Before we explore the core of this piece, it is important to note that trade in this piece is not just limited to inter-governmental trade but also heavily reflective of individual trade within the continent. Even though some of the limitations may affect inter-governmental trade, all of them heavily discourage internal trade among individual traders and producers across the continent. With this in mind, we can now proceed.
When it comes to trade in Africa, particularly in relation to recent activities of the African Union, there is a new kid on the block; The African Continental Free Trade Agreement (AfCFTA). Since March 2018, there has been a buzz across Africa about a looming economic transformation to the extent that many Africans have began to look forward to its implementation, and its spoils thereof. But like many African trade agreements seen in the past, the AfCFTA is on its way to entering the cabinet that holds flowery yet defunct agreements in Africa.
As an “Economic Heaven”, the AfCFTA seeks to radically integrate all African economies and create the largest free trade area in the world. Upon its realisation, the AfCFTA could potentially hold the largest share of global trade and start a rapid transformation that would unravel the positive evolution of various African economies. A success story that when described, sounds exciting, thrilling and captivating; but when put under a microscope of reality, would probably be viewed as one of the biggest fictitious stories ever told, for it to maintain any shred of dignity.
This is a usual characteristic found not just of various agreements made by the African Union, but also of various policies passed by individual countries on the continent.
The notion that most transformational ideas that erupt among the continent’s leaders end up being defunct has become popular among the youth. The big question in this piece, is, whether the AfCFTA is on route to disprove or confirm this notion.
In many ways the agreement is structurally unlikely to achieve many of its projected successes and in this piece, we will explore four major limitations that stand in the way of Africa’s biggest trade agreement and why it is likely going to end up like many before it:
Financial Sector Integration
The major backbone of trade is financial transactions, and particularly its ease, when it comes to integrated market zones. With all African countries operating under distinct banking rules, operated by distinct central banks, and with different financial sector incentives that underline the diverse ways in which the various banking systems are set up, smooth financial transactions from one African country to another is one of the most difficult to access.
Beyond the Swift banking system, which also attracts very substantial charges that are likely to discourage traders from using it for profit oriented ventures, the continent has no cheap, secure and recognised platform for financial transactions.
With no significant steps being taken towards continental financial sector integration to eliminate the substantial transfer charges that plagued the African banking sector, heavy internal trade will be substantially difficult.
For many experts, the hope is for private financial service providers to see this as an opportunity and make investments to fill this gap but as it stands, amidst all the rush towards the implementation of the AfCFTA, it is still likely to be financially cheaper for traders and producers to trade with foreign traders than it will be among African traders.
This structural financial problem was solved by the European Union (EU) with its creation of a single currency and the institutional supremacy of the European Central Bank, which ensures that all countries trade under the same financial and fiscal rules and systems and use the same currency. Some experts say the AfCFTA is set out to become the next EU. If this is so, then it is farther away from it than it is closer to it.
Border Integration and Customs Unions
Similar to the first limitation, most African countries have very different customs requirements. This gets more complex upon realising that some have varying customs requirements across various states on the continent. This is mainly underlined by concerns of security, and sometimes of local market protection. For the AfCFTA to work, movement of goods and people across all states involved ought to be fluid and operate under uniform requirements to enable the easy access to free intercontinental transport that the AfCFTA promises.
The little to no deliberate conversation being held on not just the rules based integration, but also the infrastructure and logistical based integration of all custom services across Africa, really highlights again, how far the baskets containing the spoils of Africa’s greatest market zone sits.
Infrastructure
Across the African continent, the level of integrated transport infrastructure to help ease the movement of goods and people across countries sit at the lower edges of the evaluation scale. Attempts to establish sophisticated and comprehensive roads and rails network across the continent through projects like the Trans African Highway Network have not seen the levels of investment needed to bring it to life. Keeping in mind that one of the major reasons why intra-African trade is currently low is due to some of the structural limitations being pointed out, it is obvious that the functionality of the AfCFTA, if not structured to get rid of these limitations, is likely to create a magical theoretical free trade area that trades less within and more with the outside world.
Meaningful Trade
The central theme surrounding the AfCFTA is an increase in trade among African countries. Even though this idea is generally good, the critique here is whether the economies of countries on the continent are set up to accommodate such intense levels of inward trade. A critical look at the trade patterns of African countries would confirm a widely known truth of low diversification within African economies.
Most economic resources in Africa, as noted in recent years, have mainly been raw and unprocessed materials. Even with a gradual increase in industrialization, the rate at which these increases are happening is not fast enough to create an Africa that can divert most of its raw material exports inward in the short term.
This deficit of industrialization would make it an economically devastating attempt if Africa should try to drastically increase internal trade. This is because the resultant effect would not be an increase in meaningful trade, but rather lead to a potential increase in exchange of raw materials among countries who have no industrial capacity to make use of it or add value to it.
To be fair, the concepts that underpin the AfCFTA are revolutionary but unless the structural limitations identified above, and many more not captured in this piece, are addressed, there is no way that the beauty engulfed in its theoretical framework would ever be realised in a meaningful way.
In truth, the AfCFTA runs the risk of joining the cabinet of flowery policy propositions that never create the transformation they were intended for and it’s time for Africa to realise that until the continent starts being critical of its practical limitations to policy realisations, true transformation and vulnerable success will always seem like fiction to its populations.
The writer, Andrews Terku Terkpertey , is a final year BSc. Biological Sciences student of KNUST, a former president of both the KNUST Debate Society and the KNUST Biological Sciences Students Association.
Source: Onuaonline.com|Ghana
