Africa Focus
Laureen Fredah Arbitration
According to au-afcfta.org, the African Continental Free Trade Area ("AfCFTA") is the world’s largest free trade area bringing together the 55 countries of the African Union (AU) and eight (8) Regional Economic Communities (RECs). The overall mandate of the AfCFTA is to create a single continental market with a population of about 1.3 billion people and a combined GDP of approximately US$ 3.4 trillion. The AfCFTA is one of the flagship projects of Agenda 2063: The Africa We Want, the African Union’s long-term development strategy for transforming the continent into a global powerhouse.
As part of its mandate, the AfCFTA is to eliminate trade barriers and boost intra-Africa trade. In particular, it is to advance trade in value-added production across all service sectors of the African Economy. The AfCFTA will contribute to establishing regional value chains in Africa, enabling investment and job creation. The practical implementation of the AfCFTA has the potential to foster industrialisation, job creation, and investment, thus enhancing the competitiveness of Africa in the medium to long term.
The African Continental Free Trade Area (“AfCFTA”) officially went live on 1st January 2021. A lot has been going on behind the scene as the Secretariat continues to negotiate the different phases and protocols and as more countries ratify the instrument. To get us up to speed, the Al Tamimi & Company team sat with Mr. Louis Afful who shared what is transpiring at present and what to expect from the instrument in the future. Mr. Afful is the Group Executive Director of AfCFTA policy network in Ghana.
Illustration of Louis Afful
Al Tamimi & Company Please give a brief description about the AfCFTA, what is happening now and any new highlights.
Afful: The Africa Continent of Free Trade Agreements is what has produced the African continental free trade area. African heads of states adopted the agreement in 2018 and it is the second largest after the World Trade Organization. 54 out of 55 African countries have signed this agreement because they want to boost intra African trade, ensure liberalisation of tariffs of 90% of commodities within certain concessions and focus on the free movement of people.
The agreement is shaped into phases and protocols. Phase I is Trade in goods, Trade in services and dispute settlement. Trade in goods has a nexus called ‘The Rules of Origin’. These are now 87.3% ready to start trading. The next nexus is the Trading Facilitation. This is where custom cooperation in management is highly required. This is because Africa does not have an external custom or external union yet. All member states will need to allow an agreed order of concessions to come through their borders. So far, in consideration of trading services, out of the 12-priority sector, five have been liberalized. The first five which are in operation now under trading services are; Tourism, Transport (aviation, maritime, road, rail, and water), Professional bodies (lawyers, teachers, doctors), Financial institutions (banks, insurance) and ICT. The rest are education, healthcare, construction services, distribution services, car transport services, sports, and environmental services. When all these are completed, there will be one voluminous protocol called Trade in services.
The next phase will be Phase II. Under this phase, the agreement is going to complete negotiations on protocol in investment, protocol in intellectual property and protocol in competition policy. Lastly, Phase III is going to tackle digital trading, Women and Youth in trade. As a lesson learned from the COVID 19 pandemic, the last two phases are being negotiated concurrently. The AfCFTA secretariat, the regional office responsible for its implementation of the agreement under the African Union Commission is spearheading the African Union Agenda 2063, which goes hand in hand with the agreement and its purposes. Agenda 2063 envisions one African market, one African currency, one African passport, one African aerospace and more. As an example, two financial institutions are supporting the implementation of AfCFTA group. Afrexim Bank and African Development Bank are supporting the implementation of the one currency vision. It is imperative to add that an e-tariff book has also been launched. Currently 43 states have signed. The procedure is that a state becomes a full member after signing and ratifying the agreement. A state cannot benefit from trading if they do not ratify the instrument. Trading is purely between the party states. The e-tariff manual can be accessed on the Africa Union website at au.int.
Al Tamimi & Company: What is the current status of trading under the AfCFTA and how is the process for liberalization of tariffs?
Afful: Currently, seven countries have been identified under the special initiative arrangement to start trading by end of September 2022. These are; Rwanda, Cameroun, Egypt, Ghana, Kenya, Mauritius and Tanzania. The liberalization of tariffs is classified among countries. Some countries will begin with a 10 year period of liberalization, others with a 15 year period and some with a 5 year period. This will depend on how a country is able to absorb the shock of liberalization. Every year the tariff rate will be discounted until it gets to zero. Therefore, if a country starts with a five-year period, it can start with 5%, then in year 2 - 20%, 15%. By the end of five years, the goal is to be at zero. This is because the member states have been grouped into two categories. The ‘Developed economies’ and ‘Least developed economies’. The developed economies of Africa will liberalize between 5 years and 10 years. That does not mean they are waiting for 10 years. However, to mitigate the credit shocks, Afrexim Bank will provide the facility called the Adjustment Facility Fund, which is to support the credit lines for countries that are going to struggle with revenue shortfalls so no country has an excuse.
Another operationalization instrument of AfCFTA is the Pan African Payment Settlement System (PAPSS). The purpose of it is to make sure that Africa does not lose revenue in transfer fee settlements. PAPSS is aimed to save over 5 billion dollars. Today, a transfer can be made in 7 seconds, payment of transfer can be made in own local currency and the recipient will receive in their respective currency, eliminating the need for hard currency settlements. This is the biggest achievement of this payment settlement system because it saves time and eradicates pressure on foreign exchange.
Another operationalization feature is that there is going to be harmonization of certification and registration of products. The way one product is registered in one country is going to look the same in another country so that states will not use technical barriers against themselves. Lastly, here is a few important things to note; the AfCFTA is based on preferential treatment i.e., the most-favoured nation approach. The Agreement allows for an exit clause after five years, which means a state can quit after five years it is not interested in the area. In addition, a member state can call for review if it is not satisfied with a particular protocol or arrangement.
Al Tamimi & Company: What are some of the issues you consider a priority now?
Afful: Certain sectors have been ear-marked as priority for trading. These include; agro business, automotive industry, ICT, transport and logistics and healthcare. These are immediate must-wins. Additionally, we need to allow legislations into the customs that will empower the customs offices to accept AfCFTA products. This is being accelerated. The third priority has to do with free movement of people, their right to enter member states, and their right to get established therein. This is key because if the goods are going and people cannot move with their goods, it is a frustration. These three must succeed without a doubt
The key challenge has been the strategic readiness of the member state. There is a disconnect between the signing and the implementation. Some will sign when they are not ready with a strategy at all.”
Al Tamimi & Company: What are some of the challenges encountered?
Afful: The key challenge has been the strategic readiness of the member state. There is a disconnect between the signing and the implementation. Some will sign when they are not ready with a strategy at all. For example, Ghana would have to assist at least five countries to come up with strategies. Ghana launched is national documentation policy on Tuesday that is showing shipment plans where only few if not only Ghana has this national policy. This is a potential problem. The second issue is the harmonization of certification and registration of products. If Africa does not harmonize certification, there will be continued use of technical barriers to discredit the products. Another challenge is that the customs are not ready. It seems that they have not built capacity, they do not have legislations to activate the custom procedures, or they are not willing to allow an AfCFTA product to move on reduced duties when it enters their ports. This challenge needs to be quickly rectified. Lastly, there should not be decimations of partnerships outside the agreement because it’s based on preferential treatment. It is frustrating to have countries A, B and C having other agreements outside the free trade area with other 3rd party countries. That frustrates the purpose of the whole agreement.
Al Tamimi & Company: What opportunities should member states look out for?
Afful: There is going to be USD 1billion of support from the African secretariat to support stock ups in the commodity trading. There is also going to be USD 1billion to support automotive industry purely of African shareholder structure and an opportunity for value chains identified by businesses. Once the product is wholly made or wholly obtained, it qualifies for originating status to enjoy the tariff concessions. There is a difference between wholly made from wholly obtained. Wholly made maybe from outside Africa. This is acceptable from a certain percentage. Wholly obtained enjoys zero duty because these use raw materials from Africa so companies can take advantage of the raw materials in Africa and produce and export within the FTA.
Al Tamimi & Company: What is the process for bringing grievances and dispute resolution?
Afful: If you are a private company trading in Ghana and you had a complaint, you must file the complaint to the Minister of Trade of Ghana. They must respond within 48 hours. This need not go to the arbitration protocol. It must be resolved immediately. If it goes to the arbitration level, the host country will have a panel supported by a calendar of lawyers who will sit and resolve the issue. Complaints and grievances must go through the AfCFTA coordination office.
If you would like to know more about its opportunities or implications for you, please contact us at AfricaWorkingGroup@tamimi.com.
Published in September 2022
