By Paul Ndiho
After nearly four years of talks, African leaders have launched a Continental Free Trade Area. The $3.4 trillion economic bloc aims to boost cross-border trade and usher in a new era of economic development.
The African Continental Free Trade Agreement officially went into force on May 30. It was signed in Niger, by all but three African countries, and establishes the world’s largest free trade area, since the creation of the World Trade Organization in 1995. The deal will progressively eliminate tariffs among AU member countries.
African leaders hope it will be an economic game-changer that will unite more than a billion people, boost intra-regional trade, and unlock the continent’s enormous economic potential.
“African trade today is conducted on the US dollar, Euro and including the remittances. What this is doing is to reduce the use of three currencies in the bilateral trade settlement in Africa. Because we estimate that that cost Africa between five to seven billion dollars. Beyond that, it also reduces the trade, because Africa has a scarcity of foreign exchange.”
However, the new free trade zone faces a number of challenges. African Development Bank President, Akinwumi Adesina, says if African nations want to step up trade and economic development on the continent, they must remove non-tariff barriers.
“The challenge cannot be solved unless all the barriers come down. Free mobility of labor, free mobility of capital, and free mobility of people, this is very important for the continental free-trade area.”
The bank chief also encouraged African countries to increase trade with one another and add value to agricultural produce.
“Africa has to industrialize. Industrialization is critical, and it is not just about moving raw materials, it is value-added products,”
Tariffs are a major source of revenue for African countries. Nigeria, the continent’s largest economy, signed the pact. Abuja had been reluctant because it worries protectionism could hamper the free trade deal. However, the Manufacturers Association of Nigeria says any attempts by that country to slow-pedal implementation of the pact could hamper the free trade zone’s effectiveness.
“Harmonization of the customs arrangement, particularly not just the custom tariffs but also none tough barriers, and technical barriers, I think these are some of the things that has to be negotiated amongst the participants in the agreement that will try to eliminate the possibility of increased dumping and increased smuggling,”
Some are worried Nigeria will be flooded with cheap goods from more competitive neighbors, and undermine the country’s efforts to revive local manufacturing and expand farming, as it tries to reduce dependence on crude oil exports.
Adeleke Adeleye owns a thriving stationery company. He sees trouble ahead.
“It is not a level playing field, and it is a…to me I consider Nigeria the lion of Africa where we have the largest population, and we have the largest market, so it feels like we are giving so much for not enough,”
Observers say some countries will benefit more than others: South Africa, the continent’s most industrialized economy — and, arguably, its largest exporter — is already conquering much of the Africa with its brand of supermarket chains, banks and telecommunication firms. Countries like Ethiopia and Kenya, are hoping to tap into the continental market – investing heavily in railways, highways, and power generation projects. Eritrea, the only African nation that has not joined the pact, says its government supports the bloc, and plans to hold talks with the A-U in the near future.