African States’ cautious approach to AfCFTA implementation could lead to longer time to realize its objectives

A recent article published on FDI Intelligence argues that the slow implementation of the AfCFTA by African countries, combined with persisting challenges like infrastructure gaps and access to finance, are stumbling blocks to the achievement of an African Single Market. On 30 May 2024, the AfCFTA agreement reached five years since its entry into force. Although trade officially commenced under the AfCFTA framework only in January 2021, it is being slowly implemented in phases, with a first important step represented by the AfCFTA Guided Trade Initiative (GTI), a pilot project aimed at testing the institutional and procedural framework within which the AfCFTA preferential trade transactions are conducted. Despite African countries have committed to remove tariffs for 90% of products, most of them have not incorporated the AfCFTA preferential tariff rates into their national tariff schedules, which is an essential condition for them to trade under the AfCFTA preferences. According to the International Trade Centre (ITC), a multilateral UN agency dedicated to support trade-led economic growth in developing countries, the full impact of the AfCFTA remains to be seen because African countries are proceeding cautiously with its implementation. The ultimate goal to be the world’s largest operating free trade area for a continent of 1.3 billion people is still far away, the article concludes.

Despite the fact that 54 out of 55 African Union member countries have signed the AfCFTA and 47 ratified it, data on intra-African trade has not shown significant improvements so far. For 11 large African countries with data availability (Cote d'Ivoire, Egypt, Ghana, Kenya, Morocco, Namibia, Nigeria, Senegal, South Africa, Zambia and Zimbabwe), the value of intra-African trade is reported to have reached $85.3bn in 2023, representing just 11.8% of total African trade, down from a 13.2% share in 2019, according to figures from Trade Data Monitor. Overall, intra-African trade as a share of global trade declined from 14.5% in 2021 to 13.7% in 2022, according to UN figures. Over the same period, the global share of intra-African exports and imports also declined.

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It is however important to point out that such data do not take into account informal trade, that not being declared to Customs, is not reflected by official statistics. This is a limit of the trade impact assessment methods, that should foresee the possibility to complement official data with reliable estimates on informal trade flows. Today, many African States have developed such estimates, like the Bank of Uganda, that in collaboration with the Uganda Bureau of Statistics (UBOS) conducts periodical informal cross-border trade surveys that give a measure of the size of informal trade of Uganda with neighbouring countries.

The article identifies five obstacles to the objective of the African Continental Free Trade Area (AfCFTA) to increase inter-African trade and foreign direct investment (FDI) attraction across the continent. They are the following ones:

1. Slow pace in ratifications: so far 47 of 54 signatory countries to the AfCFTA have ratified the agreement (Eritrea is the only one to have not signed it). Seven countries have not yet completed the internal ratification processes, such as Benin, Liberia, Libya, Madagascar, Somalia, South Sudan and Sudan.

2. Disparities between country capacities to implement and enforce the AfCFTA domestically: different levels of economic development and industry means that some countries have lower capacities to implement and enforce the AfCFTA. Domestic implementation of the AfCFTA is currently only fully operational in fewer than 10 countries, according to ITC. Difficulties in completing negotiations on the rules of origins needed to lift tariffs, which include products like cars and textiles, is another major sticking point. In this regard, it is important to note that the same sectors blocked the completion of the rules of origin negotiations within the Tripartite (EAC-COMESA-SADC) free trade agreement, which is an indicator of the difficulties for African countries to find alignment on sensitive sectors to protect.

3. Difficulties in integrating multiple sub-regional African economic communities: another huge obstacle that characterizes the African regional integration process is the difficulty to harmonise regulations among the Regional Economic Communities (RECs), i.e., regional groupings that pursue economic integration objectives among African states in different parts of the continent. Despite being building blocks in the for African integration process (in particular the 8 RECs recognized by the African Union), the process of harmonising rules between them has proven difficult.

4. Lack of access to finance for trading businesses: many African businesses struggle to access finance. The gap in trade finance, where a bank legally guarantees that a seller of goods will receive payments from a buyer, is estimated at $81bn per year, according to the British Arab Commercial Bank (BACB), a trade finance bank. Some estimates put Africa’s trade finance gap as high as $120bn per year. Improved capital access is key to improve the ability of businesses to invest in their growth and trade across borders.

5. Inadequate transport and logistics infrastructure: last, but not least, a main obstacle to the success of AfCFTA is the poor logistics infrastructure. Inadequate roads and ports and limited availability of warehouses where stock goods, makes trading in Africa difficult. In this regard, the article notes that African countries constantly rank at the bottom of international indicators on logistics efficiency, such as the World Bank's 2023 Logistics Performance Index (LPI).