• World Bank report – the impact of the AfCFTA

    B.M.R. On

    Recently published – a World Bank report (pdf) on the economic and distributional impacts of the Africa Continental Free Trade Area.

    Full implementation of the AfCFTA will have the following impacts:

    • real income gains (across the continent) will increase by 7% by 2035. These will result mainly from reduction in non-tariff barriers (NTBs) and the implementation of a trade facilitation agreement.
    • there will be a significant boost in African trade, in particular, an increase in intra-regional trade in manufacturing;
    • the short-term impact on tax revenues is likely to be small, for most countries.

    The report also sees AfCFTA as the path to recovery (for Africa) from the economic ravages of covid-19.

    A few notes of caution, though. The report signals the risk that, by not capturing certain factors, it may actually be underestimating the impacts of AfCFTA. The omitted factors include informal trade flows, dynamic gains from trade, and foreign direct investment. By the same token, the omission of several other factors might indicate that the report may be overestimating the impacts of AfCFTA. These include the costs of lowering NTBs and of the trade facilitation agreement, plus certain transitional costs.

    Also included in the report – a handy section comparing the AfCFTA provisions to those of the main regional agreements on the continent.

    The main message from the report: the promise of the AfCFTA may, by and large, be quantified. It will bring benefits in the form of significant trade, economic prosperity, increased employment, and poverty alleviation. The report recognizes the challenge ahead in implementing the AfCFTA , but sees the expected gains as worth the effort.

  • The AfCFTA Protocol on Investment – a new jigsaw puzzle

    B.M.R. On

    AfCFTA Phase II negotiations are currently underway, likely with some delay due to the covid-19 pandemic. This phase of negotiations includes the Protocol on Investment, and an interesting challenge lies ahead.

    Surveying Africa’s existing legal framework for international investment, one sees a complex picture of interlocking chains and grids.

    For one thing, there is the large number of bilateral investment treaties (BITs) signed between African countries.

    And then there are the various Regional Economic Community (REC) instruments governing international investment. These include the ECOWAS Supplementary Act, and the SADC Protocol on Finance and Investment. There is also the COMESA Common Investment Agreement, although not yet in force.

    As the AfCFTA Agreement states (see Article 5(b) thereof), the free trade areas of the RECs are to be treated as building blocks for the AfCFTA itself. It is fully to be expected that much inspiration will be drawn from the stipulations in the legal frameworks of the various RECs.

    Going beyond BITs and REC instruments, there are also non-binding, albeit influential, documents, such as the Pan-African Code on Investment (PAIC), the SADC Model BIT, and the EAC Investment Code.

    So, a varied and complex framework, and one into which the AfCFTA Investment Protocol must fit. A veritable jigsaw puzzle indeed.

    It’s early days yet, as negotiations are ongoing, but it will be a serious challenge to build a coherent and tightly integrated framework for intra-African investment.

  • Trading under AfCFTA delayed – what happens next?

    B.M.R. On

    Now that trade under the AfCFTA has been delayed beyond the 1 July 2020 start date, what next for the Africa Continental Free Trade Area?

    There is, of course, the view – in some quarters – that there was no need to have delayed the start date. Yes, there is the issue of covid-19 to contend with, but might that perhaps not have been a good opportunity to kickstart trading, rather than to postpone?

    A good argument, especially considering the view of the AfCFTA Secretary General (in the webinar I referred to in this blog post) that the main way Africa would survive the economic impact of covid-19 would be by boosting intra-continental trade. In that case, one might argue, why then postpone the start date for AfCFTA trading?

    Last week, the AfroChampions Initiative released its AfCFTA Year Zero Report. The Report, dated March 2020, actually counsels against postponing the kickoff date for AFCTA trading. Obviously by the time the report hit our screens last week, the postponement had already been announced.

    While acknowledging the challenges to intra-African trade posed by covid-19, the Report also points to possible routes forward for AfCFTA trading in 2020, such as by focusing on facilitating trade in essential goods, such as food and pharmaceuticals.

    And what about possible opportunities (for intra-African trading) created by the pandemic? Take, for example, the failure of global supply chains, which could create chances for supply chains within Africa. This point is clearly made in the Report, as well as in this article from the Brookings Institution. The same argument would apply also to manufacturing. Given the current pandemic-induced difficulties faced by global manufacturing, might there not be opportunities also here for African businesses?

    And, of course, the digital economy. The exigencies of covid-19 have dragged us all online in a manner unprecedented. Thanks to the lockdown and the working-from-home measures instituted globally, we are witnessing digital transformation on a scale hitherto unimagined. Might there not be some opportunities, here and now, for boosting AfCFTA trading?

    Thing is, we are not quite sure whether, and to what extent, the ratifying countries are even prepared for AfCFTA trading. I would suggest that this is, in fact, the main issue. The Year Zero Report makes a good attempt at gauging the preparedness of the ratifying countries, using specific criteria in making its assessments. The Report also proffers a helpful suggestion – that each ratifying country prepare a ‘covid-19-adjusted plan’, which would give us some idea of their preparedness for AfCFTA trading, taking into account the covid-19 disruptions. I think that this would bring us a good way closer to assessing the true preparedness of African countries to begin trading under the AfCFTA.

  • AfCFTA kick-off postponed

    B.M.R. On

    So says Wamkele Mene, the Secretary-General of the Africa Continental Free Trade Area.

    And no surprise. Given current circumstances (i.e. Covid-19), this makes complete sense.

    Mene made this point during a webinar today on AfCFTA and Covid-19. He also recognised the inability of African governments to grant bailouts on the scale we see elsewhere in the world. He suggested that what Africa could do instead is accelerate intra-African trade. That, essentially, will be Africa’s ‘bailout’.

    Good point, and certainly the AfCFTA will help with that, but with the start date unavoidably pushed back, challenges remain for sure.

    So now we know the 1 July 2020 kick-off won’t happen. No news on the new date, though. I wouldn’t bank on a kick-off any time in 2020. Africa has its hands full at the moment, dealing with Covid-19. The main priority should be to overcome the pandemic.