On the sidelines of the 55th session of the Economic Commission for Africa in Addis Ababa, Ethiopia, the ECA communication team interviewed Stephen Karingi, Director of the Regional Integration and Trade Division on the progress of the African Continental Free Trade Area (AfCFTA), three years since its launch.
At what stage are countries on the AfCFTA?
We are in the trading stage where money is being made and the private sector is taking advantage of the opportunity the AfCFTA has offered. For example, value added coffee has been traded from Rwanda to Ghana. The coffee is traded by a company that focuses on supporting women who produce coffee. Batteries have been traded under the AfCFTA from Kenya to other countries in Africa. Tea traded from Kenya to other African countries came from small holder farmers, which confirms that the AfCFTA is improving livelihoods.
From last year to now, trading under the AfCFTA is underway and is putting money in people’s pockets in an inclusive manner, which includes small scale traders, and women.
But this is not enough. We would want to see all the 4,500 products (listed under the tariff headings (90%) to be traded under the AfCFTA), being traded across borders. We are only currently trading about 100 products. If this happens, we can have the remaining sensitive products also included and traded under the AfCFTA.
So, what is the progress on the implementation of the AfCFTA?
Over and above, strong progress has been made with the private sector maximizing on the benefits of the AfCFTA. We have concluded the protocols that make the market function. and the investment policy, intellectual and property rights and competition policy have been endorsed. These additional protocols to attract more investment on the Continent because AfCFTA has created a common investment area. With intellectual property rights, countries can patent their products and extract more value. So far 47 countries have ratified their instruments of the AfCFTA agreement, 46 have ratified and deposited their instruments of ratification, seven countries have signed but yet to ratify and only one country is yet to sign.
What does it take for countries to trade under the AfCFTA?
Countries are supposed to first sign the AfCFTA agreement, ratify the agreement and deposit the instruments of ratification. The second stage is for the countries to Gazette the AfCFTA certificate of origin, gazette the tariff book so that the customs at the border can recognize these goods and the certificate of origin.
How important is the pan African payment and settlement system to the AfCFTA?
The pan African payment and settlement system is supposed to allow countries trade in their own currencies. For example, if a trader from Ethiopia is trading with a trader in Nigeria, both central banks should be able to settle the payment of goods they are trading without worrying about the dollar exchange rate.
Another example is that of manufacturers are importing edible oils from Egypt, why do they have to worry about the sliding of their currency to the dollar if they can trade with the Egyptian pound? Countries need to think about importation of their intermediate goods from within Africa and see if the pan African payment system can help
Pan African payment system is supposed to remove that stress of countries worrying about the cross country exchange rate. In this case the exchange between Naira to dollar, or Birr to dollar Naira. However the adoption of the Pan African payment system will depend on whether these currencies are stable because if you do not have the right macroeconomic fundamentals and convergence then it can’t work.
The area to monitor for countries is the macroeconomic convergence. One of the areas to look at is the fiscal coordination, current account balances of their reserve which has an effect on the currency rate. It’s hard if a country is importing more than exporting, if it has a huge fiscal balance.
Why are countries still trading less even when they are implementing the AfCFTA?
Our trade needs to expand when compared to Asia, Europe, Latin America which have deepened their regional integration. The AfCFTA is trying to tackle this by encouraging countries to remove non-tariff barriers which are a major constrain to the intra African trade. Connectivity issue is still a problem. When Kenyan tea is exported from Kenya to Singapore first, then to West Africa, it is a very expensive way of doing business.
Are African countries producing similar products hence less cross country trade?
For me, this is not the case. African consumers like variety. It is about the standards, tariffs and cost of moving goods. At the moment, traders in most countries do not have regional value chains and supply chains. A regional supply chain needs financing. But if you do not have the money, then people will start demanding the last mile and source the goods elsewhere. Consumers want to see the product they prefer all the time. This has to do with production and ability to supply it all the time. Companies are not able to sustain the supply if they do not have the finances because some of these companies are small.
Has the issue of sensitive products been addressed under the AfCFTA?
The issue was resolved when the protocol was being concluded. Under the AfCFTA, we have what we call double qualification, whereby when a country makes an offer to the (AfCFTA) secretariat, the offer should be able to cover 97% of the tariff lines and trade. Then the question of sensitive products loses its ability to hinder trade. The tariff lines and total trade covered should be the same.
How is ECA helping countries formulate and implement their AfCFTA strategies?
Institutions, partners and governments need to work together to develop the strategies. For the countries with enough financial resources, they can finance their strategies through their budgets. But in the event that they do not have the resources, they need to engage partners and private sector for financial support. We help countries identify which part they can trade and source for the finances needed to implement their strategies.
For example, for ECA is helping Cote D’ Ivoire which needed help on the mechanism of the AfCFTA strategies. We are currently working through our subregional office in Niamey, in partnership with ITFC to help private sector to identify priority sectors under the AfCFTA. In Kenya, we are helping pharmaceutical manufacturers deal with the challenges in the industry and attract additional funding from financial institutions so that they can expand and sell under the AfCFTA.
We plan to have a peer learning group on the AfCFTA strategies to help countries learn from those that have developed their strategies and how they are using their experience.
For more: https://www.uneca.org/cfm2023
Follow the conversation on social media @ECA_Official and #CoM2023