By Yao Guimei
Despite the African Continental Free Trade Agreement facing challenges, China will continue supporting African economic integration so it can better withstand external shocks
In July 2019, the African Union announced the establishment of the African Continental Free Trade Agreement, marking a milestone in African countries’ move to build an integrated market on the continent. The African Union made July 1, 2020, the deadline for implementing new AfCFTA tariff policies on goods and services trade. But it has been extended to Jan 1, 2021, because of the novel coronavirus pandemic.
The AfCFTA covers many fields, including trade in goods and services, investment, intellectual property rights, competition policy and dispute settlement. The first phase of negotiations for the agreement was completed before the outbreak of the novel coronavirus, and covered two major areas: trade in goods and trade in services.
The public health crisis delayed the second phase of negotiations, mainly on investment, competition policy and IPR.The delay, however, has bought time for African countries to reallocate resources, include the digital economy in the second-phase negotiations, and improve the agreement framework, so they can better tackle public health emergencies, fight climate change and deal with external economic shocks in the future.
Organizations such as the World Bank and the United Nations Conference on Trade and Development have spoken highly of the agreement. In a July report, “The African Continental Free Trade Area: Economic and Distributional Effects”, the World Bank said the AfCFTA creates an important opportunity for countries to promote growth, reduce poverty and enhance economic inclusion, which can alleviate the negative impact of the pandemic on Africa. It also said that if the agreement is fully implemented, by 2035, Africa’s income will increase by about $445 billion, intra-continental exports will increase by more than 81 percent, and 30 million people will likely be lifted out of extreme poverty.
And the UNCTAD, in its report “Assessing the Impact of COVID-19 on Africa’s Economic Development”, said African countries should continue structural reforms and develop agriculture and manufacturing, in order to become less dependent on primary exports, and the AfCFTA is expected to accelerate this process and become a new driver of Africa’s economic growth.
African countries have to overcome various challenges to make the AfCFTA successful. First, due to their colonial history, many African countries are single-product economies, and thanks to homogeneity, they cannot trade with each other and, instead, end up competing with each other in global markets.
Second, many African countries regard tariffs as an important source of fiscal revenue, while the AfCFTA is aimed at reducing tariffs and removing non-tariff barriers. This could delay its implementation. In fact, many agreements for Africa’s economic integration in the past had to be either deferred or scrapped.
Third, every country in Africa has its own currency, resulting in huge intra-regional trade costs. Although the Economic Community of West African States officially launched a single currency “eco” in May this year, English-speaking countries such as Nigeria and Ghana are yet to adopt it, with Nigeria being very reluctant to lose control of its exchange rate for trade promotion purposes.
Also, armed conflicts and terrorist attacks have intensified on the continent in recent years, affecting nearly one-third of sub-Saharan Africa and exacting huge socioeconomic costs. And since the complicated historical, ethnic, religious and cultural causes behind such conflicts are difficult to eradicate in a short time, the AfCFTA is likely to be plagued by such problems in the future.
Despite the challenges, China will continue to support African economic integration and help Africa to develop independently so it can better withstand external shocks.
Chinese enterprises should seize the new opportunities offered by the AfCFTA, and those created by African countries’ vigorous promotion of economic reforms and structural transformation in the post-pandemic period. While the Chinese government on its part should facilitate trade through investment by helping increase Chinese companies’ presence in South Africa, Nigeria, Côte d’Ivoire, Kenya and other leading African countries. In particular, it should focus on building three to five manufacturing hubs in Africa.
– The Daily Mail-China Daily news exchange item
