African nations officially launched a landmark trade agreement at an African Union summit in Niger on Sunday, with the long sought-after agreement hailed as a historic step towards “peace and prosperity” across the continent.
The deal, which African leaders hope will create the world’s largest free trade area, was given a boost when Nigeria and Benin’s presidents signed on to rapturous applause on Sunday at the two-day summit in Niger’s capital Niamey.
After 17 years of tough negotiations, the AU is expected to launch the “operational phase” of the African Continental Free Trade Area (AfCFTA) later in the day in what AU commission chairman Moussa Faki said would be a “historic” moment.
Africa has much catching up to do: its intra-regional trade accounted for just 17 percent of exports in 2017 versus 59 percent in Asia and 69 percent in Europe. Africa has missed out on the economic booms that other trade blocs have experienced in recent decades.
Economists say significant challenges remain, including poor road and rail links, large areas of unrest, excessive border bureaucracy, and petty corruption that have held back growth and integration.
Members have committed to eliminate tariffs on most goods, which will increase trade in the region by 15-25 percent in the medium term, but this would more than double if these other issues were dealt with, according to International Monetary Fund (IMF) estimates.
The summit also saw the launch of a digital payments system for the zone and instruments that will govern rules of origin and tariff concessions, as well as monitor and seek to eliminate non-tariff obstacles to trade, the African Union said.
“An old dream is coming true, the founding fathers must be proud,” said Faki, adding that AfCFTA would create “the greatest trading area in the world”.
Niger’s President Mahamadou Issoufou hailed it as “the greatest historical event for the African continent since the creation of the Organisation of African Unity in 1963,” referring to the AU’s predecessor.
With Nigeria and Benin’s signatures, 54 of the 55 AU member countries have now signed onto the deal, with Eritrea the only holdout.
The first step is to cut tariffs for goods from countries within the bloc but the timeframe to do this is yet to be announced.
The AU says that the African Continental Free Trade Area – called AfCFTA – will create the world’s largest free trade area.
It also estimates that implementing AfCFTA will lead to around a 60% boost in intra-African trade by 2022.
Only 16% of international trade by African countries takes place between African countries, according to research by the African Development Bank in 2014.
At the moment some of that intra-Africa trade ranges from fresh fish from the Seychelles to petrol from Angola.
The agreement was formalized at the end of April when the agreement crossed the launch threshold, which required ratification by at least 22 countries.
Africa already has an alphabet soup of competing and overlapping trade zones – ECOWAS in the west, EAC in the east, SADC in the south and COMESA in the east and south.
But only the EAC, driven mainly by Kenya, has made significant progress towards a common market in goods and services.
These regional economic communities (REC) will continue to trade among themselves as they do now. The role of AfCFTA is to liberalise trade among those member states that are not currently in the same REC, said Trudi Hartzenberg, director at Tralac, a South Africa-based trade law organisation.
Why is it a big deal that Nigeria signed up?
AfCFTA hit a hurdle last year when Nigeria pulled out days before the country was due to sign the agreement.
Nigeria is Africa’s biggest economy and has long been a regional leader so, when it stalled, observers questioned if the African trade bloc would ever actually happen.
President Muhammadu Buhari said he needed further consultations in Nigeria.
Since then, the Nigerian Office for Trade Negotiation says it has consulted with 27 groups, including trade unions.
Nigeria has a lot to gain from increasing access to its goods and services to a wider African market. But many of those consulted also feared increased regional integration would lead to unfair competition for jobs and the goods they produce.
With Nigeria signed up, AfCFTA’s dream of increasing intra-Africa trade, which currently lags behind the volume of trade the continent does with Europe, is now one step closer.
Now that AfCFTA can offer access to the enormous Nigerian market, they are in a much stronger position to negotiate with regional bodies in other parts of the world.
Why was Eritrea left out?
Eritrea did not participate in the negotiations because of their conflict with Ethiopia, according to the Commissioner for Trade and Industry of the AU Commission Albert Muchanga.
He adds that now the two countries are at peace and Eritrea has asked the AU to go through the agreement with them.
“So over time they are going to come on board” he said.
What are free trade agreements?
Free trade agreements are designed to cut trade tariffs between member countries.
Tariffs are a form of tax, like a border tax.
They are placed on goods coming into a country for a range of reasons, sometimes to try and protect a home-made product.
The purest free trade agreement (FTA) removes all border taxes or trade barriers on goods.
They get rid of quotas too, so there is no limit to the amount of trade you can do.
FTAs also help make a country’s exports cheaper and give easier entry to other markets.
They come in all sorts of forms and with different rules but in short, they make trade between countries as liberal as possible and allow for more rules-based competition.