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The AfCFTA marks a milestone in its implementation

Written by Maximiliano Mendez-Parra

Expert Comment

Today, eight African Continental Free Trade Area (AfCFTA) member countries have started trading under the provisions of the agreement. This is a very important milestone in the African integration process. For the countries involved, this will expand their export markets as well as benefit their own consumers by importing cheaper products.

The AfCFTA’s Guided Trade Initiative, launched today, recently discussed by H.E. Wamkele Mene at ODI, was designed to facilitate countries ready to do so to start trading under the provisions of the agreement. Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania and Tunisia made the required implementation changes in their customs and regulations necessary to begin trading. The AfCFTA Secretariat played a key role in coordinating the actions to ensure smooth implementation.

The launch today constitutes the beginning of the AfCFTA implementation process rather than an end. First, rules of origin in critical products such as textiles and automobiles remain to be finalised, and without them it will be impossible for these products to start trading under AfCFTA rules. Although they constitute around just 13% of the number of tariff lines, they are critical in terms of both continental value chain development and manufacturing development.

Second, the Guided Trade Initiative operates with alist of products that have been earmarked to be traded. They include ceramic tiles, batteries, tea, coffee, processed meat products, corn starch, sugar, pasta, glucose syrup, dried fruit and sisal fiber. This list excluded a large number of products within both the agricultural and manufacturing sectors. . It is expected that new products could be added later. Table 1 shows the value of trade of these products within the Guided Trade Initiative countries and to the World. For Kenya, these products not only represent an important part of its total exports, but also its exports to the other seven countries in Table 1, which accounts for 23%. For Rwanda, this is even higher at 33%. In contrast, for Ghana, bilateral exports among these countries are very small.

Table 1 Exports of the Guided Trade Initiative products 2019 (In thousands of US$)

Source: own elaboration based on UN Comtrade. Note: Cameroon does not have data for 2019, hence 2018 data has been used.

These considerations suggest there is a long way to go for full integration of trade in goods (let alone other issues such as trade in services or investment provisions) as more products and countries remain to be covered. Although they include many of the largest economies on the continent, they represent a fraction of all the AfCFTA state parties.

The AfCFTA's Guided Trade Initiative complements existing trade agreements. Some of its members are already part of the East African Community (Kenya, Rwanda and Tanzania) and the Common Market for Eastern and Southern Africa (Egypt, Kenya, Mauritius, Rwanda, and Tunisia). Therefore, duty-free trade already exists among members of these Regional Economic Communities (RECs). Although significantly more limited in terms of product coverage, Cameroon, Ghana, Egypt, Tanzania and Tunisia are also members of the Global System of Trade Preferences (GSTP). Consequently, in terms of tariff removal, it is unlikely that exporters and importers within these countries will see a significant change.

Table 2 below shows the share of total exports in trade amongst the eight countries in all products. For example, Kenya’s exports to Tanzania represents 5.6% of its total exports. In fact, for Kenya the other seven countries represent 13.1% of its total exports. These high shares (though still low when compared to other countries across the world) are explained by the existence of trade agreements and proximity. In cases where there are no existing trade agreements, the share of trade is low. This suggests, for example, that in the short-term Ghana would not benefit substantially. So, either because agreements are already in place or because the existing volumes of trade are low, it is expected that the Guided Trade Initiative will have a limited impact in the short term.

Table 2 Share of Guided Trade Initiative Members in total exports (2019) (In percentages of total exports)

Source: UN Comtrade, Note: In bold are pairs of countries that are not part the same regional economic community. In italic are countries that are members of the GSTP. Cameroon does not have data for 2019, hence 2018 data has been used.

However, one significant and critical point of the Guided Trade Initiative should not be missed. The Guided Traded Initiative constitutes an opportunity to bring together buyers and sellers operating across the continent. In this sense, rather than being a passive exercise of securing that whomever located in any of these countries can import under the provisions of the agreement from the other countries, the Guided Traded Initiative also aims to secure that the agreement is used effectively. That is a very positive step.

In this sense, the Guided Trade Initiative is unique. It aims to create business links underlying trade. Whilst this may be less significant for countries that already trade intensively (e.g. Kenya and Rwanda), it is critical for countries with weaker trade links. The creation of these links and the matchmaking process generated by the Guided Trade Initiative is expected to generate longstanding business relations between partners, which are expected to strengthen and intensify as more countries and products are added.