African Continental Free Trade Agreement (AfCFTA): Status Update for Business Stakeholders and the Private Sector

On 21 March 2018, member states of the African Union met and signed the African Continental Free Trade Area. 52 out of 55 countries have signed. 18 ratifications (10 deposited with the AU and 8 have completed the Parliamentary processes). 22 ratifications for the agreement to enter into force.

However, it is important to note that the agreement that was signed is not the complete agreement but rather the skeletal framework outlining general provisions. Specific details on the main aspects that form the agreement and will realize the trading opportunities are still outstanding. These include:

  • Schedule of Tariff Concessions – State parties have yet to develop and submit their schedule of concessions for trade in goods. Parties have agreed to a 90% basket of goods to be liberalised and 10% for sensitive products which are to be liberalised over a longer period.
  • Rules of Origins – Specific details relating to rules of origins have not been concluded. Parties are still to develop and submit their lists of product-specific rules of origin, including goods obtained from Special Economic Zones.
  • Dispute settlement – agreeing to a mechanism for dispute settlement.
  • Secretariat – To adopt the structure, budget, location (country) and organogram of the AfCFTA Secretariat.
  • Services – schedule to be developed and submitted.

Countries to watch when the agreement enters into force:

These are the top ten countries with the highest percentage in intra-African trade (exporters). They are not in any specific order.

Countries Existing Membership of Regional Groups AfCFTA Status Share of Intra-African Exports
1.     South Africa SADC, SACU SADC EPA Ratified 27.63%
2.     Nigeria ECOWAS, CENSAD Did not sign 8.36%
3.     Gabon ECCAS Signed 7.39%
4.     Egypt CENSAD, COMESA Signed 5.73%
5.     Angola ECCAS, SADC Signed 4.53%
6.     Ivory Coast CENSAD, ECOWAS Ratified 3.88%
7.     Zimbabwe SADC, COMESA Signed 3.51%
8.     Tanzania EAC, SADC Did not sign 3.05%
9.     Morocco UMA, CENSAD Signed 3.04%
10.  Kenya EAC, IGAD, COMESA, CENSAD Ratified 2.80%
Top 10 Total 69.92% Total Trade

Source: African Trade Statistics Yearbook 2017.

Latest Update: 2019/03/20

  • 0n 21 March 2018, member states of the African Union met and signed the African Continental Free Trade Area. Not all countries signed and ratified the agreement: 52 out of 55 countries have signed, and with 20 that have ratified the agreement. Of the 20 that have ratified, 15 deposited their instruments of ratification with the AU, and 4 have completed the parliamentary process but yet to ratify. In order for the agreement to enter into force, 22 ratifications are required.
  • Schedule of Tariff Concessions – The summit of January 2019 finalised the sensitive products by agreeing to 7% sensitivities and 3% exclusions. This paves the way for countries to embark on preparing tariff offers in line with the modalities by June 2019.
  • Rules of Origins – Still under negotiation. Some states want stricter rules of origin and some want flexible rules of origin. In addition, member states are yet to develop a strategy for special economic zones. Negotiations for special economic zones will commence soon. The initial deadline for the negotiations has passed and new deadline is set for mid-year 2019. However, at the pace that negotiations have been going, this year’s deadline may be missed.
  • Secretariat – At the January Summit of 2019, the leaders agreed to hold an extraordinary summit in Niamey, Niger in July 2019. The purpose of the summit will be to decide on the Secretariat of the CFTA – particularly its location and structure. Ghana and eSwatini have expressed interest to host the institution.

Countries to watch when the agreement enters into force are listed below according to GDP size. The table also includes data on the countries with the highest percentage in intra-African trade (exporters and importers).

Countries AfCFTA Status GDP in US dollars % exports % imports
Nigeria Did not sign 397 8.36% 2.86%
South Africa Ratified 376 27.63% 12.93%
Egypt Ratified 249 5.73% 3.99%
Algeria 188 2.14% 2.38%
Morocco Signed (cabinet approval) 118 3.04% 2.66%
Angola Signed 114 4.53% 1.57%
Kenya Ratified 90 2.80% 2.28%
Ethiopia Signed (Parliament approval) 84 * *
Tanzania Did not sign 55 3.05% 1.63%
Ghana Ratified 52 2.32% *
 

Source – African Trade Statistics Yearbook 2017 and IMF Map Data.

*not listed in the data captured of the 22 major intra-African trade importers and exporters.

 

The share of total Africa-Exports (%), 2017 (only showing UN Comtrade reported data)


Source: UN Comtrade, 2019

Share of total Africa-Imports (%), 2017 (only showing UN Comtrade reported data)


Source: UN Comtrade, 2019

Latest update: 30/04/2019

22 Ratifications for the AfCFTA! The Final Lap.

Finally, the AfCFTA has reached the minimum number of 22 ratifications for the agreement to enter into force. The agreement is edging closer to implementation. To date, the AU Commission has recorded 20 deposits of instruments of ratification with only two outstanding. After the 22nd instrument of ratification has been deposited, the AfCFTA will enter into force after 30 days. At the January Summit, member states agreed to submit their schedule of tariff commitments at the next summit. They agreed to a liberalisation of tariffs up to 90% tariff lines over a 5-year period for non-LDC members and 10 years for LDCs to be progressively eliminated. The remaining 10% is reserved for sensitive and excluded products. Now we are entering a phase where the agreement will be implemented. But how does this schedule of commitments translate in terms of implementation?

A breakdown of the Schedule of Commitments

The AfCFTA negotiators agreed to a progressive reduction or elimination of tariffs and other barriers to trade. The progressive reduction and elimination of tariffs create market access. Currently, intra-African Trade remains very low, sitting at 18%. This is against the background that most trade in Africa is in primary products. See graph here

Questions arise concerning the generally agreed tariffs. Does 90% tariff liberalisation entail that much of intra-African trade will not be subjected to tariffs? At this stage, this basket refers to all goods. At the moment it is not clear what criteria were adopted for sensitive and excluded products. Under the agreement, goods risk being concentrated within the basket of sensitive and excluded products, leaving the 90% virtually empty. This potentially renders the agreement weak; and some could argue, meaningless. For a stronger and effective agreement, it is important that countries’ tariff schedules are not all concentrated within the category of excluded and sensitive products. The AU has emulated the WTO by setting up certain rules that require that no entire sector be exempted from liberalisation. Hence, they have added timelines applicable to the excluded products. Another useful mechanism could be the application of an anti-concentration clause. This clause prevents member states from concentrating their flexibilities in a specific sector. These rules will ensure that a more meaningful liberalization occurs for intra-African trade and that an important opportunity to liberalise trade and create a large market is not missed. Finally, an alternative solution is to use double-qualification, which would cover both the number of tariff lines and the share of imports being covered by those tariff lines. Double-qualification ensures that the level of ambition expressed (the 90% linear cuts elimination) is accurately expressed in terms of trade coverage. It also has the advantage of also taking into account various countries’ sensitivities in a reasonable manner.

Latest Update : 14/06/2019

Key Questions to Ask Now that the AfCFTA Entered into Force

The AfCFTA entered into force on 30 May 2019. 52 members have signed the agreement with 24 ratifications. This is the first step leading to the establishment of an African common market has been achieved. The next phase will be implementation – which entails applying the terms of the agreement nationally by each government. This includes amending domestic measures to be in line with the AfCFTA. Such customs procedures and domestic measures. Technically, most governments should have completed all the preparatory work leading up to the agreement entering into force. That way, the only thing left would be implementation. However, this stage raises a number of questions which are key to the successful implementation of the AfCFTA.

1. How ready are the individual African states for the implementation of the AfCFTA?
2. Have national instruments been updated to reflect the terms of the agreement?
3. Does each individual member state have an implementation strategy?
4. Do they have the necessary capacity for implementation?

Thus, despite signing the agreement, if the above questions are not answered, implementation of the AfCFTA will be challenging and the benefits of the agreement will be delayed. A readiness assessment is needed to ensure that all member states are at the same stage for the agreement to be successful. In addition, even though the rules are in force, the market access commitments to which they apply are still outstanding such as rules of origin, modalities for tariff negotiations, tariff schedules and service sector commitments.

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  1. Mike Humphrey June 24, 2019 at 10:23 am · · Reply

    Despite pointing out at the beginning and the end of this update that as yet there are no AfCFTA “rules of origin, modalities for tariff negotiations, tariff schedules and service sector commitments”, this update still seems to assume that the key questions all relate to implementation. There is only an agreed legal text, NOT AN AGREEMENT THAT CAN BE IMPLEMENTED. So in fact the key questions relate to – when will there be agreed “rules of origin, modalities for tariff negotiations, tariff schedules and service sector commitments” not to mention dispute settlement? Until these components have been agreed there is no AfCFTA (regardless of how many countries have ratified the legal text). Only then will issues of implementation be of any significance.

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