Continental transformer

Source:China Daily 2019-07-19

 

Africa's newly launched free trade area has potentially profound significance but it will have to overcome some big challenges

The creation of the African Continental Free Trade Area (AfCFTA) announced at the 12th Summit of the African Union on July 7, 2019, is a milestone achievement. It is a shining example of the prevailing trend for regional trade integration. The AfCFTA is expected to contribute to the facilitation and liberalization of global trade, and be a new source of growth for the global economy.

From the African point of view, the AfCFTA is the most ambitious item on the 2063 Agenda of the African Union, marking an important step on the journey toward African integration. Further, it is poised to make the continent a more attractive place to invest in, galvanize industrialization, and encourage more African countries to become part of the regional or global value chain, so promoting economic growth and structural transformation.

One fact worth pointing out is that with the AfCFTA, the African continent will become one of the largest economies in the world. The creation of an integrated trade zone will also help put Africa on an equal footing vis-��-vis other regional economic blocs, and give the continent more bargaining power in international negotiations.

For China, the AfCFTA will bring about more opportunities for its economic and trade cooperation with Africa, as the initiative goes beyond trade in goods and encompass a wide array of areas such as trade in services, investment, intellectual property, competition policies, and even e-commerce.

Therefore, the opportunities for Chinese companies could expand from infrastructure to trade in goods, e-commerce, agriculture, manufacturing, alternative energy and even financial and monetary cooperation.

The launch of the AfCFTA will also provide opportunities for creating mechanisms for cooperation between the Chinese government, the African Union and regional organizations in Africa, as well as cooperation on a national level. Also the Chinese government can initiate negotiations on investment, trade and bilateral currency swap agreements to facilitate investment by Chinese companies in Africa and help them reduce risks.

While the AfCFTA is no small feat with potentially profound consequences, it will face challenges due to historical and practical reasons. For example, African countries are much more similar than complementary in their economic structures, most have relatively underdeveloped industries and rely on exporting agricultural or primary products to keep their economies running. It is therefore difficult for African economies to cooperate in any meaningful way even if it does not lead to outright competition.

As development levels differ vastly among African countries, the new free trade area may disrupt industries in some poor countries or push up unemployment. Therefore, the AfCFTA may develop at a slower pace than expected as a result of competing interests and different levels of technological development as African countries see the pie being carved anew.

On executive level, countries need to intermesh different tariff regimes and custom declaration systems, as well as bridge the gap in terms of varied requirements in information transparency and benchmarks for customs clearance.

With these caveats, promoting regional trade and investment and integrating resources should be put on top priority, and three key issues need further observation.

First, the AfCFTA needs more than consensus to work; it needs relentless implementation and enforcement capacity. Faced with variant demands by over 50 countries, it remains to be seen whether the core leadership of the AU and other regional integration organizations are up to the task of implementation, as they suffer from problems such as weak organizational structures, lack of institutionalized technological support and poor communication.

In fact, the history of Africa's integration project is littered with stories of much hype but little substance. For example, conceived as a gateway to the AfCFTA, the Tripartite Free Trade Area was forced to postpone its effective date of April 30, 2019, as only four countries-Uganda, Kenya, Egypt and South Africa - had ratified the agreement by then.

Second, the AfCFTA will not be successful without capital flow and financial services. However, having a single currency is missing on the integration agenda of the AU or most of the regional integration organizations. As a result, integration is likely to entail significant transaction costs. Also, underdeveloped cross-border banking network and financial services is an additional "hard constraint".

While there are Western and South African banks operating across the region, Africa is still not fully banked despite overlapping banking networks, and this may create practical problems in terms of capital loopholes and incomplete banking networks.

Lastly, political instability and armed conflict can also be an issue. The AfCFTA's success requires a safe and peaceful intra-regional environment. However, we are seeing armed conflicts including terrorist attacks growing in frequency and intensity in recent years.

Armed conflicts have become the biggest hindrance to regional economic growth and integration, affecting nearly one-third of countries in sub-Saharan Africa, which has suffered huge economic and social damage. And there are no quick and definitive solutions to these conflicts as they are usually tied to complex historical, ethnic, religious and cultural factors, and are thus likely to continue to plague the economic integration project going forward.

In conclusion, there is no doubt that the AfCFTA spells promise for Africa's development. But there is also no denying that the AfCFTA faces a long and winding road ahead despite the bright prospects given past and present issues in Africa's integration project, with daunting challenges and lingering uncertainty. So the international community should take a long-term view, and let Africa take its time while playing an active role in supporting integration.

The author is senior research fellow and chief of the Center for Southern African Studies of the Institute of South African Studies at Chinese Academy of Social Sciences. The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Continental transformer

(China Daily Global 07/19/2019 page13)

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