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What Does the African Trade Agreement (AfCFTA) mean for South Africa?

A man sits outside the African Continental Free Trade Area (AfCFTA) Secretariat office in Accra, capital of Ghana, August 17, 2020. Ghanaian President on Monday handed over the edifice housing the African Continental Free Trade Area (AfCFTA) secretariat to the African Union (AU) for the commencement of work. (Ghana Presidency/Handout via Xinhua)

By Greg Nott*

One continent, 1.3 billion people and 54 nations. The African Free Trade Agreement (AfCFTA) is the world’s largest free trade area and an agreement that will revolutionise the way we do trade within Africa. This is a true Pan-African milestone and one that’s been envisioned for a long time.

The start of trading under the AfCFTA Agreement began on 1 January 2021 and is great news for a continent that has an opportunity to use the Covid-19 pandemic and its concomitant disruptions to relook at its supply chain network and trade partnerships.

Although trading has been opened, there are still a lot of unknowns, and because of the complexity of the agreement, the sheer number of countries involved and the sectors that the agreement will apply to means hundreds of legal documents and dozens upon dozens of meetings and negotiations that still need to be had.

As South Africans, to maximise this opportunity we will need to make sure we have leave behind any xenophobic or “Big Brother” mindsets that we have been accused of in the past. This AfCFTA holds promise for those who believe in the vision of a truly pan-Africa, at peace with itself and in harmony with its neighbours. Historically, SADC has been the most active regional trading bloc within Africa, so as part of SADC and with President Ramaphosa as the AU Chair, we should be positioning ourselves to drive the vision of a unified Africa. As the Head of Africa at Norton Rose Fulbright this will be a strong focus for me in 2021.

Neighbourly trade partners

Modelled on the concept of the European Union and intended to be a free trade zone for the movement of goods and people, a standout requirement of the AfCFTA is that the agreement requires participating countries to remove tariffs from 90% of goods. A requirement of this nature will open the continent to free trade unlike anything we have seen before with regards to intra-African trade.

Intra-African trade levels, defined as the average of intra-African exports and imports, have historically been low. The Economic Development in Africa Report 2019 from UNCTAD reports intra-African trade at around 2% during the period 2015–2017, while comparative figures for America, Asia, Europe and Oceania were, respectively, 47%, 61%, 67% and 7%.

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Intra-African trade has historically depended on trade patterns established in colonial times – value chains that support the flow of primary goods to the developed world and the return of finished goods. The AfCFTA holds important new supply chain opportunities for shipping and logistics and to move away from established colonial chains.

The share of exports from Africa to the rest of the world ranged from 80% to 90% in 2000 –2017. The only other region with a higher export dependence on the rest of the world is Oceania. This has made Africa sensitive to global economic changes and volatility.

Any CEO of a logistics firm will attest that due to the high cost of doing business with African neighbours, intra-African trade costs have been prohibitive. Historically, it’s often been cheaper to import goods from the UK and EU than to import them from a neighbouring African country. But in the long-term not trading with our neighbours has meant higher levels of poverty, fewer economic opportunities, under-developed supply chains and ultimately less prosperity for the Continent.

I see the enactment of the AfCFTA – if implemented fully and correctly- as a brilliant leap forward for Trade and Investment on the continent. It allows the continent to operate more cohesively, making FDI (Foreign Direct Investment) a lot more appealing to foreign investors.

Foreign investors will be able to land in a jurisdiction of their choosing (likely SA, Nigeria, Kenya, Tanzania -should they ratify – or Rwanda), but still have the entire continent open to them in terms of business opportunities pertaining to trade within Africa.

In time, the AfCFTA will see the abolishment of the majority of tariffs on intra-African trade. This, like many other complex agreements, will of course take time to be introduced into the system of trade between countries. An arbitrary removal of tariffs would negatively impact economies, so we will rather see a gradual reduction in certain tariffs as time goes by, a reasonable amount of time that is.

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And as the UNCTAD 2019 report attests, “the criteria needed to determine the nationality of a product could make or break the African Continental Free Trade Area (AfCFTA)”. According to the report, the rules could be a game changer for the continent IF they are simple, flexible, transparent, business friendly and predictable. IF…

So what does this really mean for manufacturers and service providers, as well as consumers within South Africa?

Well firstly, before the implementation of the trade agreement, very few manufacturers and service providers saw the need to invest into possible expansion into the rest of Africa, either due to lack of foreign market understanding, lack of interest, prohibitive costs, lack of foreseeable profitability or even the lack of knowledge as to how they can expand their products or services into other African countries. This is why this is the dawn of a new era of investment for Africa.

This is a ticket for manufacturers and service providers to expand beyond the domestic borders. I believe Africa is on the cusp of becoming a hyper-network of trade and investment and the Covid-19 pandemic has created the impetus for countries to relook and rebuild their supply chains and look to new, previously rejected markets for opportunities. Economies all over Africa will see begin to see the benefit of sourcing products and services within Africa before looking to US and European markets as their first option. Now is when Africa could emerge as a place where investors will regret not getting involved sooner.

Consumers, what does this mean for you?

Gone are the days of ordering products from overseas, waiting weeks and paying an exorbitant amounts of money in shipping and duties. Once local and foreign investment take hold of this great opportunity, industries of all kinds could boom across the continent. You will be able to source your desired product from Nigeria for example, pay no tariffs and have it delivered to your door in a few days.

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Specialised services such as those provided by lawyers will be of great demand in the time to come. Laws and regulations will be changed to accommodate and provide for stipulations set out in the trade agreement and so legal practitioners will need to be well versed in order to assist with such matters pertaining to trade law in Africa.

In saying so, law firms are a bit of a unique beast in that as much as we could now more easily render our services across the continent, you still need presence in the specific states with experience in the unique laws therein. However, as our clients expand across the continent this will undoubtedly see increased work coming into firms which have suitable presence and experience on the continent.

According to the United Nations Economic Commission for Africa, it is estimated that the African Trade Agreement will boost intra-African trade by an astonishing 52% by 2022. This would be a huge moment in history for the African continent. Jobs will be created, wealth will increase, infrastructure throughout Africa will improve and the overall economic wellbeing of Africans will improve dramatically.

However, for this ideal situation to occur there would need to be a seamless implementation of the AfCFTA throughout Africa. No process regarding the implementation of political policy between nations is seamless (think of BREXIT) and that is why we need to be patient and hold to the vision until we see Africa emerging as a new and united trading bloc.

*Greg Nott is the Head of the Africa Practice at Norton Rose Fulbright, a board member of the NEPAD Business Foundation and the Chairperson of the Southern-Africa – Canada Chamber of Business (SACANCHAM)

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