Africa’s new free trade deal is a building block in its plan to achieve prosperity and unity. Yet stumbling blocks in the form of border and trade disputes make a borderless continent seem decades away.
“The continental free trade area symbolizes our progress toward the ideal of African unity,” Rwanda’s President Paul Kagame said over a year ago as he welcomed African leaders to Kigali to a special African Union summit in March 2018.
Signed by 54 out of 55 African countries and ratified by 28, the African Continental Free Trade Agreement (AfCFTA), is the much anticipated deal, which many hope will enable a single market economy and therefore cross border trade between African countries. Trading under the agreement is due to begin rolling out in July 2020. If all goes well, African countries hope to increase intra-African trade by 53% through a blend of consumer spending, investments and a reduction of import duties.
Is the continent – minus Eritrea – ready to open up its borders and cut down the tariffs though? Under the current political climate of security concerns, for instance between Kenya and Somalia, or in the Sahel region, fears of uncontrolled migration or the smuggling of substandard goods as is the case with South Africa and Nigeria respectively and border spats, as is the case with Rwanda and Uganda, a vibrant and yet controlled trading environment seems a long way off. Corruption and poor infrastructure in great parts of the continent only enhance the problem.
Checks and balances
In 2017, only up to 17% of all trade on the continent occurred between African countries, while Africa still relies greatly on imports from abroad. And as it currently stands, African businesses face over six percent higher tariffs if they trade within Africa than when they do their business outside the continent. Only two African countries, the Seychelles and Benin, require no visas at all, while almost half the countries require visa applications in the country of residence and only a quarter of all Africans can get a visa on arrival in other African countries. Additionally air travel within the continent is often more expensive than traveling abroad.
State sovereignty still trumps unity and ease of travelling or doing business – a far cry from the early pan-African visions of solidarity and self-reliance, without the artificial borders that colonial forces drew up in a Berlin boardroom.
It is understandable that the concerns of the 54 AfCFTA signatories about border security and market protection are legitimate, says Kenyan economic analyst Aly Khan Satchu. “We need to have some kind of support mechanism or mediation scheme,” he said, referring to a body or oversight authority that would mediate in the case of disputes. “They also have the ability to bite and make things happen.”
Actions must follow words
What is important, Satchu argued, is that countries don’t only pay lip service to the idea of a ‘borderless’ Africa. Rwanda, for instance, has been on the forefront in the push for both intra-African trade and the free movement of people. Rwanda is ranked second in sub-Saharan Africa for the ease of doing business after Mauritius – it is followed by Kenya and South Africa. Yet Rwanda itself has closed its border to Uganda for what analysts say is a long-standing spat between presidents Yoweri Museveni and Kagame. The closure of the borders has crippled bilateral trade and also created a barrier between communities where people have deep cross-border trade and family ties.
“In Rwanda’s case their model is to be the Singapore of Africa,” Satchu said. “If you want to be a Singapore of Africa you need free trade.”
Protectionism
Another trade dispute currently lies on the border between Nigeria and Benin. Nigeria, Africa’s largest and most populated economy with a record of protectionist trade policies, was last to ratify the AfCFTA.
In August 2019, Nigeria banned the import of over 40 items ranging from meat, to rice and cement. “Nigeria’s central concern is that its market will be flooded by goods from other African countries, which will undermine local manufacturing and agricultural enterprises, many of which are performing well below their potential and may not survive competition,” said Dianne Games, of Africa at Work, a Johannesburg-based business consultancy.
To date, Nigeria still relies largely on crude oil exports. The African giant doesn’t have its own oil refineries and crude oil makes up to 90% of its foreign exchange earnings. And despite the success of businesses like the Dangote empire, which initially specialised in cement and sugar, its manufacturing and agriculture sector have failed to keep up with the demands of its growing population. Thus Nigerian consumers largely rely on imports.
“Tariffs and import bans have long been used by Nigeria as part of its industrialization strategy,” said Games. “But smuggling of goods from neighbouring states undermines this strategy.” According to the World Bank, up to 80% of Benin’s imports are said to be destined for the Nigerian market. The closure of the border in August 2019 has not only had a major effect on Benin, which relies heavily on transit trade with Nigeria, but also Ghana, where trade unions have complained about trucks being stuck at the Nigerian border.
Nigeria has reasons to be concerned about the opening of its borders, the experts agree. Yet whether continued protectionist policies will provide the needed development for its market and its people is another question.
“I think if we really want to advance all our economies we should not be scared of competition,” Satchu told DW. Unfair competition, like selling imports or dumping prices, such as the US chicken which flooded South African and Ghanaian markets, or selling sub-standard goods is of course a different matter, he added. “I think we have to differentiate between other African countries who are brothers and sisters and exports out of China, Asia, or even the United States and Europe.” Countries such as South Africa or Kenya, to some extent, belong to the bigger competitors who stand to gain from the AfCFTA. But all in all, Satchu said, it’s about putting proper oversight mechanisms in place in order to make the deal beneficial to the continent as a whole.
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Not a silver bullet
“(AfCFTA) is not a silver bullet for the kinds of economic problems that many countries experience,” Games said. “A lot more work needs to be done nationally to get countries ready to participate meaningfully in the initiative.”
While similar initiatives have failed to take off, the AfCFTA might stand a chance, Games said. “The political will behind the continental initiative and the publicity it has received may keep the process on course this time,” she said.
While there are concerns that major African players such as Nigeria might not play along, there also still seems to be a good deal of enthusiasm about the implementation of the deal. Ghana’s President Nana Akufo-Addo, this week urged African trade ministers to conclude all outstanding issues before trading is due to start in July 2020. Ghana has been selected as the host of the AfCFTA secretariat.
At the same time, Mukhisa Kituyi UN Secretary-General of the UNCTAD (United Nations Conference on Trade and Development) expressed his views on the deal. “It has taken Africa almost 30 years since the signing of the Abuja Treaty in 1991 to reach this stage,” Kituyi wrote in the Kenyan media outlet The East African. “The Continent,” he wrote, “cannot afford to wait another 30 years to translate the AfCFTA.”