The-Hope-of-the-African-Free-Trade-Pact

The Hope of the African Free Trade Pact

Even though there was a tense environment in the host country, Ethiopia, the heads of state and government of the African Union held their 36th ordinary session on February 18, 2023. The summit followed a period of heavy tension between the government of Abiy Ahmed (PhD) and the Ethiopian Orthodox Church, which even called for a national protest rally a day after the summit, if it were not for a negotiation that brought the confrontation to a resolution. As is customary, African leaders convened at the Union’s headquarters in Addis Ababa’s Lideta District to discuss how to reduce border restrictions and accelerate economic progress, among many other developments in the year 2022. In this article, EBR’s Addisu Deresse and Eden Teshome review the event and its main topic, the African Continental Free Trade Area (AfCFTA).

Themed “The Year of AfCFTA: Acceleration of the African Continental Free Trade Area (AfCFTA) Implementation,” the 36th Ordinary Session of the African Union (AU) got underway on February 18, 2023, at the organization’s headquarters in Addis Ababa, Ethiopia. The Union of Comoros President, Azali Assoumani, was also elected by his peers to chair the organization’s course for the upcoming year.

Antonio Guterres, secretary general of the United Nations, Ahmed Aboul Gheit, the secretary general of the League of Arab States, Moussa Faki Mahamat, chairperson of the AU Commission, Abiy Ahmed (PhD), prime minister of Ethiopia, Mohammad Shyyyeh, the departing chairperson of the AU and president of Senegal, and Mohammad Shyyeh, prime minister of Palestine, were among the key speakers that opened the session.

“Global economic growth has lost momentum over the last three years, and inflation is rising at higher rates,” Moussa said, focusing on the most recent economic developments. “Faced with such a situation, it is imperative that our member states decide, with determination, in their economic and development choices, the activation of various mechanisms of internal resilience, intra-African solidarity, and rapid implementation of the African financial institutions, all supported by virtuous governance.”

In his speech, Abiy declared that Ethiopia is happy to use its export of goods to other nations to help alleviate the continent’s famine issues. The Prime Minister pleaded with the Member Nations that Africa needed to put itself on a growth trajectory now that the COVID-19 pandemic had almost ended.

“One third of the hungry people in the world are in Africa,” highlighted Abiy Ahmed (PhD), prime minister of Ethiopia.

Abiy further noted that it is only natural for Africa to be recognized with at least a permanent seat in the UN General Assembly Security Council given its current prominence as a major participant on the international stage. He underlined the necessity for a continental media house, saying that Africa must tell its own story.

“I’m pleased to see your strong focus on job creation and the enormous potential of the African Continental Free Trade Area (AfCTA),” stated UN Secretary General Antonio Guterres.

The Secretary General claims that the AfCTA offers Africans, particularly the youth, a really transformative path to job creation and new sources of prosperity.

“The United Nations is proud to be your partner and to work together,” Guterres told the Assembly.

President Macky Sall, the outgoing Chair of the Union, spoke on behalf of his colleagues and highlighted some of the accomplishments made during his tenure as Chair of the African Union for the year 2022. The effects of climate change, an unparalleled health crisis, terrorism on the continent, the continuance of old and new conflicts, and the rise of coups were some of the difficulties he underlined for Africa. He told the Assembly that, with the help of the Commission and the Regional Economic Communities (RECs), among others, he had been actively involved in conflict resolution and supporting transitional policies.

According to reports, he was extremely pleased with the outcomes of the second Dakar Conference on Agriculture and Food Security (Dakar 2), which was co-hosted by Senegal and the Africa Development Bank (AfDB) from January 25 to 27, with the theme “Feeding Africa, Food Sovereignty, and Resilience” and aimed at taking action for an Africa that finally provides itself with the means to feed itself and assist in feeding the rest of the world.

“I have set up a task force led by the former Prime Minister Hailemariam Desalegn, who is already working with the Commission and the American side on the implementation of the objectives of the Declaration,” President Macky Sall said. “In the short term, this means ensuring our countries’ supply of cereal products and fertilizers under normal market conditions.”

A report on the AfCFTA was heard during the 36th Ordinary Session, along with many other important developments of continental significance. Mahamadou Issoufou, a former president of Niger and the coordinator of the continental initiative, delivered the report on AfCTA.

With the goal of increasing intra-African trade by USD450 billion by 2035, the continent has begun the gradual elimination of tariffs on 90Pct of commodities and the reduction of trade barriers in services. It is hoped that the AfCFTA’s successful implementation will increase the number of decent jobs, improve the welfare and quality of life for all citizens, and promote sustainable development.

The AfCFTA aims at achieving the inclusion of women and youth, notably youth in rural areas, the development of Small and Medium Businesses (SMEs), and the overall industrialization of the continent. These goals go beyond policy transformation and reform.

Eight nations, representing the five regions of the continent, participated in the AfCFTA’s Guided Trade Initiative (GTI) as of February 2022. These nations are Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania, and Tunisia. The GTI aims to promote trade between interested AfCFTA state parties that have satisfied the Agreement’s minimal requirements for trade.

This effort encourages the matching of companies and goods for export and import among states. In keeping with the AfCFTA’s emphasis on value chain development, the products targeted for trade under the Initiative include ceramic tiles, batteries, tea, coffee, processed meat products, maize starch, sugar, pasta, glucose syrup, dried fruits, and sisal fiber, among others.

In 2023, the AfCFTA Guided Trade will also concentrate on Trade in Services in the five priority sectors which are tourism, transportation, business, communication, financial, transport, and services relating to travel and tourism.

The ultimate goal is to make sure that the AfCFTA is fully operational and that the initiative’s benefits are properly implemented in order to enhance intra- and interregional commerce, which would lead to economic development for the benefit of the continent as a whole.

It is anticipated that the African Union’s designation of 2023 as the “Year of AfCFTA: Acceleration of the African Continental Free Trade Area Implementation” will increase political commitment and speed up the AfCFTA’s effective implementation, enabling it to fully benefit African citizens and realize Agenda 2063’s aspirations and objectives.

In order to mobilize and carry out actions that promote intra-African trade, particularly trade in value-added production and trade across all sectors of Africa’s economy, the year-long activities are hoped to strengthen the existing collaboration among the member states, the RECs, the AU institutions, the private sector, development partners, and other stakeholders.

The progress made by the eight RECs through their customs unions, free trade areas, and other trading arrangements is anticipated to be built upon by the AfCFTA.

With the ratification of the documents creating the AfCFTA, 44 member states are now state parties to the Agreement, and 54 member states have signed the agreement. As of February 2023, member states had filed 46 Provisional Schedules of Tariff Concession, including four from the Customs Unions.

The realization of commercially viable trading under the AfCFTA has been made easier due to increased efforts to speed up implementation and advanced utilization of the operational mechanisms already in place following the Agreement establishing the AfCFTA’s entry into force in May 2019.

The AfCFTA Agreement is expected to cause short-term disruptions as tariff revenues by State parties are reduced, industrial sectors are disorganized, companies and supply chains are reorganized, and employment is disrupted – according to UN’s review of the new trading scheme.

The Pan African Payment and Settlement System (PAPSS) in place is a centralized financial market infrastructure that makes it possible for money to flow across the African borders in an effective and secure manner. PAPSS provides a payment and settlement service to which commercial banks, payment service providers, and fintech businesses across the continent can connect as participants in conjunction with central banks on the continent. The PAPSS network had eight central banks, 28 commercial banks, and switches as of June 2022. By the end of 2023, it would have reached all five of Africa’s regions.

All central banks must register by the end of 2024, and all commercial banks must follow suit by the end of 2025. Because of the usage of 42 different currencies, PAPSS will significantly reduce the costs associated with currency convertibility and save the continent an estimated USD 5 billion annually.

To ensure an inclusive approach to the AfCFTA implementation, the private sector strategy collaborates with stakeholders from the public and private sectors as well as from all regions of the continent. Impact and economic recovery in the post-pandemic world are its main objectives.

Regional value chains are being built as part of the AfCFTA private sector participation Strategy to give African nations the chance to take advantage of local advantages to increase competitiveness, diversify product supply, and export commodities with better value addition. This would enhance trade and economic performance while assisting the region in lowering its sensitivity to outside shocks.

The plan concentrates on four first priority industries or value chains: agro-processing, automotive, pharmaceuticals, and transportation and logistics. This choice is made based on the potential for import substitution and the current industrial capabilities on the continent.

The AfCFTA e-Tariff Book’s launch in November 2022 also made it possible for trade facilitation to be digitized, ensuring that trade and customs agencies may conveniently obtain schedules of tariff concessions. With the operationalization of the Dispute Settlement Body (DSB) in April 2021, the AfCFTA dispute settlement mechanism, a crucial tenet in the smooth execution of the Agreement, is operational.

As part of the AfCFTA’s implementation, the 13-member AfCFTA Trade and Industrial Development Advisory Council was established to provide advice to the Secretariat on trade integration and transformative industrialization. The AfCFTA implementation processes, negotiations, and implementation; connectivity and trade facilitation; industrial growth and regional value chains; and inclusion concerns are the main areas of attention for the Advisory Council.

A communiqué issued following the Ordinary Session of the African Union Heads of States show that the leaders have unanimously agreed to adopt the Action Compact of the first iteration of the Africa Prosperity Dialogues (APD), which took place in Ghana last January and involved the continent’s private sector in the implementation of the AfCFTA.

The 36th AU summit’s theme, “The Year of AfCFTA: Acceleration of the African Continental Free Trade Area Implementation,” also coincided with the Africa Prosperity Dialogues’ theme, “The Africa Continental Free Trade Area (AfCFTA): From Ambition to Action, Delivering Prosperity through Continental Trade.”

The biennial Africa Prosperity Dialogues provide a specialized forum for networking between members of the continent’s corporate sector and with government representatives on how to quickly establish the continent’s single market. This shared ownership strategy was developed by the Africa Prosperity Network in collaboration with the AfCFTA Secretariat and the Government of Ghana, which serves as the AfCFTA Secretariat’s host country, and has received the full support of the AU.

“We recognised that the AfCFTA Agreement would contribute significantly to sustainable economic growth, employment generation, inflow of foreign direct investment, industrial development, better integration of the continent into the global economy and prosperity for all Africans,” reads part of the Action Compact adopted by the AU.

After careful consideration, the business leaders agree in the action compact to take specific actions in the following four theme areas: Business Community, Government, AfCFTA Secretariat, and Partners.

Many experts and private sector advocates value and capitalize on the positive roles of trade facilitation to improve the economic development of Africa. Zemedeneh Negatu, Global Chairman, Fairfax Africa Fund is one of them. “Africa is potentially the wealthiest continent but has the lowest wealth per adult in the world,” he strongly believed. “So, economic integration is key.” He concludes. EBR


11th Year • March 2023 • No. 115

Eden Teshome

Editor-in-Chief of Ethiopian Business Review (EBR). She can be reached at eden.teshome@ethiopianbusinessreview.net


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