The impact of AfCFTA on regional integration in Africa

By: Sindiso Ngwenya and Dr Richard Sezibera

African Union Heads of State and Government have adopted and are pursuing regional integration as an overarching continental development strategy.

The vision at the continental level is to achieve an African Economic Community (AEC) as the last of six successive stages that involve the strengthening of sectoral cooperation and establishment of regional Free Trade Areas (FTAs), a continental customs union, a common market, and a monetary and economic union.

African leaders and stakeholders are more than ever keen to accelerate progress towards the AEC through increased inter-REC harmonization and convergence initiatives, such as the COMESA–EAC–SADC tripartite FTA.

This FTA brings together 27 African countries, with a combined population of 720 million people, and a total gross domestic product of US$ 1.3 trillion, representing over 50 per cent of Africas economic output.

This initiative has indeed galvanized interest of Africas policymakers towards a much broader continental FTA. Accordingly, the African Union Summit, at its 18th Assembly held in Addis Ababa in January 2012, decided to fast-track the establishment of an African continental FTA by an indicative date of 2017 and implement a comprehensive action plan to boost intra-African trade.

The African Continental Free Trade Area (AfCFTA) whose negotiations were launched in 2015, is widely seen as a crucial driver for economic growth, industrialisation and sustainable development in Africa.

The AfCFTA will be a game changer for Africa and its people, for it will bring tremendous economic impact to African people and the continent at large. Intra-African trade is currently 15 percent of its total trade, compared with 19 percent intra-regional trade in Latin America, 51 percent in Asia, 54 percent in North America and 70 percent in Europe.

This low level of intra-African trade can change if Africa effectively addresses supply side constraints and weak productive capacities, infrastructural bottlenecks, trade information networks, access to finance for traders and other economic operators, trade facilitation and trade in services and free movement of people for cross border trade.

The concluded agreement establishing the AfCFTA provides for rules that will govern the movement of merchandise and services across the continent as well as an institutional framework that will govern the implementation of those rules.

The AfCFTA will create a wider market of 55 African states under a pan-African free trade area comprising more than 1.2 billion people.

The creation of a single continental market for goods and services, with free movement of business people and investments, will help bring closer the continental customs union and African common market.

It will help turn the 55 single African economies into a more coherent large market. Making use of complementarities and collectively exploiting Africas rich reservoir of land and natural endowments, creating larger and more viable internal economic spaces will allow Africas markets to work more efficiently.

The single market will also help expand intra-African trade through better harmonizing and coordinating trade liberalization and facilitation regimes among RECs and throughout Africa.

Further, it will help to resolve the challenges of multiple and overlapping REC memberships and to address the disconnect between contiguous RECs, thus unlocking the inter-REC trade potential across the continent.

Elimination of tariffs will help African countries boost economic growth, transform their economies and achieve the SDGs. Furthermore, the positive impact of the CFTA is expected to be even greater if non-tariff measures are addressed, informal trade is integrated into formal channels and the agreement includes trade in services as well.

Despite the opportunities, challenges need to be addressed. Fears of significant tariff revenue losses and an uneven distribution of costs and benefits are among the main obstacles to the continents integration.

Countries with large productive capacities in manufacturing may experience significant economic growth and welfare gains while small economies and LDCs may face substantial fiscal revenue losses and threats to local industries.

To deal with these potential challenges, the AU member States are considering different tariff reduction modalities and other mitigating mechanisms. In the long-run, trade liberalization in the AfCFTA will lower trade costs and allow consumers to access a greater variety of products at lower prices.

Lower costs for imported raw materials and intermediate inputs increases competitiveness of downstream producers and promotes the generation of regional value chains. Trade liberalization also allows firms to access a large continental market and gain from economies of scale. In the long run, increased competitive pressures may improve firm efficiency.

However, market consolidation may arise when smaller firms are exposed to stiffer competition. While most of the potential benefits of trade liberalization accrue in the long run, short-run structural change through the relocation of labour, capital and other factors of production entails costs of adjustment.

In conclusion, The AdCFTA is a crucial step towards integrating economies of African countries, boosting intra-African trade and attaining sustainable development in the continent that is consistent with African Union Agenda 2063 and global goals on sustainable development.

Liberalization of trade in goods and services may entail adjustment costs for the African Union member States that are, however, typically outweighed by significantly higher long-term gains. The AfCFTA provides the largest export market in the world for COMESA, EAC and SADC.

It will provide a new unique institutional framework for engaging the rest of the world and with an autonomous secretariat, there can be a facility in which African Union Member States vest the mandate to speak with one voice to advance agreed positions.

As Africa prepares for the post-Cotonou era with the EU, and the post-AGOA era with the United States, in 2020 and 2025 respectively, it is a priority that Africa has a common position, but also advances it vigorously under a coherent institutional framework provided by the CFTA.

Single African Air Transport Market

In line with Agenda 2063 and complementing the CFTA, the continent is also creating the Single African Air Transport Market (SAATM) which is an initiative of the African Union to create a single unified air transport market in Africa.

The Single African Air Transport Market is to be attained through the immediate implementation of the 1999 Yamoussoukro Decision(YD) which provides for the full liberalization of intra-African air transport services in terms of market access, the free exercise of first, second, third, fourth and fifth freedom traffic rights for scheduled and freight air services by eligible airlines. It removes restriction on ownership and provides for the full liberalization of frequencies, tariffs and capacity.

The granting of fifth Freedom traffic rights is important for the growth of intra- African market.  Fifth freedom rights with respect to schedule air services, permits an eligible African carrier to fly between two other African countries on a flight originating or ending in its own country.

It is also important that visa requirements are relaxed for Africans within the intra-African air transport market. With the full implementation of the Yamoussoukro Decision, ultimately, the single market will evolve into a common aviation area, calling for the abolition of bilateral air service agreement between Member States for intra-Africa traffic with airlines able to fly any intra-African routes based on economic and financial considerations of the market, facilitation of trade in services and free movement of goods, enhanced cross-border investment in the industry, recognition of community airlines owned by African nationals with efficient and effective regional safety oversight agencies, application of high safety, security and technical standards, harmonized  competition regulation and the revision of visa requirements to enable the free movement of  Africans in the Continent.

The single African air transport will open and connect markets, facilitate trade and enable African firms to link into global supply chains. It will play an especially pivotal role in just-in-time global manufacturing production and in speeding fresh produce from agricultural communities to appropriate markets. Enhancing air connectivity will help raise productivity, by encouraging investment and innovation; improving business operations and efficiency.

In November 2017, the AfDB Group’s Board of Directors approved a total AfDB loan of 98.06 million to finance a program of the regional airline, Air Côte d’Ivoire (ACI) to modernize and expand its operations.

The program includes the acquisition of five Airbus 320 series aircraft, the partial risk guarantee and a Technical Assistance Package for aviation industry capacity development.

The project will promote job creation, trade, tourism, and private sector development. It will support air connectivity and economic activities in seven national economic centers, improve air connections to 23 regional locations, increase cargo freight by 35% and passenger traffic from 719,972 in 2016 to more than 1.2 million by 2030. The project will create 684 direct jobs for cabin, air, ground crew and other operational staff by 2020, and some 5,000 indirect jobs in tourism and parts of the private sector by 2029.

These improvements will contribute to three of the AfDBs High 5 strategic priorities; Integrate Africa’ by increasing air connectivity and intra-regional trade, in land-locked countries and fragile states; Industrialize Africa’ and Improving the quality of life of the people of Africa’ priorities through tourism, job creation and private sector development.

Sindiso Ngwenya is the Secretary General of the Common Market for East and Southern Africa (COMESA) and Dr. Richard Sezibera is a Rwandan Senator and former Secretary General of the East African Community (EAC).

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