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African FTA Could Transform Trade on Continent, but Infrastructure, Complacency Seen Pitfalls

The African Continental Free Trade Agreement (AfCFTA) could potentially transform trade on the continent and bring it into global supply and value chains, but key parts of the deal remain unfinished, and infrastructure investment will be necessary to tap the agreement’s potential, panelists said on an Oct. 28 webinar hosted by law firm Squire Patton.

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Intra-regional trade has clear benefits for economic growth, social transportation and well-being, but Africa has the least of it of any continent, said Samuel Mwale, a Kenya-based business executive and coffee trader and an adviser with the Kenya Private Sector Alliance. AfCFTA is an opportunity for a “great future” for Africa, and one of the boldest pushes for a different Africa in the 21st century, Mwale said.

But the deal isn’t done yet. Though 54 of 55 African Union states have signed the trade deal as of September, only 28 have ratified, though more are expected soon, said Roslyn Ng’eno, a Kenya-based senior investment expert with the African Union Commission. The AfCFTA secretariat has been established in Ghana, and a general secretary hired. A pan-African payment and settlement system has been established, among other mechanisms necessary for implementation.

Phase one, which covers trade in goods and services and dispute settlement, is mostly completed, and the deal is slated to take effect in January 2021. But members are working out schedules of tariff concessions and rules of origin. African trade ministers will meet in December to work out final details and ensure implementation Jan. 1, Ng’eno said.

Negotiations for phase two, which covers investment, competition policy and intellectual property rights, have not yet begun because of the COVID-19 pandemic, Ng’eno said. The African Union has, however, facilitated workshops to prepare member states for negotiations, she said.

Though there’s a lot of excitement around the AfCFTA, much investment in infrastructure will be required before its benefits become tangible, said Peter Stewart of Squire Patton. Stewart says he heard one African business person talk about how it’s more expensive to ship from Kenya to Nigeria than it is to India or China. The issue is not just one of geography but of the infrastructure required to incentivize intra-African trade, he said.

China has up to now played a major role in financing infrastructure projects in Africa. The AfCFTA will possibly incentivize more investment, aided by institutions like the African Development Bank, as well as the World Bank and national export credit agencies, once the impact of COVID-19 recedes, Stewart said.

Though the benefits of AfCFTA are in sight, Africa must keep its eye on the ball, said Frank Samolis, also of Squire Patton. The Free Trade Agreement of the Americas serves as a cautionary tale against complacency. The FTAA would have covered nearly all of the Americas as planned around the year 2000. It had even had a headquarters. But the deal fell apart for a number of reasons, including a lack of commitment of doing the day-to-day work on hard issues, Samolis said. AfCFTA is just getting organized, and there needs to be renewed effort when setbacks crop up periodically, he said.