Peter Leon, Herbert Smith Freehills, Johannesburg office, partner and global co-chair Africa Group.
SA, Nigeria and Egypt have not signed up to crucial aspects of the African Continental Free Trade Area.
A significant milestone has been reached in the economic integration of Africa with the creation of the African Continental Free Trade Area (AfCFTA).
Opened for adoption at the AU summit in Kigali in March 2018, the agreement establishing the AfCFTA has been signed by 54 of the 55 AU member states and ratified by 28, including major economies such as Egypt, Ghana, Kenya and SA. It entered into force in May 2019.
The AfCFTA is the culmination of an ambitious project announced in the 1980 Lagos Plan of Action, to enhance Africa’s economic self-reliance and reduce its dependence on trade and aid from overseas. The AfCFTA aims progressively to remove barriers to the free movement of people, capital, goods and services throughout Africa, creating a common market akin to that in the EU’s foundational 1957 Treaty of Rome, which is based on the sanctity of these four freedoms.
The AfCFTA is expected to unlock the potential of Africa’s 1.2-billion people and African business by providing continentwide market access, better (and cheaper) infrastructure, opportunities for scale production, and more efficient resource allocation. The UN Economic Commission for Africa estimates that tariff reductions under the AfCFTA will boost intra-African trade by more than 50% by 2022 (or as much as 100% if non-tariff barriers are similarly reduced).
As the African Growth and Opportunity Act (Agoa) is set to expire in 2025, this is an opportunity for the US and AfCFTA member states to rework the Agoa framework in a manner that aligns with the implementation of the AfCFTA — not least because the US is unlikely to continue to maintain a unilateral trade agreement.
In a bid to fulfil the AfCFTA’s potential, member states have undertaken to remove at least 90% of tariffs on all intra-African goods over a period of five to 15 years. This is to be coupled with the progressive elimination of non-tariff barriers, the liberalisation of trade in services, the enhancement of trade facilitation and customs efficiencies, as well as the development of regional value chains.
Disputes between member states under the AfCFTA agreement will be resolved by a dispute settlement body as well as an appellate body modelled on the World Trade Organisation’s (WTO) dispute settlement mechanism.
In many ways, however, the agreement establishing the AfCFTA is only an “agreement to agree” — a framework for concrete commitments still to be made under six pending protocols on trade in goods, trade in services, competition, investment, intellectual property and dispute settlement. Member states will have to determine to what extent they are prepared to cede their economic sovereignty and expose their workers and industries to cross-border competition.
This is where the hard work begins. As Rwandan President Paul Kagame said when opening the agreement for signature last year, “the last mile of a race is often the most arduous”. The most daunting hurdle in this “last mile” of African economic integration is undoubtedly the spectre of resurgent economic nationalism. The establishment of the AfCFTA flies in the face of a trend that has taken root in some of the world’s largest economies. The UK is still struggling to exit the EU, while the US continues to tighten immigration controls and impose protectionist trade measures not only with China but also the EU and others.
Africa’s economic powerhouses are not immune to this proclivity to protect narrow national interests from perceived foreign threats. One of the last nations to sign the AfCFTA agreement was Nigeria, the continent’s most populous country (with 200-million people) and its largest economy with a nominal GDP of $376bn (R5.56-trillion), about 17% of Africa’s GDP. Explaining this reluctance last year, President Muhammadu Buhari said: “We will not agree to anything that will undermine local manufacturers and entrepreneurs or that may lead to Nigeria becoming a dumping ground for finished goods.”
It is discouraging, too, that Africa’s three largest economies — Nigeria, Egypt and SA — have all declined to sign the AU Protocol on the Free Movement of Persons, which opened for signature on the same day as the AfCFTA agreement. This protocol requires its signatories to grant other Africans rights of entry, residence and establishment (of business or trade), as well as protection against arbitrary expulsion and expropriation.
It is unclear when, or whether, SA intends to sign up to this protocol. The government has yet to make any decisive departure from the economic nationalism of the Zuma administration and has likewise failed effectively to confront the xenophobic attitudes prevailing among many South Africans, which erupted into a spate of deadly attacks on African immigrants in September.
On the contrary, apparently pandering to these prejudices, the department of small business development is drafting legislation to exclude foreign nationals from operating businesses in certain sectors. Measures such as these are wholly incompatible not only with the Protocol on the Free Movement of Persons (which SA has not signed), but also with the spirit and purpose of the AfCFTA (which it has).
The AfCFTA Protocol on Trade in Services, which has been signed as part of the consolidated text of the AfCFTA agreement (but whose supporting sector-specific commitments are still the subject of negotiation), is the most relevant in this regard. It requires member states to accord to services or service suppliers of another state no less favourable treatment than it accords to similar domestic services or service suppliers. This principle is echoed in many of SA’s existing international trade obligations, including the national treatment principle in the WTO’s General Agreement on Trade in Services as well as the non-discrimination principle in the Treaty of the Southern African Development Community (Sadc). It follows that the minister of small business development’s proposals will not fly as a matter of international law.
If the AfCFTA is to succeed, African states — especially SA, Nigeria and Egypt — will need to move away from narrow economic nationalism. This will require sustained efforts from governments, the private sector and civil society to digest and disseminate information about the potential of the AfCFTA to generate jobs, improve infrastructure and boost economic growth.
The late Samora Machel, Mozambique’s first president, addressing the need for national unity in a country racked by poverty and civil war, said: “For the nation to live, the tribe must die.” In a similar sense, for the AfCFTA to live, nationalism must die.
This article was first published on Business Live: https://www.businesslive.co.za/bd/opinion/2019-11-07-peter-leon-economic-nationalism-in-africas-giants-holds-back-free-trade/
Peter Leon, Herbert Smith Freehills, Johannesburg office, partner and global co-chair Africa Group.
