The year 2021 presented a significant milestone in the drive to boost intra-African trade through the instrumentality of the African Continental Free Trade Area (“AfCFTA”). The 1st of January 2021 saw the commencement of trading and effectively marked the start of implementation of the long-awaited free trade regime. However, one year after, most countries are yet to develop a clear implementation strategy, and this has slowed down the actualization of the objectives of the AfCFTA.
The covid-19 virus pandemic which disrupted the global supply chains has been partly blamed for the lull. But there are other contributing factors such as lack of political will on the part of State parties, insecurity, and poor infrastructure in major trade corridors. Given the interests generated by the free trade agreement and the potentials it holds not only for the established businesses but startups and SMEs, it is expected that 2022 will provide another opportunity for the State Parties to move the needle so that we will start seeing impactful progress.
Reports suggest that the AfCFTA enjoys wide acceptance and heightened interest amongst the young African entrepreneurs and SMEs who are ready to explore the potentials that a larger African market presents. Admitted, free trade agreement generally takes time before appreciable impacts are felt and the AfCFTA is not going to be any different. Experts project that it may take 2 to 3 years after commencement of trade before noticeable impacts. Therefore, year 2022 presents another step in the AfCFTA journey.
Where we are
As at December 2021, 41 out of 54 signatory countries have ratified the treaty, making the AfCFTA the fastest instrument in the African Union to be ratified. The ratification is significant as it signals the increasing interest of the State parties. Needless to say, the benefit of ratification confers on each ratifying nation a full status of State party. The fact that the top 4 economic powers and richest countries on the continent, Nigeria, South Africa, Egypt, Algeria have ratified the trade agreement is indeed a big boost.
Another major progress is the negotiation of the rules of origin which has attained near completion. However, the phase II negotiation which covers the (i) Intellectual Property Rights; (ii) Competition Policy (iii) Sustainable Investment (iv) eCommerce and the general framework for trade in services appears to have taken a back seat pending the conclusion of the Rules of Origin as not much is being heard about the progress made in that regard. The year 2021 also saw the roll-out of the pilot phase of the Pan-African Settlement System (PAPSS), a combined initiative of AFREXIM and the AfCFTA.
The PAPSS serves as the continent-wide platform for the processing, clearing and settling of intra-African trades and commerce payments. The full implementation of PAPSS is expected to save the continent more than US$5 Billion in payment transaction cost each year. In a recent interview with the Single African Market Programme (Accra), the AfCFTA Secretary-General, Mr Wamkele Mene whilst recounting the 2021 achievements and challenges spoke about the PAPSS and the stage of the Rules of Origin amongst other things. In his words:
“It has been a very difficult year. It has never been easy to implement a trade agreement. It is even more difficult to implement a trade agreement in the middle of a pandemic because of the disruptions to supply chains. Last year (2020) we had a border closure. 42 countries in Africa were either on full or partial border closure. It has been difficult. However, at the same time I’ve received a lot of supports from Heads of States, Ministers of Trades and Private sectors in Africa who all want to ensure that this agreement succeeds”
His Excellency went on to talk about other plans that are underway:
“We will soon be launching the pan African payment and settlement system on 13th of January 2022 here in Accra to support the AfCFTA. We have had tremendous success. We have a very strong basis for starting the next year (2022). For example, by now, I would have thought that the whole of Africa would have ratified the agreement. We also have not been able to get to 90% coverage of the rules of origin. We are now at 87.6%. I think as much as we gave this a very strong good faith effort, we had challenges along the way. But I think the successes in my view outweigh the challenges and setbacks. We have a very strong momentum as we enter 2022.”
Expectations in 2022
The year just commenced, and hopes are high on the expectations that come with it. First of all, the AfCFTA member States should ensure at least 90% attainment of the Rules of Origin. The Rules if properly crafted remain the building blocks for the industrialization of Africa through increase in local production and cross-border value chains. There are over 6000 tariff lines under the HS Code system and the AfCFTA ambition is to liberalize over 90% thereof.
The AfCFTA Rules of Origin would require that only made in Africa goods will benefit from the tariff concession. However, as I had opined earlier in a different write-up, the rules of origin will be counterproductive if measures are not put in place to prevent its abuse as non-compliance will turn the member countries into dumping grounds and lead to significant job losses and displacements of workers in key sectors of the economy such as agriculture and manufacturing.
Second, in 2022, we expect to see more regional collaborations to address the bottlenecks that inhibit free trades in Africa. A clear roadmap is required on custom interconnectivity, harmonized custom system and transit procedures across the major trade corridors in Africa. For instance, the Abidjan to Lagos trade route/corridor deserves special attention in view of its significance to the ECOWAS region. The non-tariff barriers inhibiting intra-trades across the Regional Economic Communities (RECs) should also be addressed.
Third, businesses (both small and big) have complained of lack of information on the AfCFTA. As reported recently by the Africa Report, the AfCFTA risks being held back as most of the continent’s chief executive officers (CEOs) don’t know where to find information about it. According to the report published on 03 January 2022:
“Almost two-thirds of respondents (62%) to the survey published in December by PAFTRAC, the Pan-African Private Sector Trade and Investment Committee, said they do not know where to access information about the AfCFTA. Almost everyone surveyed uses the internet to try and find information, with national and local governments the next most popular source far behind. This demonstrates the importance of having a central, online and easily accessible platform that can consolidate all AfCFTA-related information.”
Similarly, little information is available on where we are on the phase II negotiation. Information is key as it is required for planning purposes. Therefore, the private sector should be carried along at all stages of the negotiation and implementation. It is hoped that the AfCFTA member States would start addressing the issues highlighted above and more in 2022 if we are serious about doubling intra-African trades by year 2035.
About the author
Prince is a commercial dispute lawyer at Paul Usoro & Co where he leads the Arbitration and Capital Market Disputes Team of the Firm. He has interest in international trade law having advised and represented both local and international clients and organizations on a wide range of issues involving cross-border trades disputes, maritime and international arbitration. Prince had worked with the Nigerian Bar Association (NBA) AfCFTA Committee charged with the responsibility of coordinating the NBA inputs on the AfCFTA Phase II Negotiations in 5 priority service sectors particularly as it relates to legal services. The Committee interfaced with the Nigerian Office for Trade Negotiations and AfCFTA National Action Committee in discussing the Schedule of Specific Commitments on Trade in Services. Prince writes regularly on the AfCFTA.