Facilitating the AfCTA through better governance
August 28, 2020

Building bridges: Imperatives for successful implementation of the Africa Continental Free Trade Area (AfCFTA)

A truly effective trade partnership between Africa and the rest of the world requires certain pre-conditions, one of which is a functional African intra-continental trade framework, such as the African Continental Free Trade Area (AfCFTA). Historically, the relationship between Africa and many other countries has been coloured by the pursuit of economic interests on the African continent. Due to several factors, post-colonial Africa has evolved as a supplier of resources but with weak infrastructural systems to support global competitive productive capacity.

Against this backdrop, the African Continental Free Trade Area is a welcome framework and represents a necessary step on the journey to meaningful international economic partnership. It is particularly important for organising mutually beneficial trade partnerships amongst African countries at both continental and sub-regional levels. Africa is undoubtedly a continent with vast supplies of human and natural resources and thus there is huge potential for intra-regional GDP growth across several industries e.g. agriculture and manufacturing as well as contributing to reducing poverty and unemployment. Consequently, there are obvious economic and social benefits to African countries from the AfCFTA. Currents trends indicate a new wave of leadership in public and private sectors across many African countries contributing to driving the growth of GDP and the development of products and services for export markets through Small and Medium scale Enterprises (SMEs). With the recent launch of AfCFTA, the stage appears set to integrate African countries in trade partnerships.

However, as with any agreement or partnership, the reality is that negotiation is critical to effective implementation of the framework. Negotiating the terms of engagement allows the different member states to unify their vision, in terms of expectations from the trade agreement and its impact on their citizens. Amongst other things, this would require openness and the political will to effect a change from the status quo. Despite the undisputed benefits of a continental free trade area, it is important to recognise that engagement may vary across African countries due to several factors:

  1. Vision alignment: Africa is a continent of several countries, each with its own multicultural population and history. Holding a unitary notion of Africa would be erroneous, as there are differences along multidimensional lines of language, meaning systems, core values, cultural practices and identity. The pace of development across countries has also been varied, with some experiencing greater infrastructural development than others. Buying into an overarching and unifying narrative of economic partnership therefore requires shifts in orientations and world views.  To this end, there needs to be alignment in vision such that prejudices are dissolved and mutual trust becomes the foundation of the strategic alliance. This is an important step and it requires leadership that can articulate and inspire commitment to a greater cause, beyond economic benefits in a narrow sense. It is significant because it gives purpose and meaning to the different mechanisms for implementing the partnership and fosters commitment and engagement by member countries. Open discussions about core values can proactively prevent the emergence of disputes which would then require triggering the dispute resolution mechanism of the African Union (AU). Documents prepared by member countries, such as national strategies for utilising the AfCFTA should contain key statements of the countries’ vision, underpinned by its core values.
  2. Infrastructural gaps: Some countries may be more attractive destinations than others for intra-continental trade and even direct foreign investment, as a result of infrastructural conditions. A nation’s infrastructural environment includes political and economic stability, technological capabilities, a favourable tax regime as well as the flexibility required for relevant reforms of policy. The tax system has the potential to encourage or discourage domestic production and return on investment. Technological capabilities can enable more efficient production and reduced production costs. Policy reforms are needed in response to the requirements of the CFTA, particularly to ease conditions for doing business, tackle rent-seeking activities and negative effects of middlemen on product prices, and a legal framework which addresses corruption. A stable political and economic system sends positive signals to other countries that a country is ready for business. Existing infrastructural gaps across countries in Africa therefore create uneven opportunities, positioning some countries as net producers and others as net consumers of goods and services with no real economic benefit in terms of productive capacity. Countries with relatively larger population sizes and weak infrastructure tend to become attractive mainly as consumer markets for goods. Indeed, the playing field is far from level.
  3. High domestic production costs: Within countries with poor infrastructural frameworks, local producers may be typically faced with the choice to produce from home countries at high costs or relocate to neighbouring countries to benefit from lower production costs. The domestic market may then serve as the consumer outlet for the products. Given the need to generate returns to shareholders, strategic decisions will often revolve around minimising production costs in order to maximise revenue and stay competitive. Relocating production however directly exports employment opportunities at the expense of the country’s unemployed population, in addition to draining the country’s GDP.
  4. Weak appeal of nationalistic sentiments: Producing ‘at home’ underpinned by patriotism may be idealistic, however, obligations to shareholders creates tensions which unfortunately may skew decisions in favour of commercial priorities. There is an uneasy relationship between business and nationalistic sentiments as drivers of production and investment decisions, particularly in an environment which presents unfavourable conditions for domestic production and trade. The challenge therefore is for leadership which can influence and inspire member states to understand the new vision, agree to it and what needs to be done to actualise it.

Trade discussions between African countries provide an important platform for meaningful collaboration, understanding and impact. Effective discussions will involve negotiations where there are areas of differences in understanding and perspectives. As stakeholder discussions continue to take place within and across African countries regarding the Continental Free Trade Area, it is important that those at the negotiating table have capacity to engage in meaningful discussions, bearing in mind the peculiarities of their countries and its needs. This is particularly important to pay attention to because trade agreements are not only economic in nature but also have embedded socio-cultural components. As a result, negotiating, selling and entering into such agreements requires capacity to engage. In multinational and multicultural trade deals, the capacity to engage becomes even more pertinent to avoid a collapse of talks. Capacity in this sense can be understood from 3 dimensions:

  • Technical know-how. Having the technical know-how and capability for analysing economic ramifications of trade deals. This means that representatives of countries should be carefully selected. Capacity building initiatives can also support the development of such representatives, equipping them with the needed skills and capabilities.
  • Motive. Where the motive for engaging is not simply exploitative but one which seeks a fair or win-win outcome for all sides, negotiations become rooted in values, creating favourable conditions for member commitment.
  • Understanding social impact. An understanding of the social impact of economic decisions on the African people is a key aspect of capacity, particularly given the historical close and symbolic attachment to land- which is one of many key resources in trade deal negotiations. Also, insight into the cultures and value systems of African countries can signify the links between culture and economic activity, local needs and scope for shared understanding regarding the framework – a lack of which can either frustrate or facilitate trade negotiations. Having an understanding of key values of member states such as trust, respect (for traditions, local decision-making processes, hierarchy, power and social structures etc), reciprocity and community could affect the willingness of African countries to engage in negotiations over trade agreements. 

AfCFTA signals the dawn of a new era, aiming to bring together different countries with wide economic, social and cultural gulfs between them under an overarching continental umbrella. Once this bridge across countries is securely built, other alliances such as the Africa-Europe Trade framework will have a solid structure on which to create pathways for meaningful and sustainable global partnerships.

  • Article written by Dr Yemisi Bolade-Ogunfodun, Henley Business School.