is a variation of special and differential treatment – ranging from longer transition periods, provisions for capacity development for the least developed among the states parties, provisions leaving room for African governments to support industrial development (part of the rationale for the sensitive and excluded products list).
This menu of options is the AfCFTA’s approach to meeting each country, or group thereof, where it is –in terms of its development concerns. Naturally, the benefits of this approach, itself not novel in trade agreements that respond to development challenges, will go to those countries that get themselves ready – utilizing the space granted to create and strengthen productive capacities for utilization.
For the trade professional that you are, how much of a game changer could this be for the continent?
This is a dream come true for all trade and development professionals. Having spent all of my career seeking trade deals for Africa, supporting Africa to shape strategies and policies for utilization and building capacities for knowledge and sector development – I am honored to have been part of the process of shaping the AfCFTA. For us as African professionals in trade, it is greatly symbolic to see that Africa has attained that which continues to elude the world: a large scale trade agreement that aims for deep liberalization – one which will call for important domestic reforms. One which will have costs in transition and implementation – yet one which enjoys the highest level political support across Africa. Its’ timeframe for entry into force is, arguably a world record, judged by the pace of ratifications, for an agreement of this scale. This speaks to Africa’s determination to get the promise of trade for its people.
It could be the start of creation of industries of all sizes, a rising and conscious African market that gets confidence in continental products and one that gets an empowered and independent path to development. The benefits will out pass economic gain. We are on the edge of a social and cultural transformation that will promote brands such as make in Africa (for investment attraction); made in Africa (for origin qualification) pride in African products; and ultimately, what, in the words of the AU’s own development blueprint, is aptly termed: “The Africa We Want”. A final point on my assessment as a professional in the field is that implementing the AfCFTA will create a new market for African Think Tanks – to support evidence-based policies and strategies for implementation. It will create a new generation of African trade law specialists – who can support treaty implementation proper as well as the resolution of disputes. Linked to the latter is the need for a crop of jurists who will need to support the resolution process. It will have also created and strengthened the cadre of trade negotiators, skilled in the arcane field of negotiating tariffs, non-tariff measures and trade regulations, and being prepared for continued negotiations in the continent or outside in the international trade arena. Finally on the knowledge point, there will be need for more teachers to share knowledge in our institutions on the opportunities created in the AfCFTA and raise awareness. Curriculum development, training and capacity building on trade law, economics and development is now to be a hot career choice for professionals in Africa. This makes me particularly proud to see.
We noticed that there are a still a number of countries notable Nigeria that have not yet signed it, considered that this is the economic powerhouse of Africa, how does the absence of Nigeria impact the enforcement and effectiveness of the agreement?
Nigeria is yet to sign onto the AfCFTA and deposit its instrument of ratification. For reasons of effectiveness, it is desirable that Nigeria joins the AfCFTA – still hopefully as a Founding Member, not least because it is the economic powerhouse in Africa. This would allow it to take advantage of the large opportunities to be created, yet also provide a market for African exports. The domestic consultations, we are informed, are ongoing and there have been pronouncements, including at the highest level, of support for the AfCFTA. After 16 years in the business of trade negotiations, I am more convinced than ever – that strong preparatory work determines a steady and effective path to implementation. In this line of argumentation, the delay of Nigeria, if hinged on getting the domestic consultations finalized as well as the reform agenda needed to faithfully implement the Agreement, is positive. It is true though that there has to be a price for accession – which will be difficult to avoid when countries are not ‘Founding Members”. Like others, the call from UNCTAD, is for all African countries to take the opportunity of the AfCFTA by joining – and use all of the available tools to support implementation.
There has been no shortage of lofty agreements in Africa, but a missing ingredient has been the political will, how committed do you think African countries are to the effective implementation of the AFCFTA?
An agreement that has, from commencement of negotiations (February 2016) to adoption (March 2018) – taken a little over two years – is demonstration of strong political will. The fact that the approaches adopted for the design of the AfCFTA relied heavily on REC developments and dynamics is a vote of confidence (read political will) in integration in Africa. The pace at which ratifications have trickled in – is also unprecedented. Moreover, an extraordinary Summit of African Union Heads of States and Governments is scheduled for July 2019 to officially launch the operational phase of the AfCFTA with key support initiatives to be unveiled during the event.
The commitment of African leaders – from the top through to technocrats that shape the day to day work on the AfCFTA, is strong. Business and Civil Society have also been engaged. Across the board, you do get a sense of a great dose of political will – which will be central to ensuring that needed reforms are prioritized at country and regional level – for effective implementation.
Still on the level of implementation, let’s take the example of Rwanda where its border with Uganda has been shut with unfortunate economic consequences for months now, how could situations like this impact the implementation of the AFCFTA?
The AfCFTA will create the needed momentum to remove obstacles to trade across Africa. At the forthcoming AU Summit, the AU will launch an Online Platform to report non-tariff barriers in the AfCFTA, that it has developed with the support of UNCTAD. This will allow private sector and policy makers to identify and resolve such barriers in the implementation structures of the AfCFTA. The online tool will be accompanied by national institutions that would be geared to address the complaints raised and remove them, so trade is not unnecessarily hinder or obstructed by non-tariff barriers.
What impact do you think the agreement could have on trade with countries like China, Europe, the USA and other foreign countries seeking to bolster trade ties with Africa?
The purpose of the AfCFTA is to increase intra-African trade. New opportunities in intra-African trade will do for Africa what closer regional integration did for Europe and other large powers. African producers will establish channels of production to utilize these opportunities. These products will be of higher value, more diversified and in bigger volumes. Naturally, the focus on intra-African trade may be seen as an inward strategy. But the fundamentals of this being the approach that will support industrial development and structural transformation, are solid.
The AfCFTA gives countries like China, Europe, the US what they have asked for a while – clear, rules based environments of policy and legal predictability in Africa. Their support will be important in getting the capacity development agenda off the ground – to build productive capacity for intra-African trade in Africa. It is important to note though, that it is not only countries but also global firms, that could be attracted to Africa.
Africa will be better positioned to engage with “third countries” – thanks to the AfCFTA – whose rules have particular provisions on how to manage such relations. In the case of the multilateral trading system embodied in the WTO, it is unquestionable that all of the important successes that have been registered for Africa within the work of the WTO have been achieved thanks to a united Africa – the so called WTO Africa Group. The AfCFTA stands to build on that progress by creating clarity to the African position on complex issues across trade and development. And this is important especially because much of the engagement of Africa in the MTS has been positioned around the call for flexibility, special and differential treatment. In the period of WTO reform, having a unified African position on tariffs and industry, on services regulation, on non-tariff barriers – (the core of trade policy etc.) will allow for the articulation of a stronger voice from Africa to the world. This will play a positive role in the beneficial integration of Africa into the multilateral trading system.
There seems to be a lot of optimism about the AFCTA, at what point should everyday ordinary Africans expect to feel its impact in their lives?
The Agreement has entered into force and in the coming weeks, the African Union Heads of State will launch its operational phase. Ordinary Africans should not wait to feel the impact on their lines – rather, they should create this impact– by engaging in production for export. Once the tariff books (or services sectoral regulations) are changed to reflect AfCFTA preferential treatment for its states parties – it will be visible. And yet it can only be visible for those who are ready to utilize. So, there will be no manna from heaven. For those that engage in production or have services to export, the treatment received thanks to the AfCFTA – will be the occasion to feel the impact. And one can imagine that such an impact would cascade down to communities, families, people – improving their lives with the dividend of new markets.
There will be revenue losses from implementing the AfCFTA. These, according to UNCTAD studies, will be in the short term. However, the long-term gains outweigh the losses. Moreover, there are in-built flexibilities to deal with tariff revenue and welfare losses. Some of these include compensatory measures, flanking policies and adjustment measures. It is also worth recalling that the loss of revenue and its magnitude would need to be calibrated to the reality of the still low levels of intra-Africa trade.
UNCTAD’s relationship of support for trade capacity development predates the AfCFTA. We have been involved, from the times of translating the political decision into modalities for negotiations. We have provided technical studies and options for negotiations, working with the technical teams in the AU to prepare data, analysis and propose options for outcomes that support developmental regionalism. The Secretary General of UNCTAD took a decision to establish the UNCTAD Regional Office for Africa – which I have the privilege to head. The Office has been a fulcrum of UNCTAD’s support to the AfCFTA –bringing some of the world’s best minds on various complex trade topics, from headquarters, to advise the AUC Department on Trade and Industry – and to be available in negotiating institutions to provide study findings, data and analysis and overall technical support to AU Members. The AU designated UNCTAD a Technical Partner to the negotiations – and this has allowed for a seamless flow of support – much to the appreciation of African Union Member States – who are on record in awarding UNCTAD a certificate of appreciation for the technical support in the AfCFTA negotiations.
As we move to Niamey, the Secretary General of UNCTAD and the President of Niger are poised to launch the continental non-tariff barrier reporting and eliminating online mechanism before Heads of State. For as any trade negotiations professional will tell you – there is one thing that is for sure – as tariffs go down, non-tariff barriers rise…
Looking ahead towards implementation, UNCTAD as the lead agency within the United Nations supporting countries in developing policies for trade-led growth, will continue to support the African Union Commission, and the institutional structures in place for implementation. UNCTAD’s Divisions – all of which have played a key role in supporting the negotiations – in particular the Division on Trade in Goods and Commodities, the Investment Division, the Statistics Branch, and the Africa and Least Developed Countries Division – will continue to support implementation – particularly as we get not only into phase II of the negotiations on which we are already working with the AU – but also as we shift focus to the pressing question of building productive capacities…In a sense therefore, we are very much at the early stages of a long road ahead…
 The African Continental Free Trade Area: The day after the Kigali Summit. UNCTAD Policy Brief No. 67 of May 2018
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