South Africa|Common trade agreement in Africa and its implications

The 12th summit of the African Union took place in Niamey, the capital of Niger. In this conference, African countries signed the African Continental Free Trade Agreement (AfCFTA) for goods and services. Under this agreement, cross-border free trade will start from the month of July 2020. After the agreement comes into force it will transform Africa into a joint market. Africa’s 1.2 billion population and 2.3 trillion combined GDP will be under this agreement.

What is AfCFTA agreement?

african union

The African Continental Free Trade Agreement is the largest free trade agreement (FTA) since the formation of the World Trade Organization. The main objective of this agreement is to establish a single continental market for goods and services, including free movement of people and workers and investment related to trade. Last year, 44 countries in Africa signed the agreement and the agreement was to be taken forward after half the countries (22 countries) had verified it. Shortly before this, Zambia had ratified the agreement as the 22nd country, after which the agreement was also finalized in the African Union meeting.

The challenges

After the agreement comes into force, it will become the world’s largest free trade area. It is to be known that Africa is currently facing many challenges, as well as questions about the potential of the African Union in the past. In such a situation, it is estimated that this agreement may face the following challenges:

  • The African Union was formed in the year 1963, since the formation of the Union, Africa has faced many challenges such as de-colonization, slow pace of development, Islamic terrorism, Arab Spring etc. But the African Union has often failed to deal with them and find solutions to them. Earlier, Libyan dictator Gaddafi also worked with the African Union on the African Unity project, but the plan failed miserably. The old experiences of the African Union have not been more positive, so the Sangh will have to play a more important role in order to properly implement and make this agreement successful.
  • The current situation in Africa is facing a serious political crisis. At the same time, there will also be an important challenge related to organizational and infrastructure in Africa. Some countries in Africa, such as Nigeria, South Africa and Egypt together contribute to 50 percent of Africa’s GDP. Apart from these, other countries are financially weak. Manufacturing capacity in these countries is also very limited. It is also worth noting that less than 20 percent of Africa’s trade is between African countries. In such a situation, it will be difficult to give more momentum to cross-border trade under this agreement.
  • Current conditions of the world are promoting protectionism. This protectionism is responsible for trade tension, Brexit etc. between US and China. According to the report of the United Nations, the pace of world trade is slowing down, with various countries retreating from globalization and the growth rate of commodity trade is also stagnating. It is also important to note that Africa has only 3 percent share in world trade, so it would be important to understand how this agreement can neutralize world trends.

Efforts to meet challenges

free trade agreement

The above challenges create obstacles to the successful implementation of this agreement (AfCFTA). But this agreement poses challenges as well as many possibilities. Which can prove effective in addressing these challenges. It is important to note that global conditions are unfavorable in terms of trade and at the same time all countries are emphasizing protectionist policies, in such a situation, the development of Africa is possible only by African efforts rather than the cooperation of other countries. From this perspective, this agreement is important for the economic development of Africa. This agreement can be extended further based on the experience of 5 regional economic groups based in Africa. The African Union is often known for its inefficiency, so a comprehensive roadmap has to be made for the successful implementation of such a big agreement. Also, at the initial stage, more charges can be reduced, in addition to the charges, other trade related barriers can be removed, supply chain and dispute resolution mechanism can be developed. It is to be known that the Inter-African Trade Fair was held in Cairo, Egypt at the end of the year 2018. There were 32 billion dollar trade agreements in this fair. By organizing similar events, different African countries can be brought on one platform. Africa has continental ambitions for inland industries such as Dangote, MTN, Ecobank and Zumia, etc. Africa can increase its manufacturing and trading capacity by pushing such industries. While it is also true that the financial network in Africa is very weak, the rules regarding the tariffs of different countries are complex. But this problem can be overcome by strong political will. In addition, a large amount of cross-border trade takes place informally in Africa, which will also need to be dealt with.

According to the United Nations, the increase in the world’s population from the present to 2050 is expected to be 50 percent of this increase from the sub-Saharan region of Africa. It also shows the situation of being a growing consumer class, in this perspective also AfCFTA time demand among African countries.

From Africa-blind continent towards economic progress

Before the 18th century Africa was largely unknown to the world because African conditions did not allow any invasion and discovery. It was against this backdrop that European powers called Africa a blind continent. When colonial powers arrived in the mainland of Africa, it gave birth to slavery. Later, Africa also fought for deforestation. In the near past, South Africa and other countries have also suffered from racism. Currently, Africa is facing human genocide (Rwanda conflict, South Sudan etc.), struggle for oil and minerals and Islamic terrorism. But some countries like Nigeria, South Africa, Egypt etc. have also made economic progress. Now Africa has moved towards a common market under the leadership of the African Union.

African trade took place from the mainland before Africa was discovered by Western countries. Timbuktu, Ghana, Adish Ababa, Dar-es-Salaam, Cairo etc. were the major trading centers. Gold, salt, precious stones, slaves etc. were traded from these centers. This trading system was destroyed by European colonization. Now through this agreement, Africa is repeating its history and trying to achieve its successful business past.

Indian outlook

african continental free trade agreement

Africa is a strong partner of India. India currently has about 70 billion dollars of goods trade with Africa. It is one-tenth of India’s global trade. India is the largest trading partner of the continent of Africa after the European Union and China. It is also worth noting that due to the changing world circumstances, India’s global exports remain stable, while exports along with Africa are increasing. For example, India’s exports to Nigeria have increased by 33 percent in the year 2018-19 as compared to the previous year. There is still a demand for India’s goods in Africa and there is a strong possibility for it to grow further. Especially food items, finished products (automobiles, medicines, consumer goods) and IT and communication services, health care and education, skills, management and banking and financial services etc.

africa

India should try to understand the implications of this agreement and should also consider how to use this agreement according to its interests. In principle, being transparent and formal in Africa’s economy is beneficial in the Indian context. In future, African products will gradually become competitive for Indian products, keeping in mind that India can produce various products whose demand is important from Africa’s point of view. Also, local producers can also be made partners for this. If India is able to use this agreement competently, then this agreement could open new opportunities for India in FMCG production, connectivity-related projects and financial infrastructure construction. In this context, India has financed the African Union meeting, which was held in Niamey, the capital of Niger, for $ 15 million. As a further effort, India can cooperate with the African Union in the policy framework related to the framework required for this agreement, such as shared external tariffs, competitive policies, intellectual property rights and movement of people related to trade. India will have to identify such industries in Africa, which can play an important role in the common market of the African continent in the future, so that these industries can be shared and shared in future. It is also worth noting that India’s more than 3 million diaspora are present in Africa, its role may also be important for India. Ultimately, if this agreement is successful in achieving its goals, then in future India can also move towards free trade agreement with the whole of Africa. This type of agreement would be beneficial from the perspective of both India and Africa.

It is also worth noting that India is not the only trading partner in the African continent. China’s position is stronger than India in the context of Africa. India will also have to find ways to deal with China’s challenge. India, along with Japan, can deal with China’s challenge under the African Growth Corridor, as well as African countries that are dissatisfied with China’s policies, India can work with those countries.

The conclusion

African countries have tried to convert Africa into a common market through this agreement. This is a necessary and progressive step for the development of Africa. But the past of Africa and the African Union has been grappling with various problems, in such a situation, it will be a tough challenge for Africa to implement this agreement. To deal with this, along with strong political will, expertise of various organizations and countries will also be required. It will also be necessary for India to participate in this effort of Africa so that it can meet the challenge faced by China.

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