“The AfCFTA is improving livelihoods – but this is not enough”

On the sidelines of the 56th session of the Economic Commission for Africa in Victoria Falls, Zimbabwe, Christabel Ligami interviewed Stephen Karingi, Director of UNECA's Regional Integration and Trade Division, on the progress of the African Continental Free Trade Area.

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This article is sponsored by UN ECA

What is the progress on the implementation of the AfCFTA?

Eight protocols of the AfCFTA have been agreed upon. 47 countries have issued their tariff commitments on goods and services. We have concluded the protocols on the investment policy, intellectual and property rights and competition policy. These protocols will attract more investment on the continent because AfCFTA has created a common investment area. With intellectual property rights, countries can patent their products and extract more value.

An adjustment fund of the AfCFTA has been set up for resolving any trade issues/complain arising from and between the member states. We have a fully-fledged secretariat which organised the first intra African trade fair and an AfCFTA forum held in Durban, South Africa last year.

At what stage are countries at with the AfCFTA?

The implementation stage – Trade between countries is happening. For example early this year Kenya and South Africa have jointly launched the first consignment under the AfCFTA framework.  The first consignment consisted of machinery, agricultural products and electronics, among them refrigerators assembled in South Africa. Kenya is expected to export tea, coffee, fruits and vegetables in return.

Value added coffee has been traded from Rwanda to Ghana. The coffee is traded by a company that focuses on supporting women who produce coffee. Batteries have been traded under the AfCFTA from Kenya to other countries in Africa. Tea traded from Kenya to other African countries came from small holder farmers, which confirms that the AfCFTA is improving livelihoods.

But this is not enough. As ECA we would want to see all the 4,500 products (listed under the tariff headings to be traded under the AfCFTA), being traded across borders. If this happens, we can have the remaining sensitive products also included and traded under the AfCFTA.

A report on assessing progress of regional integration in Africa that you presented at the meeting indicates that trade between countries is still low despite them implementing the AfCFTA. Why is this so?

It is almost five years since the launch of AfCFTA agreement. Developing countries have up to 10 years to bring down their tariffs to zero while least developing countries have up to 13 years. In 2020, the Covid-19 pandemic happened and this changed everything. Countries are still adjusting from the aftermath of the Covid -9 pandemic. For countries to trade they need to remove the trade barriers, change some of their trade policies, and reduce tariffs which requires time to accommodate the changes. In 2045, the year we consider a full transformation of policy changes, we expect intra-African trade to be 35% more than if we did not have AfCFTA. The agreement is partly dealing with the obstacles that existed before like the infrastructure development has begun, tariff and non – tariff reduction before we can see growth in the intraAfrican trade.

ECA Data shows that by 2045, intra-African trade will still be below 30% share but at least it will have grown from 16% to over 20% of the total trade of the continent.

Are African countries producing similar products, hence less cross-country trade?

This is not the case. African consumers like variety. It is about the standards, tariffs and cost of moving goods. Traders in most African countries do not have regional value chains and supply chains. A regional supply chain needs financing. But if you do not have the money, then people will start demanding the last mile and source the goods elsewhere. Consumers want to see the product they prefer all the time. This has to do with production and ability to supply it all the time. Companies are not able to sustain the supply if they do not have the finances because some of these companies are small.

Has the issue of sensitive products under AfCFTA been resolved?

There are still issues that are yet to be concluded in the areas of apparel and textile. There are still conversations going on whether we should have single transformation (no value addition) or double transformation (with value addition)

A good number of chapters have been agreed upon and few are still outstanding.

ECA is part of the advisory council on industrial development. We are collecting data on the market size for textile in the continent. Of this how much is made in Africa and how much is coming from outside, where is the raw material coming from, how much of that raw material is from Africa to mitigate the fear of those countries who do not want to go for the double transformation.

However the sensitive list is not an issue. The modalities to bring tariffs to zero have been agreed on. There is no contention. Under the AfCFTA, we have double qualification, whereby when a country makes an offer to the (AfCFTA) secretariat, the offer should be able to cover 97% of the tariff lines and trade. Then the question of sensitive products loses its ability to hinder trade. The tariff lines and total trade covered should be the same.

How important is the pan African payment and settlement system to the AfCFTA?

The pan-African payment and settlement system is supposed to allow countries trade in their own currencies. For example, if a trader from Ethiopia is trading with a trader in Nigeria, both central banks should be able to settle the payment of goods they are trading without worrying about the dollar exchange rate.

Another example is that of manufacturers are importing edible oils from Egypt, they do not have to worry about the sliding of their currency to the dollar if they can trade with the Egyptian pound.

The pan-African payment system is supposed to remove that stress of countries worrying about the cross country exchange rate. However the adoption of the Pan African payment system will depend on whether these currencies are stable because if you do not have the right macroeconomic fundamentals and convergence then it can’t work.

Is the continent likely to have a single currency?

Not any time soon because it takes a lot of time and investment to have a single currency.

The pan-African payment system will help address the issue of pan-African currency. It will take longer to have a single currency.

How is ECA helping countries implement their AfCFTA commitments?

ECA has been helping countries design their national AfCFTA strategies. 32 countries completed their national validation process. Six are still validating their strategies. ECA is supporting some countries to design regional strategies, and helping other countries on implementation of the strategies.

We plan to have a peer learning group on the AfCFTA strategies to help countries learn from those that have developed their strategies and how they are using their experience.