The processes meant to facilitate the implementation of the African Continental Free Trade Area (AfCFTA) Agreement are gaining momentum, with African countries hoping to leverage the opportunities created by the emerging single market to drive their pandemic recoveries and enhance their growth.

Fifty-four of the 55 African countries have signed the agreement, with 41 countries having ratified the agreement.

Nonprofit company Trade Law Centre executive director Trudi Hartzenberg notes that progress has been made on negotiations for the Rules of Origin (RoO) as agreement on 87.7% of tariff lines has been achieved.

This could open the door for “commercially meaningful trade” to begin, in terms of a decision by the African Union (AU) Summit last month. However, full details of the summit decisions are not yet available to the public domain.

She explains that, while the Heads of State at the AU’s thirteenth Extraordinary Summit on December 5, 2020, decided to start trade on January 1, 2021, “this did not happen”.

Hartzenberg tells Engineering News & Mining Weekly that, by January 1, 2021, RoO for 90% of tariff lines had not been agreed to, and as a result, member States were reluctant to make tariff offers for tariff lines without agreed RoO. Consequently “there hasn’t been any trade under the AfCFTA, but intra-Africa trade continues under existing tariff regimes”.

However, during their January meeting, AfCFTA’s Council of Ministers agreed that trade should begin on the basis of the 87.7% agreed tariff lines. The expectation is that last month’s summit confirmed this decision.

Law firm Webber Wentzel alliances and network head Yael Shafrir explains that, once countries start to trade, their commitments will apply retrospectively from January 1, 2021. “For example, if the countries agree to progressively reduce tariffs over five years, they must assume that period began in January 2021.”

At the time of writing, RoO for products in the automotive, textiles, sugar and tobacco sectors had yet to be finalised.

Hartzenberg adds that RoO for textiles is expected to be completed only by September. This follows an earlier June 2021 deadline for the finalisation of Phase 1 negotiations.

The Phase 1 negotiations cover trade in goods and services as well as dispute settlement; Phase 2 tackles intellectual property rights, investment, and competition policy, and Phase 3 will discuss e-commerce.

Hartzenberg says one of the unresolved aspects of Phase 1 negotiations is the finalisation of schedules for specific commitments for the five priority services sectors – business services, communications, finance, tourism, and transport – which are expected to be completed by June.

Law firm Baker McKenzie partner Virusha Subban, in a press release, notes that the next step is for AfCFTA member States to gazette these instruments at a national level.

He also notes that the Protocol on Dispute Settlement has been operationalised and that the negotiation of rules for appointing members of the dispute-settlement body is under way.

Subban says the AfCFTA tariff book, which will include RoO and customs procedures, will be published “imminently”, as it enables traders to identify and apply the correct RoO and associated tariffs to each product.

Although Phase 2 negotiations are under way Hartzenberg and Webber Wenzel competition law partner Daryl Dingley notes that the deadline for these negotiations is September.

Phase 3 negotiations, meanwhile, are expected to have a longer timeframe and there is no set deadline as yet.

Hartzenberg cautions that, as lengthy as the process has been, full implementation is still some ways away. “Progress will be incremental; liberalisation will take place over time. Implementing the Annexes that deal with, for example, customs and border management and eliminating nontariff barriers, will take time since this requires domestic governance improvements.”

Shafrir agrees, stating: “AfCFTA is progressive, not a ‘big bang’. There is a growing realisation that a staggered approach to implementation is most realistic. It is important to consider the big picture – that AfCFTA is creating a framework for African industrialisation, employment and the alleviation of poverty.”

Moreover, as Webber Wentzel senior knowledge lawyer Elisha Bhugwandeen notes, at this point, many countries do not have the necessary institutions to implement AfCFTA, and it will take time to build them. “There are also other hurdles, for example, certain tariff lines are deemed very sensitive and will be completely excluded from liberalisation.”

Dingley points to potential conflict between the AfCFTA and the regional economic communities. “Although there is a difference between agreements between individual countries (e.g. Kenya and the UK) and agreements between regional economic communities (e.g. the European Union and the Southern African Development Community), these agreements cover disciplines such as trade in services and competition with their own liberalisation strategies that need to be considered against what the AfCFTA is trying to achieve.”

Non-tariff barriers present another hurdle, says Dingley. “Free trade is not possible as long as goods are being delayed or stopped altogether at borders, and where there are quotas, embargoes and levies. Addressing these issues necessitates reform of customs and excise and border posts.”

Subban agrees, stating that domestic policies will play a crucial role in alleviating issues related to corruption, infrastructure development, onerous regulations, and security threats. “In light of these challenges, it is expected that AfCFTA’s momentum will build gradually, with tangible benefits expected from 2030 onwards,” he affirmed.

Transport & Infrastructure

The United Nations Economic Commission for Africa (ECA) last month noted that AfCFTA is expected to increase intra-African trade in transport services by nearly 50%.

The ‘Implications of the African Continental Free Trade Area for demand for transport, infrastructure and services’ report, released at the African Business Forum last month, indicates that, with AfCFTA, over 25% of intra-African trade gains in services would go to transport alone.

ECA Energy, Infrastructure and Services chief Robert Lisinge stated, “roads currently carry the lion’s share of freight in Africa. The AfCFTA provides an opportunity to build Africa’s railway network. It would increase intra-Africa freight demand by 28%; demand for maritime freight will increase the most”.

The ECA findings state that the AfCFTA requires about 1.8-million trucks for bulk cargo and 248 000 trucks for container cargo by 2030. This increases to about 1.94- million and 268 000 trucks respectively if planned infrastructure projects are also implemented.

Lisinge noted that the AfCFTA and Africa’s transport infrastructure programmes are intrinsically linked and should be implemented simultaneously. He said the Trans-African Highways & Programme for Infrastructure Development and the Single African Air Transport Market should be prioritised at the same level as AfCFTA.​

The importance of simultaneous infrastructure development was also discussed at the yearly Southern Africa-Europe CEO Dialogue, which was hosted in November last year.

During the event, Absa International CEO Cheryl Buss stated that “any real impact from the free trade agreement is going to be dependent on consistent infrastructural development”.

She added that Africa has an enormous infrastructure deficit and, “by all accounts, the required spend is well upwards of $100- million [a year] over the next decade”. She stressed the need for collaboration and transparent partnerships between the public and private sectors to bridge the infrastructural gap.

Payment Systems & Funds

The commercial launch of the Pan-African Payment and Settlement System (PAPSS) will reportedly save more than $5-billion a year in payment transaction costs.

The Africa Import-Export Bank (Afreximbank) and the AfCFTA Secretariat established the payment system to boost intra-African trade by facilitating payment, clearing and settlement for cross-border trade across Africa.

Financial institution Afreximbank president and chairperson Professor Benedict Oramah in January remarked: “PAPSS will effectively eliminate Africa’s financial borders, formalise and integrate Africa’s payment systems, and play a major role in facilitating and accelerating the huge AfCFTA-induced growth curve in intra-African trade.”

Dingley notes that PAPSS is a both “a technology and a compliance platform”, and has been tested in West Africa.

“It will work with the central banks, which will guarantee the payments and provide the overdraft facilities and will require the commercial banks to sign up to it. Standard Bank has already done so, as far as we understand,” says Shafrir.

Dingley adds that while it is a “sophisticated platform” that should make cross- border payments simpler, “we have not yet seen how it will work in practice. It is also not clear yet how it will work with each country’s foreign exchange restrictions”.

Meanwhile, the AfCFTA Secretariat and Afreximbank have established the AfCFTA Adjustment Fund, comprising the base, general and credit funds. The base fund will help address tariff revenue losses and support the implementation of the various provisions of the AfCFTA Agreement; the general fund will mobilise concessional funding while the credit fund will mobilise commercial funding.

At the January signing ceremony, AfCFTA Secretariat secretary general Wamkele Mene noted: “As we make significant progress in establishing schedules of tariff concessions, the finalisation of the Adjustment Fund will enable us to maintain and even accelerate momentum.”

The resources required for the Adjustment Fund over the next five to ten years are estimated at $10 -billion. Afreximbank has already committed $1-billion towards the fund.

Investment promotion organisation Gauteng Growth Development Agency CEO Mosa Tshabalala, while speaking at the CEO Dialogue, noted that, “the success and the effective implementation of the trade agreement is dependent on being able to share opportunities, share key learnings and ensure that we are inclusive in the way that we do it”.

Mene echoed her sentiments in his CEO Dialogue speech, stating; “if we do not focus our attention on inclusivity, we will create a backlash against this trade agreement.”

“We know what has happened to our economies. It is estimated that about 30-million people have been pushed back into poverty since 2020,” Zimbabwe Commerce and Industry Minister Sekai Nzenza added. She concluded by quoting Ghanaian revolutionary Kwame Nkrumah’s speech at the inaugural AU Summit in 1963, perhaps to remind delegates that, while thoroughness and incremental gains are important, the implementation process must not be overlong. “We cannot afford to pace our needs, our development, our security, to the gait of camels and donkeys. We cannot afford not to cut down the overgrown bush of outmoded attitudes that obstruct our path to the modern open road of the widest and earliest achievement of economic independence and the raising of the lives of our people to the highest level.”