AfCFTA faces an uphill task
The African Continental Free Trade Agreement went into effect on Jan. 1, after being signed by all but one of the continent’s nations and ratified by two-thirds of them. It is intended to stimulate Africa’s economy by eliminating tariffs and other barriers to intracontinental trade, creating one market for 1.3 billion people. Yet getting it to work in practice is going to be an uphill struggle, as many of the nations being counted on to implement it are ruled by autocratic regimes rife with corruption, who are unlikely to go along with fair competition and international cooperation. Sizo Nkala looks at its future.
It could be that the framers and authors of the African Continental Free Trade Agreement (AfCFTA) are upstanding men and women with abundant and unyielding confidence in Africa’s potential.
However, in a continent populated by equally unyielding autocratic and cartel-driven regimes, compounded by the in- herent weaknesses of the African Union, the implementation of the pact will be an uphill task.
The AfCFTA was signed on March 21, 2018 in Kigali, Rwanda, by the leaders of 54 of the 55 African countries, all except Eritrea. It came into effect on January 1, 2021 after being ratified by more than 22 states (36 states have deposited their ratification instruments thus far), but in the rather dampening circumstances of the COVID-19 pandemic on the rampage.
The AfCFTA represents an ambitious plan which seeks to create a single, liberalized market for goods, services and capital in a 55-nation bloc of 1.3 billion people with a combined gross domestic product (GDP) of $2.5 trillion. Through the gradual elimination of tariffs and non-tariff barriers to trade, it endeavors to create a borderless continent with free-flowing trade and seamless movement of people and capital.
The potential economic benefits are astounding. The World Bank estimates that the new trade regime could unlock growth in income of up to $450 billion, while lifting 30 million people out of poverty by 2035. Moreover, the free-trade area, which is also the largest in the world, would place Africa on a sound footing in the global economy through efficiency gains, the emergence of new value chains, and industrial diversification.
It is expected to boost intra-African trade, which currently stands at 15% compared with 60% in Asia and 68% in Europe. This means that more value will be created in Africa, generating millions of jobs for the continent’s youthful population.
The AfCFTA is fundamentally underpinned by values of economic inclusiveness, broad-based empowerment, property rights, and the rule of law. Therein lies part of the problem.
On a continent dominated by autocratic regimes run by rapacious cronies and cartels who thrive on the status quo, the AfCFTA is more likely to be honored in the breach. The trade pact is everything these regimes so passionately and violently despise, yet they are the ones to be counted on to implement it.
According to the 2020 Freedom House Report on democracy in the world, only 14% of Africa’s 55 countries are designated as free, 49% as partly free, and a staggering 37% as unfree. A tiny and fortunate 9% of its 1.3 billion people are said to be free, 52% partly free, and 39% unfree. Of the 10 worst-ranked countries in the world in terms of democracy and freedom, five are in Africa.
Thus, most of Africa’s population and territories are lorded over by dictators who have anchored their regimes on tight and exclusive patronage networks protected by trigger-happy militias that hold no brief for human rights. In countries such as Nigeria, Sudan, Togo, Uganda, and Zimbabwe, democratic forces, consisting of their mostly young populations, have been literally beaten and shot out of politics.
In the Ugandan elections earlier this year, the prominent young opposition leader Bobi Wine, who mounted a formidable challenge against the country’s long-time dictator Yoweri Museveni, was placed under illegal house arrest, which saw his home being surrounded by security forces for almost two weeks. His supporters have been brutalized in the most egregious of ways as the country underwent a violent election process.
Recently in Senegal, protests were violently suppressed and the Internet disrupted following the arrest of the opposition leader, Ousmane Sonko.
Niger and Chad have also been rocked by violent protests in which hundreds of opposition supporters have been beaten and jailed, and the Internet shut down.
In Zimbabwe, the ZANU-PF-dominated Parliament is on the verge of passing what it calls a “Patriotic Bill.” The bill bans people from talking to foreign governments without government clearance, or criticizing the government in ways that may put the country in a bad light in the international community.
Thus, the AfCFTA comes amidst widespread political decay in Africa, which has stunted institutions and disenfranchised the majority of the people. As democratic spaces continue to shrink, economic exclusion is the logical consequence.
It is in these autocracies that corruption, looting, and the plunder of national resources become the order of the day. According to the United Nations, Africa lost $830 billion due to illicit financial flows connected to the illegal sales of valuable minerals such as gold, diamonds, and platinum in the first 15 years of this century. This amounts to over $50 billion lost annually to corruption facilitated by the same cartels that run most of Africa’s regimes.
A recent report estimated that Zimbabwe loses $3 billion annually due to the smuggling of diamonds and gold out of the country by economic cartels linked to political heavyweights. The report estimated that the country could be losing half of its $21.4 billion GDP to corrupt activities facilitated by the country’s elite.
In Angola, about $600 billion has been earned from exports since the end of the civil war in 2002. However, reports suggest that 15% ($90 billion) of those earnings went to private accounts.
In 2020, Equatorial Guinea’s vice-president Teodorin Obiang Nguema, the son of the country’s long-time ruler Teodoro Obiang Nguema, was fined $32 million by a French court for corrupt activities and had his $127 million mansion in Paris seized.
Even in comparatively well-governed South Africa, the Judicial Commission of Inquiry into Allegations of State Capture has revealed one scandal after another related to the abuse of office and the looting of billions of rands. According to some reports, “state capture” – private entities turning government agencies to their own profit – may have cost South Africa R1.5 trillion (about US$105 billion), almost a third of its R4.9 trillion GDP.
It is no surprise that African countries make up seven out of 10 countries with the highest income inequality in the world, as measured by the Gini index. Moreover, the International Property Rights Index shows that six of the 10 countries with the worst property-rights records are African, including Nigeria, the continent’s biggest economy, which ranks 123rd out of 129 countries on the list. One wonders just how in God’s name will property rights suddenly be respected, or competition tolerated, under the AfCFTA Protocol on Intellectual Property, Competition Policy, and Property Rights.
Lack of financial resources
Another challenge is the weakness of continental bodies such as the African Union (AU), under whose auspices the AfCFTA will be implemented. Autocracy, corruption, and human-rights abuses continue to get worse, despite the existence of such instruments as the AU Convention on Preventing and Combating Corruption (2003), the African Charter on Democracy, Elections, and Governance (2007), and the African Charter on Human and People’s Rights (1981).
The African Continental Free Trade Agreement administration’s head office in Accra, Ghana. Ghana and Kenya were the first two nations to ratify the agreement, in May 2018.
One of the main reasons for the failure of the AU to implement these decrees, and there is no reason to believe the AfCFTA will be spared, is the lack of financial resources. The AU depends for its budget support on member states and external donors such as the UN, International Monetary Fund (IMF), the World Bank and the European Union. For example, as recently as 2019, the EU funded AU projects to the tune of €320 million, (US$388 million) which was almost half of the entire AU budget.
According to the AU, more than 40% of its member states do not pay their annual membership fees. As of October 2020, 18 countries (a third of the AU members) had been penalized under the AU sanctions regime for failing to pay their membership fees. The lack of a sustainable financing mechanism not only undermines the AU’s independence but also starves it of resources for capacity- and institution-building.
The AfCFTA as an institution will require a substantial budget to establish its presence across the continent to ensure the implementation of and compliance with the new trade regime. This will be a resource-intensive process that can only materialize with adequate financial support. China has already promised cash assistance for the AfCFTA, but this opens up the institution to possible undue external influence.
The AU’s lack of capacity-building resources also has serious implications for the composition of the AfCFTA’s Secretariat. It means the AU cannot train its own staff, forcing it to rely on expatriates or people from the African diaspora who have requisite skills, but who at times possess dual citizenship which may divide their loyalties. As such, it urgently needs to find effective mechanisms for sourcing resources that would enhance self-reliance and protect its institutional integrity.
Moreover, the tension between national and territorial sovereignty over supranational authority has hampered the effectiveness of the continental institutions. Member states are likely to comply with the AfCFTA regulations only to the extent that they align with their national interests, especially if the AfCFTA compliance monitoring mechanism is not robust enough.
African countries are at various levels of development, with 23 classified in the low-income category, 21 as low-middle-income, six as middle-income, and two as high-income. Such diverse development profiles, coupled with and some countries’ reliance on import duties as both instruments of domestic industrialization, and a source of revenue may result in non- complementary tariff schedules, thus slowing down intraregional trade.
Also, the AfCFTA has not adopted common external tariffs for trade with non-member states. This means that individual countries can enter into bilateral trade agreements with global economic powers such as China, the U.S., and the EU, which can provide products more efficiently at a lower cost, undercutting African competition. Due to the length of time it will take for the elimination of non-tariff barriers and the building of sufficient infrastructure before gains in efficiency kick in enough to affect intraregional trade, sourcing products from outside the continent will often make sense for most African countries.
However, the lessons from the COVID-19 pandemic have demonstrated that global supply chains are vulnerable to external shocks, like the pandemic, wreaking havoc in the least developed economies. African strategic interests cannot be confined to narrow short-term national interests. Rather, they are tied ever more tightly to continental initiatives like the AfCFTA building systems for withstanding future shocks.
Hence, the full realization of the AfCFTA will be an uphill task. The scourge of autocracy and the domination of cartels in most African countries represent serious obstacles to its implementation. The inherent weaknesses of the AU, such as its lack of financial independence and subordination to the interests of the member states, do not help the prospects of the AfCFTA.
The AU must have a substantial war chest to see through the resource-intensive process of establishing a functional free trade area, especially one of the scope and magnitude of the AfCFTA. Accommodating the diverse interests of 55 countries under a single trade regime will be a difficult undertaking. However, the COVID-19 pandemic has shown that Africa’s future survival lies within the success of continental integration. Without more secure regional value chains, every country will be vulnerable to global shocks like the pandemic, and no one knows when they will occur.
One hopes that countries’ disposition towards the AfCFTA will be informed more by a continental rather than national interest calculus.