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Opinions of Wednesday, 29 July 2020

Columnist: Joe Effah-Nkyi

Optimizing AFCFTA opportunities - Is Africa ready?

In contemporary times, the African Continental Free Trade Area, (AFCFTA) has become a topical issue for quite a number of reasons. Irrefutably, it is the only geographical location within the global space that is yet to practicalize the concept of Continental Free Trade Area.

Albeit, in recent times, virtually all the countries in Africa have subsequently endorsed for the takeoff of AFCFTA’s operationalization; regrettably, this is being hampered by the sudden eruption of COVID-19 pandemic. And like Domino effect, the pandemic continues to unleash aggravated mayhem, thereby, impacting negatively in the scheme of global activities.

The above notwithstanding, there is no doubt that the implementation of the concept of Continental Free Trade Area by the African continent could, undeniably, contribute to enhance the socio-politico-economic development and anticipated evolution of Africa, although, there is irrefutable perception that the institutionalization of AFCFTA would definitely come with its consequential problems and perceived challenges.

Challenges

Indeed, it is significant to note that the African continent is already burdened with poor infrastructural challenges which includes poor connectivity of transport nodes and networks that could disrupt prudent functionality of AFCFTA. A very classical example is rail transportation which is considered to be one of the most efficient and reliable transport modes that is positively shaping global trade, in the 21st century, because of its capacity to effectively deal with strategic humanitarian logistics as well as massive haulage of freight.

Again, since it is irrefutable common knowledge that the African continent is woefully deficient in such enhanced mode of transportation system, the probability of such huge deficit militating against the successful implementation of the Free trade system is higher; juxtaposing this to the EU where there is seamless connectivity of rail system linking one jurisdiction to another to enhance movement of international freights and services.

Conversely, the innumerable complexities associated with trade policies confronting the continent is a cause for concern. One key area that cannot be grossed over is the Irrelevant Trade blockades which usually characterizes transit trade among African states. Apparently, it is significant to reminisce the issue in relation to the closure of land borders in August, 2019 by Big brother Nigeria that prevented transit cargoes from sister ECOWAS countries into her jurisdiction cannot be down played.

Furthermore, poor communication networks, massive pervasion of corruption bedeviling the African continent, inefficient Customs delivery systems, bad governmental policies, eruption of civil unrest, sudden political upheavals often leading to ‘systemic political pathologies’ as well as unfavorable business environments are some of the key negative elements that could suppress AFCFTA’s position and consequently Africa’s trade competitiveness.

The above enumerated perceived challenges necessitates to be crucially addressed to actualize the potential benefits of Africa’s free trade area come 2021.

It must be emphasized that the realm of global trade is highly volatile and keen to the extremes; this is due to the fact that the top notch entities who are the industry players are fully protected by wealthy and influential nations. The formidability of entities like The North American Free Trade Agreement (NAFTA), Association of Southeast Asian Nations Free Trade Area (AFTA), etc. cannot be underestimated.

On hindsight, AFTA has largely removed all export and import duties on items traded between the nations. It has also entered into agreements with a number of other nations, including China, eliminating tariffs on around 90% of imported goods.

Similarly, EU is a single market, which is comparable to a free trade area in that it has no tariffs, quotas or taxes on trade; but a single market allows the free movement of goods, services, capital and people. The EU strives to remove non-tariff barriers to trade by applying the same rules and regulations to all of its member states.

Subsequently, looking at Africa’s determination to rub shoulders with these global giants in the realm of continental free trade activity, there is the need for AFCFTA to device enhanced trade policy strategies to neutralize any possible policy initiatives, of these actors, that may seek to undermine the continents efforts, if really AFCFTA is to leverage on its competitiveness.

Comparative advantage

Conspicuously, the detestation of Africa by these principal global actors since time immemorial gives cause to conclude that they do not want AFCFTA to live up to its perceived expectation, considering the fact that the bloc could similarly metamorphose into a formidable entity to contend with because of one basic essential element, i.e. its abundance Raw/Natural resources, which is unquestionably, a strategic catalyst for Africa’s socio-economic emancipation. Subsequently, there is the anxiety that with AFCFTA in place, Africa would ultimately enjoy comparative advantage and therefore dominate the pace in contemporary business endeavours.

Recommendations

It must be reiterated that, the logical approach of AFCFTA to have competitive edge out of continental free trade concept and to stabilize intra-African trade performance is to repeal and amend all forms of Customs applicable tariff and non-applicable tariff regimes that have the propensity to disrupt targeted trade flows projected by the Bloc. Moreover, it behooves African leaders to strive as much as possible to reach currency convergence criteria, which seems to be so daunting, though, to facilitate and actualize intra-African trade, in addition to dealing with the continents economic downturns.
One fundamental regime that require to be given close observation is Common External Tariffs, (CET) which is so crucial in this dispensation.

It therefore becomes prudent for CET to be cautiously appraised in order to avoid diversions usually associated with trade regimes, to harness uninterrupted trade flows. Applying CET would guarantee the expected revenue injections leading to stability of the various currency options to favourably compete with other international currency alternatives. Besides, CET could invariably check the deteriorating inflationary trend negatively impacting on the continent to improve both the GDP and GNP of member countries that are signatory to AFCFTA’s conception.

Undoubtedly, in the scheme of activities, it is of utmost important that AFCFTA ensures there is total removal of approximately 95% of elements that may profusely inhibit trade barriers such as inappropriate taxes, imports/exports applicable tariffs, irrelevant conventional fees imposition on transit freight, etc. which hitherto had been the ‘Achilles heels’ of the continents determination to achieve successes in its international trading undertakings.

Taking a critical observation at the current trade Nomenclature, i.e. the Harmonized system (HS) Code and its applicability of the tariff components, it could be amply deduced that imported consignment that could attract 5% Ad valorem Customs duty, e.g in Ghana, is virtually a different story in even countries that geographically shares common border within the ECOWAS sub-region and other jurisdictions in Africa.

For decades on end such visible irregularities has, consequently, deprived and inhibited Africa’s economic growth rate; this certainly could be attributable to the absence of the need to harmonize the continents tariff regimes to favourably compete. It is therefore based on above scenario that there is the urgent need to virtually integrate all applicable trade tariff components, if AFCFTA is to live up to its projected defined commitments.

Conclusion

There is no doubt that the formation of AFCFTA, would definitely, seek to address the huge unemployment gap confronting the continent coupled with enhancing Africa’s Free Zone Enclaves to improvement the continents Export regime. Conversely, there is the opportunity for the continent to improve upon her export base through value addition to attract better tariffs and incentives which would guarantee prudent economies of scale.

Ultimately, the materialization of all the above enumerations requires strong support from analogous entities like the Ministry of Trade, Ministry of Finance, CEPS, the Chartered Institute of Logistics and Transport (CILT) and of course the Ghana International Trade Commission (GITC) to immensely explore all the possible nuances that could propel AFCFTA to achieve its targeted resolutions which would invariably contribute to reverse the precarious vicious cycle of poverty Africa is confronted with.