What is the AfCFTA?

The African Continental Free Trade Area (AfCFTA) is the major, current initiative in Africa to promote socio economic development. By creating a single market for goods and services, facilitated by movement of people and thus deepening economic integration in Africa, it seeks to promote an integrated, prosperous and peaceful Africa, as espoused in the African Union’s Agenda 2063.

It is also seen as a way to fundamentally change African economies. As the AfCFTA Secretary General put it on 1 January 2021 at the official launch of trading under the AfCFTA:

If this new economic model was an ambition at the outset, its resonance has increased with the COVID-19 pandemic and the conviction that “[i]ncreased intra-African trade is what will drive economic development post-COVID-19” (Mene, 2021). Though the pandemic is a major economic threat, combined with the political backing for the AfCFTA, it may offer a critical juncture for pushing policymakers to address long-standing trade and economic reforms.

The promise of the AfCFTA

A lot of hopes are being attached to the AfCFTA, and indeed, models of the estimated benefits of implementing the AfCFTA seem broadly positive. The first of our AfCFTA-focused outputs provided an overview of the state of play of AfCFTA commitments and an overview of the literature on the AfCFTA and its expected benefits.

On paper, the AfCFTA promises a virtuous circle of greater market opportunities, triggering more trade and investment, and allowing greater value addition and productivity growth – leading to more and better jobs with social inclusion, and thus further enlarged markets. These are reflected in the figure below.

But as the figure also illustrates, successfully creating the inner virtuous circle around the AfCFTA also requires the outer circle of additional supporting policies and decisions. That is, for the full benefits of the AfCFTA to accrue to African countries and citizens, numerous additional policy enablers – measures, reforms and investment – are also key, not least in infrastructure, transport corridors and logistics, the business climate in African countries, and indeed the movement of people.

The AfCFTA has benefited from high-level political momentum that has helped it in the formulation and negotiation stages, though these are still ongoing. This political support is partly underpinned by historical ambitions linked to pan-Africanism, and as the quotation above makes clear, by the idea of addressing an economic model that is associated by many with the colonial era.

But this solidarity in ambition faces greater challenges in reality. While the AfCFTA is a trade agreement - with an initial focus on lowering trade tariffs and removing non-tariff barriers to trade in goods and services - it seeks to go further in later phases to address issues of e-commerce, investment, intellectual property and competition.

As the above lays out, its ultimate success will depend on the degree to which governments can not only complete negotiations and implement agreed policies, but also invest in the additional necessary enablers - where these have often been previously identified as constraints to further regional integration.

It also depends on the incentives and interests around each of the different aspects of AfCFTA implementation, where competing interests both between and within countries and sectors are key to understanding how and where most impact will be felt, and therefore where and what kind of external support is necessary and useful.

The AfCFTA, RECs and movement of people - simplifying regimes?

Connecting people and markets within and between African countries and regions is a longstanding aspiration, and a core part of the AfCFTA. The AfCFTA explicitly seeks to:

• Address the challenge of multiple and overlapping regional economic community memberships and speed up regional and continental integration processes, and
• Contribute to the movement of people, which aligns with the African Union Free Movement Protocol (AU-FMP).

The need for some streamlining seems clear from the figure below showing existing trade agreements between African countries:

However, looking at the AfCFTA agreement and how it will in fact build on pre-existing regional agreements - with multiple regional free trade areas and customs unions that will continue to exist and govern intra-regional trade - we find that rather than streamlining regimes, the coexistence of continental and regional frameworks for trade and the movement of people will rather imply a separate, additional trade regime with separate, parallel processes. That is, the AfCFTA and the FMP will coexist with a regional subset of distinct trade and free movement regimes in negotiations, institutional set-ups and implementation.

The reasons for this are clear and understandable - one formal, continental agreement cannot do away with decades of regional cooperation. Similarly, each region has separately been slowly advancing with its own protocol on the movement of people. As such, the AfCFTA and FMP have been designed in pragmatic terms to adapt to and build on that reality.

Nonetheless, this approach also brings additional complications. Implementing the combination of different trade regimes will require more coordination between continental and regional processes, possibly complemented by sui generis agreements between the AfCFTA secretariat and different regional bodies given their very different statuses in trade or AU recognition.

Further, as highlighted in this paper and past analyses, states often feel compelled to signal their support for regional and continental agendas, even when implementation is not a political priority due to other domestic political concerns. Past work looking at these dynamics at the country level in South Africa and Nigeria help to illustrate these concerns, while other signatory countries are presently assessing what actual ratification will entail and its policy implications. The risk is that the political momentum stops in some countries when it comes to actually applying lower tariffs and removing non-tariff barriers to trade from outside the region, as it often has within regions.

The stark contrast in political traction between the AfCFTA and the FMP protocol also highlights how politics within and between states can play out quite differently according to policy area as the map below highlights. In contrast, the AfCFTA currently has 54 signatories, with 40 countries having ratified the agreement:

The necessity of connecting markets and people, suggest that policymakers and their partners should also seek stronger links between the AfCFTA and the FMP and identify where these could help create traction for existing regional processes, as well as where existing regional processes can support AfCFTA and FMP implementation.

The AfCFTA and regional value chains - the key to industrialisation?

Beyond the institutional challenges cited above, another explicit objective of the AfCFTA is to “promote industrial development through diversification and regional value chain development” (AU, 2018). This again reflects the ambition to change the economic model away from exporting primary products to creating jobs and increasing “self-sufficiency”.

But while the AfCFTA focuses largely on removing barriers to trade, this may mean little if not accompanied by measures to develop productive capabilities to trade more, especially for those countries currently with least productive capacity.

Further, the challenge raised in this paper is that while developing countries need more proactive governments to help support new industries, “their political systems are often built on favouritism, and their administrations typically lack both the resources and the right incentives for effective service provisioning” (Altenburg, 2011). That often brings difficulties in finding the balance between efficient information sharing and cooperation between states and business, while mitigating the risk of unproductive capture and rent-seeking.

Whether within the context of the RECs or the AfCFTA, some degree of coordination between governments seems necessary to put in place the necessary elements for genuine RVC development - much like at the national level, governments must find ways to jointly overcome market, information and coordination failures.

It also requires governments to rethink their current industrial strategies in terms of ways to encourage investment and increase productive capacity to export into the wider continental market. While ultimately companies must be the ones to use the AfCFTA, for the industrialisation ambition to be met will also require that governments seek to understand the existing constraints to investment and exports and work on addressing these in a targeted way. That will also require understanding where state-business relations align with inclusive industrialisation ambitions, ways to offset or compensate potential losers - whether of rents or incomes - and adapting policies accordingly. The AfCFTA is a long term project as is the industrialisation goal, and at times they may seem to run counter to one another - but both ultimately need to be considered as one.

The AfCFTA - a basis for a continent to continent agreement with the EU?

As well as internal trade, the AfCFTA will also affect Africa’s external trade relations. Among many asking about this, Africa’s foremost trade partner, the EU, views the AfCFTA as a step towards its long-term ambition of a continent-to-continent free trade agreement (FTA).

This paper therefore looks at whether this ambition makes sense from an African point of view. African states would need to establish a continental customs union - a long term ambition of the AfCFTA - to be able to then align their trade interests towards the EU and to provide a mandate to the African Union, or another continental body, to represent them in trade negotiations.

However, various political economy dynamics are likely to thwart these changes. As this paper discusses, the ambivalence of African states towards deeper integration will complicate efforts to establish a continental customs union. The different pressures and incentives they face will make it hard for them to align their trade interests vis-a-vis the EU and their desire to preserve sovereignty means they will be reluctant to give the AU a mandate to represent them in trade negotiations.

The paper therefore concludes that proponents of a continent-to-continent FTA should focus their efforts on supporting the implementation of the AfCFTA and related African integration processes and on improving existing trade arrangements between the EU and Africa. Such efforts could help pave the way for a future continent-to-continent FTA. At the same time policymakers on both sides should not let a preoccupation with a continent-to-continent FTA divert attention away from other avenues to foster constructive EU-Africa collaboration on trade.

More on this topic is discussed in the following two summaries:

• Overview: Regional organisations in Africa
• AU reforms – the political economy of adapting internally and externally

This synthesis note was created by Bruce Byiers and Isabell Wutz building on the work and inputs of Philomena Apiko, Amanda Bisong, Bruce Byiers, Alfonso Medinilla, Martin Ronceray, Lidet Tadesse and Ueli Staeger (external). For information about this guide and to know more about ECDPM’s work on African institutions and regional dynamics, and on the PEDRO II project, please contact Bruce Byiers at bby@ecdpm.org.