2018 has just become a turning point in the history of trade relations in the African continent. A couple of weeks ago, “the leaders of 44 African countries signed a deal to create one of the world’s largest free trade blocs”. The agreement was signed in Kigali, Rwanda. If enacted and implemented, it may affect 1.2 billion Africans. The biggest question is whether the new free trade agreement can benefit Africans and the governments that signed the document. The new trade union is often compared to the European Union, but not all lessons from the EU can readily apply in the African context.
The African continent has gone a long way to become an area of free trade. The new trade agreement (AfCFTA) will eliminate the existing tariffs on 90 percent of goods, leaving another 10 percent of sensitive items intact, according to Loes Witschge. It will facilitate the free exchange of good and services among African countries. It will also liberalize trade opportunities across the African continent. The AfCFTA calls for the elimination of artificial trade barriers, such as imperfect custom procedures and delays on the border. The new agreement has the potential to increase African trade by half by 2022, Witschge states.
What does it mean for African countries, and can the new agreement create a fertile ground for the development of stronger and more productive economic ties? The answer is likely to be complex. In most cases, free trade benefits countries that join free trade agreements. Yet, the real effects of the AfCFTA on the African continent are likely to be uneven. On the positive side, the free trade agreement and the free trade area are a huge leap forward in developing effective trade and economic networks in Africa. Colonialism was a serious impediment to trade and economic development in Africa; many countries simply stopped exchanging goods and services with each other. The new agreement reflects the fundamental values of globalization, integration, and unity, providing a new space for economic, industrial, and social development.
On another side, the levels of trade between African countries are much lower than they are within the EU or in Asia. The new agreement is a chance for Africa to boost intra-continental trade in a manner that is similar to changes following the creation of the EU. However, it took decades for the EU to reach the economic peak. It may take decades for the African free trade agreement to bring the desired results. One should not forget that the success of free trade agreements always depends on countries’ commitment and readiness to comply with its principles. Of the fifty-four African countries, only forty-four have signed the AfCFTA. Among others, Nigeria refused to join the new agreement. It means that the African continent will need to struggle to realize the promise of free trade made by the new agreement.
The AfCFTA has the potential to hasten economic growth in African countries and promote citizens’ prosperity and wellbeing. Countries and governments that have joined the new agreement will have to design new economic development policies and restructure their economies to make them more effective and responsive to global challenges. Africa is the land of unexploited opportunities in many industries, particularly sustainable agriculture, and the free trade area can become an impetus for building more effective enterprises and providing employment to thousands of Africans.
Looking at the EU as a model for free trade and economic cooperation, one should not forget about problems and challenges that surround free trade agreements. Even within the EU that currently includes 28 countries, the benefits of free trade have not been evenly allocated. The African continent that is home to 54 countries may face even greater inequality, once the free trade agreement is implemented. According to Eyerusalem Siba and Mariama Sow, today, Northern and Southern countries lead African trade and make up nearly 80 percent of the continent’s supply chain Some industries and economic sectors may be vulnerable to change. The demise of these industries is likely to result in unemployment and worsen the socioeconomic status of many Africans. Besides, many African countries relied on protectionism and tariffs to preserve their economic stability. Liberalization may favor African giants, leaving smaller and poorer countries behind. European countries implemented broad market and economic reforms to reduce unemployment and promote growth within the EU. As of now, it is not clear how the African continent will face the challenge. Lessons from the EU may not fit the unique African context. After all, it took 50 years for the EU to reach its current state. Is Africa ready to take the journey to prosperity? The answer has yet to come.
Overall, the new free trade agreement provides a new framework for managing trade relations in the African continent. 44 out of 54 African countries have signed the AfCFTA. However, one should not expect that the path to economic prosperity will be easy and smooth. The EU went to extraordinary lengths to achieve the current state of economic cooperation. African countries will need to struggle to make the promise of free trade a reality. The EU may teach a good lesson of free trade, but the African continent will take a unique path to become a model of economic change for other countries.
Ed.’s Note: Samuel Alemu, Esq is a partner at the ILBSG, LLP. He is a graduate of Harvard Law School, University of Wisconsin-Madison Law School, and Addis Ababa University. Samuel has been admitted to the bar associations of New York State, United States Tax Court, and the United States Court of International Trade. He can be reached at [email protected].
Contributed by Samuel Alemu