Africa’s Economic Immunization: the Rise of the African Continental Free Trade Area (ACFTA)
When discussing Africa’s economic development, economists often invoke the saying: “when Europe sneezes from a dust of recession, Africa catches an economic cold.” Africa accounts for under 3 percent of global trade while comprising nearly one-fifth of the world’s total population, meaning Africa’s more than fifty countries are vulnerable to global economic trends from afar.
Unsurprisingly, the COVID-19 pandemic has gravely depressed Sub-Saharan economic growth. As the International Monetary Fund’s 2020 “Regional Economic Outlook for Sub Saharan Africa,” concluded, “Sub-Saharan Africa has faced a bleak year.” Despite the economic “cold” devastating the continent, on January 1 the African Continental Free Trade Area (ACFTA), which encompasses nearly the entire continent, officially commenced operation. While this agreement was made in the pre-pandemic economic landscape of 2018, it is coming into effect at a critical moment for the continent. The agreement brings 1.3 billion people across Africa into the world’s newest and largest free trade area, commencing operation during one of the worst recessions in recorded economic history. The ACFTA’s official start leaves economists, politicians, and African residents wondering: Could the ACFTA be Africa’s springboard to recover and prosper?
Africa’s Economic Landscape: Diverse & Divided
The ACFTA takes a wide aim at existing obstacles to Africa’s economic growth, especially the lingering economic damage wrought by exploitative colonial projects and institutions. At the 1884-1885 Berlin Conference, European imperial powers drew borders to partition Africa with the intent of maximizing their profit. But in a post-colonial world, these borders have inflamed ethnic tensions and impeded sustainable growth. Many modern countries’ borders were designed to most effectively transport resources from Africa into Europe, leaving no consideration for centuries-old ethnic rivalries and alliances that predated their arrival. Corruption, vestigial colonial institutions, and a complex web of regional economic alliances converge to make economic growth an elusive goal.
On corruption, Lucia Quachey, the secretary-general of the African Federation of Women Entrepreneurs, reported to the United Nations that “customs officials and police at roadblocks will make you unload and unpack every little package in order to delay you for hours.” Unsupervised customs enforcement poses a daily hindrance to millions of Africans, and frustrates business leaders like Quachey, who went on to say that “everyone knows the intention is to force travellers to pay.”
The issue of widespread corruption, however, is not a new one. According to economist Hippolyte Fofack and the United Nation’s Gumisai Mutume, residual colonial institutions are the culprit. In the colonial era, European countries barred continental trade between African countries, and instead channeled African commodities directly to Europe. As a result, borders and infrastructure are built to lead goods out of Africa, not throughout it. This history accounts for the minimal trade connections between Senegal and The Gambia, a striking absence given that the two countries share a long, uninhibited border. Instead, both countries trade mostly with their former colonial powers, France and the United Kingdom respectively.
Africa’s economic and infrastructural development is further delayed due to a complex web of domestic trade alliances and tariff policies. William Amponsah, a professor at North Carolina State University, explains in a United Nations article that current African economic blocs “exhibit narrow patterns of trade, depend on primary products, and involve low levels of inter-country trade.” In short, this means that current African free trade agreements are not equipped with the authority and oversight to foster a free flow of commerce.
Average tariff levels on the continent are also still lingering around 6.1 percent, and are often designed to insulate specific sectors. While 6.1 percent is lower than the 2019 global average of 9 percent for tariffs, African countries already lack comprehensive trade agreements, meaning no regions can easily engage in commerce without incurring a tariff penalty. The deceptively low 6.1 percent tariff rate is further weakened by day-to-day corruption, which imposes its own kind of cost burden on inter-country commerce. Tariffs disincentivize African countries from building new, mutually-beneficial trade relations with one another, and maintain pre-existing colonial trade relations with less potential for growth.
Africa’s current trade arrangements lack the enforcement powers to prevent either corruption or the spread of punitive tariffs. After several decades of floating ideas for a free trade area, delegates from the Organization of African Unity and its successor, the African Union, finally committed to the creation of a free trade agreement in 2018. The ACFTA is thus the culmination of several vague plans to incentivize pan-African economic development. From this divided, varied landscape, the idea for the ACFTA emerged.
The Kigali Declaration & the Emerging Bloc
At a March 2018 session of the African Union, three agreements were signed that set in motion the creation of the ACFTA: the Kigali Declaration, the Protocol on Free Movement, and the Agreement Establishing the African Continental Free Trade Area. Each of these agreements serves a unique role: the Kigali Declaration is aspirational, the Protocol on Free Movement is designed for ingenuity, and the Agreement on Continental Free Trade is political.
The Kigali Declaration announced the launch of the ACFTA and proposed to establish several pillars of economic integration. Members agreed to direct future agreements on issues such as intellectual property, investment, and competition policy. By identifying potential commercial flashpoints—like intellectual property disputes, investment-inhibiting tariffs, anti-competitive corruption deals—the ACFTA directly challenges historic inhibitors to continent-wide development.
Next, the Protocol on Free Movement introduced an unprecedented step to cross-national integration: unrestricted residency in any member country. Article 6 of the protocol states that “nationals of a Member State shall have the right to enter, stay, move freely and exit the territory of another Member State” and that countries “shall adopt a travel document called ‘African passport.’” While historic efforts like the Abuja Treaty outlined a potential for free movement for residents of the continent, the ACFTA has offered the tangible step of introducing transnational passports.
Finally, the Agreement Establishing the African Continental Free Trade Area aims to remedy pervasive corruption and punitive trade penalties through an institutional framework, which is set to include a deliberative assembly and an oversight council for the ACFTA. Further, the agreement overwrote the narrow and inconsistent domestic treaties already in place, giving precedent to the ACFTA in all cases. To redress punitive trade barriers, the Agreement erected a policy called the “Dispute Settlement Mechanism,” which would settle concerns over unfair economic manipulation in the bloc. This is a massive transfer of power, centralizing within the ACFTA the entire continent’s economic policy.
By the end of the 2018 session, forty-four of the African Union’s member states endorsed the AFCTA, and twenty-seven countries agreed to the Protocol on Free Movement. Even in 2018, when economic growth in the region was stable and improving, the wide scope and sustained negotiation efforts to consolidate such a large group of countries took a monumental effort. After Kigali, the bloc aimed to launch the ACFTA on July 1, 2020, oblivious to the world landscape that would greet the new agreement.
What’s at Stake: The ACFTA at One Month
The COVID-19 pandemic forced the inauguration of the ACFTA to be delayed from July 2020 to January 1, 2021. In one of its last economic reports of 2020, the International Monetary Fund’s Regional Economic Outlook for Sub-Saharan Africa concluded that “no country has been spared.” The region’s economy as a whole decreased by approximately 3 percent: seven points worse than predictions going into 2020. Exacerbating the economic impact of COVID-19, several island country economies—which experience riskier reopening strategies due to their small, tourism-dependent economies—have fallen by nearly 20 percent. As of now, with uncertainty over the timeline for when economic growth will return to Africa, the IMF has recommended three solution strategies: easing political tension, accelerating vaccine distribution, and securing direct foreign investments. While the first two goals remain elusive, the ACFTA, by helping to pool investment opportunities coming into the continent, is now a vital component to recovery,
Even beyond its capacity to facilitate foreign investments, the ACFTA offers a litany of productive remedies to recover from the pandemic. According to the World Bank, some countries like Cote d’Ivoire and Zimbabwe would see income gains of 14 percent while extreme poverty across the continent would decline to 10.9 percent by 2035. The World Bank report stated that the “ACFTA addresses the long-standing economic fragmentation of Africa.” Further, the World Bank report’s estimations approximate that real incomes across the continent would increase by a total of $450 billion and intercontinental exports would increase by more than 81 percent, with women and unskilled workers seeing the largest income gains.
Another benefit of the ACFTA is its power to boost intra-African infrastructure projects by possibly providing a host of shovel-ready infrastructure jobs during a time of high unemployment. Since Africa’s continent-wide infrastructure is still designed with colonial borders, these infrastructure projects could complement the ACFTA’s free trade zone. With the continent already mired in COVID-19, the ACFTA offers a moment of transformation—both economic and physical—from the crisis.
Lingering Challenges
Amid the flurry of promising statistics, however, economists and regional experts are reserving a substantial caveat to the ACFTA: its success requires more than just free trade. While the ACFTA is a free trade agreement, real income gains from reducing tariffs alone would be just 0.2 percent, according to the previously mentioned World Bank study. Beyond trade liberalization, the ACFTA stipulates anti-corruption measures, economic advising for member countries, inter-country conflict mediation, and a host of other plans to foster dialogue on African economic policy. To enact these goals, the spirit of collaboration captured in Kigali will need to continue.
Recently, the new secretary-general of the ACFTA secretariat, Wamkele Mene, told the Financial Times: “It’s going to take us a very long time” to implement the ACFTA in full. Economists confirm this suspicion, commenting that the region faces “significant challenges'' that “need to be resolved before the deal’s impacts can be felt.”
The most salient roadblocks to growth are the lingering wealth disparities between African countries; the ACFTA has to convince higher-income countries in Africa to tie their fates with more volatile, lower-income countries. Poverty rates vary widely on the continent, leading individual countries to focus on regional efforts. The poverty rate in the Central African Republic is 77.7 percent, but only 0.4 percent in Algeria; in a pandemic-ridden economic landscape, the ideas of free movement, free commerce, and further centralization are coming under scrutiny. Since free movement and commerce necessitate more travel and contact, many world leaders are resisting calls for further contact between other countries. As a result of these concerns over further travel and contact, other countries across the world have implemented travel bans, restrictions on trade, and have prioritized domestic politics over foreign. These so-called introverted strategies run against the historical trade patterns from the colonial era, and create a janus-faced problem for African countries: risk COVID-19 spread for the sake of integration, or insulate from the pandemic to the detriment of free exchange?
A Hopeful Start to 2021?
As the IMF noted, 2020 was a “bleak” year, but the ACFTA is a promising opening to 2021. Despite its many challenges, the ACFTA has been touted as a “globalization game changer” that will work to transcend colonial boundaries. It remains the largest free trade agreement in over seventy years, and it represents a triumph of multilateralism in the face of rising nationalism globally. By mending long-standing economic and diplomatic scars between countries through the construction of economies of scale, industrialization, economic diversification, and multilateral cooperation, a roadmap unfolds for inclusive, global growth.
According to Gyude Moore at the Center for Global Development, Africa, and investment partners abroad, have an opportunity to increase the scope and quality of trade-in and around Africa. Likewise, Fofack considers the ACFTA as a project in Pan-African solidarity that can reject the “zero-sum game” mentality that has recently entered the discourse regarding free trade agreements. The ACFTA has set the stage for a potentially epochal shift in economic development, and for Africa, it may now be the time to mend past maladies and move onward.
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