David Luke is the coordinator of the African Trade Policy Centre (ATPC) at the UN Economic Commission for Africa (UNECA). As part of our AfCFTA Interview Series, Luke speaks on why AfCFTA offers a unique opportunity to drive growth and development in Africa.
Newspage: While speaking at a recent UNECA webinar for journalists on the AfCFTA, you described the AfCFTA Agreement as “the continent’s only path to sustainable development.” Why is AfCFTA the only path to Africa’s sustainable development?
Luke: History has shown that the development of all countries is driven by production and trade – there is no exception to this. Even ancient societies were able to build their prosperity through trade. Therefore, production and trade have always been intertwined; they generate higher level of prosperity. Looking at what Africa generates in terms of revenue today, you will see that more than $400 billion flows into the continent through trade. This is more than Overseas Development Assistance (ODA) also known as foreign aid; it is more than the remittances of Africans in diaspora; it is also more than what Africa received in Foreign Direct Investment (FDI).
Actually, if you combine these three sources together, their sum total is still less than what Africa generates as revenue from trade. Therefore, it is clear that if we want to grow or develop on this continent, there’s no better path to achieve that other than through trade, and we are not unique on this, it is what other countries have done. They improved their production processes, productive capacity, and innovation and subsequently leveraged their improved capacities for production and innovation to trade. So this is our only path.
That is to say the AfCFTA gives us the opportunity as a continent to establish unified trade rules because for us to trade with one another we need rules – we cannot just operate without predictability and certainty to trade. AfCFTA will help us create a continental market such that we can access each other’s markets on preferential basis, as well as helping us to leverage our population of 1.2 billion people. Of the 1.2 billion, about 300 million Africans can be classified as middle class with a purchasing power of between $5 and $20 a day. And of course, we have a continental GDP of $2.5 trillion.
So, it should be clear that the AfCFTA offers us opportunities we can leverage to ensure that trade is able to drive growth and development on our continent.
Newspage: Trading under the AfCFTA was launched barely one month ago, however only few countries (like Ghana, Egypt and South Africa) have been able to put up certain level of trade infrastructure to be able to begin trading. What does this say about the future of the AfCFTA?
Luke: Firstly, the most important thing is to get the trade agreement done, ratified, and establish all the technical requirements necessary to trade effectively such as tariff schedules, rules of origin, clarification on the services offers etc. Although we are not quite there yet, we still have until June this year to try to ensure that all these elements are in place. While 1st of January was designated as the date of start of trading, it is only those countries that are ready and have identified their tariff offers that can begin trading under the AfCFTA.
In practice, what this means is that some of those countries that have already started trading will be applying the lower tariffs on a reimbursement basis, given that right now not everything for trading under the AfCFTA has been finalised. Thus, these countries will be keeping the ledger of who brought what into their territories and if they are charging higher tariffs than they need to under the AfCFTA, they will refund the differences in duties or tariffs in due course, when everything is set up.
At the moment, there is still more technical work that need to be concluded, which is not unusual. Trade agreements require that all the nitty-gritty are sorted out – nothing should be left to chance because businesses establish their business models on what they understand to be the trading rules. For example, how much tariff they are going to pay if they are going to export to country X or Y and so on. So, all these have to be factored into their business models which cannot be left to chance.
I see this moment as a transition period, it’s going to take a bit of time to get everything right and that is not unusual, this is what happens with trade agreements. I think we should only begin to worry if we get towards the end of this year and we have not completed all these formalities. These are the Phase I negotiations that are yet to be completed for goods and services and there is a new deadline to do so by the 30th of June this year. For the Phase II issues, there is a longer deadline which is 31st of December this year. So, to be able to trade effectively, we need to make sure that the Phase I issues that are still outstanding are resolved. The Phase II issues are also important but they are actually aimed at completing the market.
For example, under Phase II, there is a competition policy, investment and intellectual property rights. Competition policy is meant to ensure a level playing field for both small and big traders; such that the big ones do not push the smaller ones out of the market. Thus, the investment policy is meant to ensure there is a level playing field in investment policy while the intellectual property rights policy is to ensure that intellectual innovations are protected. For example, if a small-scale trader develops an innovation, that innovation is protected such that someone else do not steal it.
There is also Phase III negotiations which has to do with e-commerce. As we know, digitalization is everywhere around us and e-commerce is increasingly being used by African traders to get their goods to the market and carry out transactions. So, indeed these additional negotiations will complete the market but they are not as vital as finishing the technical work under Phase I focused on goods and services, but they are still important.
Newspage: What do you make of trade agreements being signed by individual African countries – as recently seen between Kenya and UK– or with regional blocs such as the European Union? Could these trade deals pose any threat to the AfCFTA?
Luke: Firstly, Kenya or any other country are within their legal right to sign other trade agreements because what we have created is a preferential free trade area amongst ourselves on the African continent; it does not legally preclude any country from signing their own bilateral agreements. However, there is a very strong evidence that what we need to do on this continent is firstly, complete our own integration and then negotiate with other parties on the basis of common rules that we already have and are using.
So, the risk of having this bilateral agreements when we have not completed our own agreement is that we would have a hunch-punch of different rules operating and making it more difficult for our traders to understand what applies to who, where and how. So, it does undermine coherence in terms of what we are trying to do i.e. creation of One African Market. Also, we should not stop at creating free trade preferences among ourselves, we should try to go further and create a customs union among ourselves.
If that is also a plan, it does make sense that we try to move towards greater coherence among ourselves. So, I think the issue is one of sequencing, yes we need to have trade agreements with other parties but in terms of sequencing, we should try to get it done first amongst ourselves so that we have clear rules among ourselves which could be the basis of negotiation with other parties. As such, Kenya’s signing of the agreement is so much premature, in my view.
Newspage: What are the key threats ahead in terms of the implementation of the AfCFTA?
Luke: I will prefer to see them as challenges and not threats. The first challenge is to implement the agreement that we have negotiated, signed and ratified. We should not get into this in a cavalier kind of way, when we make commitments we should work to make them a reality and indeed that is how we will realize the benefits of such commitments.
The second challenge I will say is again implementation. I can go further to say, the third challenge is also implementation. Implementation is critical; these agreements are meant to create predictability and certainty and it’s very frustrating, from private sector perspective, when the predictability and certainty does not follow – that can only happen through implementation.
As well, let us not forget the non-tariff barriers that remain in our borders which include arbitrary closure of borders, when we can find other means to ensure that trade continues to flow while we deal with whatever problem that could have led to the arbitrary closure of borders. There are also arbitrary road blocks along the trade corridors that prevent goods from passing across borders. Again, there are arbitrary decisions meant to change the rules that have been agreed upon by all parties.
Of course, our border processes should also be improved upon, in terms of processes and physical infrastructure to ensure smooth passage of goods. Sometimes, you see trucks pile up for miles along borders, because border processes and infrastructure are limited. Moreover, we need to generally upgrade our infrastructure which include road and rail networks and even waterways and airports across the continent. Although we have made a lot of progress in this direction, we still have some ways to go.
And like I said at the very beginning, there is need to improve our productive capacities. One of the benefits of a preferential trade agreement like the AfCFTA is that it offers a bigger market and when you are producing for a bigger market, production costs come down, which means you benefit from economies of scale. These are all the possibilities that are created under the AfCFTA and also challenges we need to fully address.
Newspage: Still on implementation, are you worried that many countries are yet to ratify or even sign the agreement in the case of Eritrea?
Luke: Yes, I am. Although if we look at it in terms of the GDP of the countries that have signed and ratified the Agreement so far, we are talking about more than 75% of Africa’s GDP. That is quite significant. Of course we do have a number of countries that have signed but not yet ratified the Agreement. Forecasts shows that we need them to complete the market for the full benefits to flow. And that means ensuring every country is on board.
Editor’s note: This interview has been edited for length and clarity
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