THE OPPORTUNITIES AND CHALLENGES OF THE AFRICAN CONTINENTAL FREE TRADE AREA (AfCFTA)
Trading has been part of mankind since the commencement of civilization. Trading has a lot of benefits for countries and has a significant impact on exchange rate depreciation, unemployment and economic empowerment. Benjamin Franklin once said ‘no nation was ever ruined by trade’ The movement of goods, services, finance and human resource across national borders has been driving socioeconomic and political globalization over the past decades.
Economist, historians and academics have on several occasions come up with theories such as the theory of comparative advantage and factor endowment in an attempt to elucidate why countries trade among themselves. It is against this background that most countries in the world have formed trade zones in order to harness the full benefits of trade and industry. Countries in Europe, Asia and North America have developed trade zones such as NAFTA, EU, and CARICOM.
In Africa, the dream of a single market which has been a topical but elusive vision since the establishment of the erstwhile Organization of Africa Unity now African Union. It is against this background that we are excited with the ratification of the African Continental Free Trade Area (AfCFTA).
The agreement establishing the African Continental Free Trade Agreement (AfCFTA) was launched on 29 TH of April 2019 and subsequently came into force on 30th May 2019. 54 out of 55 countries have signed on to the AfCFTA which has a combined GDP of US$3 trillion and combined population of 1.2 billion and that makes the AfCFTA the largest trade zone globally.
Ghana has played a leading role in AfCFTA from day one. Indeed, the late President Mills tabled the motion for the establishment of AfCFTA; In March 2018, the President of Ghana, Nana Akufo Addo was one of the first Presidents to put his signature to the agreement and subsequently the first to offer to host the secretariat; an offer that was accepted.
Ghana has embarked on some flagship programmes such as 1 District 1 Factory, Planting for Food and Jobs, the establishment of Ghana Commodity Exchange, establishment of Industrial Parks and Strategic Anchor Initiatives all in preparation for the take-off of AfCFTA come July 2020. Although there has been a lot of initiatives to increase trade among African countries since the formation of the African Union, little has been achieved in terms of trade. For instance, currently, Intra African trade is 16%.
On the contrary, countries with efficient trade zones have achieved significant improvement in intra-regional trade and world trade in general. For instance, Intraregional trade among EU, Asians and North America are 68%, 53%, and 46%. On the global stage, in 2015, Africa’s contribution to world trade was 2.39% as against 37.59% for EU, 41.42%Asia, and 17.18% for America.
In a speech delivered by the President of Ghana at the just-ended AU meeting in Addis Ababa, the President indicated that the secretariat for the African Continental Free Trade Area will be operational by 31st March 2020. We also understand that so far, a total amount of US$3 million has been advanced by the Government of Ghana for the establishment and operationalisation of the AfCFTA Secretariat. AfCFTA comes with a lot of opportunities.
Firstly, it has the propensity to increase intra African trade from 16% to about 30% by 2022. Doubling intra-African trade can increase income in African countries and translate into an increase in employment which is important considering the fact that Africa will have the largest population of young people by 2050. AfCFTA can help lower the cost of production as increase Intra Africa trade comes with economies of scale. It can translate to lower prices which can increase our competitiveness on the global stage.
Competitiveness on the global stage can increase Africa’s share on global trade from an embarrassing less than 3% to a better rate. Indeed, revenue from increasing Africa’s share to international trade by 1% is more than combined overseas assistance to Africa. Africa lacks the necessary bargaining power to enable it to deal with other vibrant trade blocks hence we are always cheated by other trade blocks and the end results is that our contribution to world trade is less than 3 %.
AfCFTA is the expected game-changer to reverse this bleak state of affairs. From all indications the secretariat is ready for AfCFTA, hopes have been raised, however, the questions analysts and market watchers are asking is are we as a country ready for AfCFTA? First of all, the government is the worst culprit when it comes to buying goods abroad. We have had instances where the budding furniture industry was sidelined whilst procuring furniture for the legislature. State-owned enterprises have procured buses from overseas, whilst a local Neoplan assembly plant is allowed to comatose.
To what extent can government insatiable taste foreign goods be curtailed? Secondly, how effective is the private sector involved in the implementation of Ghana’s National Policy on AfCFTA? The private sector is often touted as the engine of growth. Apart from the National Conference on the Implementation of AfCFTA held at the nation’s capital, Accra last year where the private sector was engaged, little or no effort is seen in relation to creating awareness on the opportunities of AfCFTA at the Regional and District levels. On the Issue of Export Processing Zones, the State must expand infrastructure for such industrial parks and also ensure such processing facilities are situated not just in the Regional Capitals but close to the source of raw materials in the various districts in order to boost Ghana’s export production for the AfCFTA Market.
Last year, the Trade Minister of Ghana, Mr Alan Kyeremateng at the opening of the National Conference on the Implementation of AfCFTA in Accra said ‘At long last, our beloved continent has woken up from a long slumber’ whether Africa’s waking up from a long slumber will translate to expected increase intra-regional trade and subsequently global trade from 16% and 3% respectively or not, time will tell.
THE SCRIPT IS BY YAW OHEMENG KYEI, PRESIDENT OF COMMODITY BROKERS ASSOCIATION OF GHANA