What's New :
Open Webinar for Mains 2021 : Register Now

Africa Continental Free Trade Agreement and India’s interest in it

  • Category
    India & world
  • Published
    22nd Jul, 2019

The 12th Summit of the African Union (AU) which concluded at Niamey, the capital of the Niger Republic, saw 54 of 55 of its member states signing the African Continental Free Trade Agreement (AfCFTA) for goods and services and  out of these countries, 27 have already ratified it.

Issue

Context

The 12th Summit of the African Union (AU) which concluded at Niamey, the capital of the Niger Republic, saw 54 of 55 of its member states signing the African Continental Free Trade Agreement (AfCFTA) for goods and services and  out of these countries, 27 have already ratified it.

 Background

  • The African countries are set to launch the African Continental Free Trade Area or AfCFTA, the biggest free trade agreement in the world since the World Trade Organization was created in the 1990s.
  • The first step towards continental integration was the establishment of the Economic Commission for Africa (ECA) by the United Nations Economic and Social Council (ECOSOC) in 1958.
  • The vision of “pan-Africanism” and “collective self-reliance” has long been an integral component of attempts by African leaders and policymakers to find Africa-driven solutions to African problems. 
  • However, due to weak political, economic and governance structures, these attempts have largely failed to facilitate a structural transformation of the continent and today, the African nations continue to be fragmented economies working in isolation.
  • In order to achieve an African resurgence, virtually all the African countries have embraced the notion of “regionalism” and “regional integration” as part of their broader aspirations towards continental integration.
  • Over the years, various pan-African organisations have been working towards deepening economic, social and political integration in Africa.
  • One such attempt was made at the 18thordinary session of the African Union (AU), held in Addis Ababa in January 2012, with a decision to launch a Continental Free Trade Area (CFTA) by 2017.
  • A major breakthrough was achieved in 2018 when leaders from 44 African countries met in Kigali, Rwanda, and signed a framework agreement to establish what is being called one of the world’s largest trade blocs.
  • The agreement declared that the African Continental Free Trade Area (AfCFTA) would “come into effect 30 days after ratification by the parliaments of at least 22 countries. Each country has 120 days after signing the framework to ratify the agreement

 

Analysis and hurdles been faced by the continent

  • The African continent has a relatively small share of world output and an even smaller one of world exports and global foreign direct investment (FDI) net flows
  • the continent was among the fastest growing region in the world in 2013, closely followed by Asia and the Pacific
  • It is the fourth regional cluster in terms of output volume, smaller than Asia and the Pacific, North America and Europe
  • Africa is a vast continent indeed. It has an expanse representing 1/5 of the planet’s landmass, roughly equivalent to three times the size of Europe, with a formidable variety of geographies, cultures, languages, traditions, and historical trajectories
  • Africa has the world’s largest concentration of least developed countries, low human development index and low income and lower middle-income countries.
  • Political instability and at times armed conflicts have reduced the health, education, public services, justice and security systems of some African countries.
  • These realities serve as a warning that no single, off-the-rack solution will prove effective for socioeconomic development in all jurisdictions.
  • Most of the 54 African Union member countries are members of more than one regional trade bloc and intergovernmental organization, setting out conflicting disciplines and benefits
  • Africa is still heavily reliant on commodity and agricultural exports while importing capital goods or food products predominantly from outside the continent.
  • With a global trade share of less than 3 per cent, export diversification has yet to be achieved, as many African countries still rely on rents from extractive exports, whilst falling behind on industrialisation efforts.

 Aims and objectives of AfCFTA along with its core idea

  • The CFTA is an attempt by the African governments to “unlock Africa’s tremendous potential” to deliver prosperity to all Africans.
  • It seeks to create a single continental market for goods and services with free movement of business people and investments.
  • By 2030, the African market size is expected to reach 1.7 billion people, with a combined and cumulative consumer and business spending of US$6.7 trillion.
  • The CFTA aims to expand intra-African trade through better harmonisation and coordination of trade liberalisation and facilitation regimes and instruments across subregions (RECs) and at the continental level.
  • As part of the agreement, “countries have committed to remove tariffs on 90 percent of goods with the remaining 10 percent of items to be phased in at a later stage
  • A study by the UN Economic Commission for Africa (UNECA) estimates that successful completion and implementation of the CFTA agreement – complemented with efforts to improve trade-related infrastructure, reduced import duties and transit costs could lead to a 52.3 percent increase in intra-African trade by 2022, from the 2010 levels.
  • An increase in intra-African trade will “drive the structural transformation of economies from low productivity and labour intensive activities to higher productivity and skills intensive industrial and service activities
  • This will subsequently help in generating better paid jobs, leading to poverty alleviation.
  • The AfCFTA also seeks to “foster a competitive manufacturing sector and promote economic diversification
  • the continental free trade area is expected to offer substantial opportunities for industrialisation, diversification and high skilled employment
  • It is an opportunity to accelerate the manufacture and intra-African trade of value-added products, moving from commodity based economies and exports to economic diversification and high-valued exports

 Intra-African Trade Initiatives

  • New Partnership for Africa’s Development (NEPAD): The New Partnership for Africa Development (NEPAD) is an example of an African initiative with a continent-wide focus. It was ratified by the AU in 2002 and provides a comprehensive integrated development strategy to bring about a holistic socio-economic development of Africa.
  • The African Free trade Zone (AFTZ): The African Free Trade Zone (AFTZ), also known as the African Free Trade Area, was announced at the EAC-SADC-COMESA Summit in October 2008. The agreement marked a milestone in Africa’s journey towards regional and continental integration as, for the first time a truly transcontinental union from north to south was established.
  • Minimum Integration Programme (MIP): In 2009, the AUC along with the RECs signed the Minimum Integration Programme (MIP) as a mechanism for convergence among the RECs to focus on key areas of concern, both at the regional and continental levels. The MIP “embodies the activities of the project and the programmes which require quick implementation in order to speed up and ensure the successful completion of regional and continental integration process
  • Boosting Intra-African Trade (BITA): The African Union (AU) Heads of State and Government Summit, held in January 2011, decided to hold the next summit in 2012 under the theme of “boosting intra-African trade” to deepen Africa’s market integration and significantly increase the volume of intra-African trade. An action plan was drafted to “enhance the levels of intra-African trade from current levels of 10-13 percent to 25 percent or above within the next decade
  • Tripartite Free Trade Area (TFTA): Its launch demonstrated the possibility of a collective action among several heterogeneous nations and showcased the feasibility of harmonising three different preferential trade regimes into one unified scheme.
  • South African Customs Union (SACU): The SACU is one of world’s oldest customs unions. It lasted till 1969, agreed on a “Common External Tariff (CET) on all goods imported into the union from the rest of the world and a common pool of customs duties. It also included provisions for free movement of SACU manufactured products within SACU and revenue-sharing formula (RSF) for the distribution of customs and excise revenues.
  • Single African Air Transport Market (SAATM): The Single African Air Transport Market (SAATM), a ‘flagship project of AU under Agenda 2063’ aims at “creating a single unified air transport market in Africa and liberalise civil aviation in Africa.

 Opportunities from AfCFTA

  • A bigger and integrated regional market for African products.
  • Improved conditions for forming regional value chains (RVCs) and integration to global value chains (GVCs).
  • Consumer access to cheaper imported products from other African countries.
  • Benefits to producers from economies of scale and access to cheap raw materials.
  • Better allocation of resources leading to faster economic growth.
  • Higher intra-African and external direct capital flows to African countries.
  • Elimination of challenges associated with multiple and overlapping trade agreements.
  • The structural transformation of the African countries from resource and low technology-based economies to more diversified, knowledge-based economies.
  • Stronger cooperation in other areas, such as technology transfer, investment, innovation and continent wide infrastructure development.

 India-Africa and AfCFTA

  • Africa is already an important economic partner for India with total annual merchandise trade estimated at $70 billion or nearly a tenth of our global trade.
  • India’s engagement with African nations remains at three levels: Bilateral, Regional and Multilateral.
  • India is Africa’s third largest trading partner.
  • Africa still has unfulfilled demand for Indian commodities, especially foodstuff, finished products (automobiles, pharmaceuticals, consumer goods) and services such as IT/IT-Enabled Service, health care and education, skilling, expertise in management and banking, financial services and insurance.
  • Africa is a continent which receives nearly 20% of our pharmaceuticals. Many of our Pharma companies have established units in various parts of Africa, including Ethiopia, Uganda, DRC, Zambia and Ghana. 
  • Our medicines and medical equipment such as Bhabhatrons and phototherapy machines are saving lives in Africa. Many of our hospitals have entered into joint ventures for establishing health care facilities.
  • India is also helping the African countries to bridge the digital divide. “We have launched 2nd phase of the Pan Africa e-Network project – e-VidhyaBharati and e-ArogyaBharati Network Project (E-VBAB), which aims to provide 5 years free tele-education to students, free medical education to doctors/nurses/paramedics and free medical consultancy.
  • During the Third India-Africa Forum Summit, India offered USD 10 billion for development projects over the next five years.

 Conclusion

 The AfCFTA agreement represents a historic development in Africa’s journey towards creating a single, common and integrated market for the continent. To achieve this goal, it is imperative that the African countries develop the ability to produce and manufacture goods on their own, which will subsequently increase intra-African trade.

Learning Aid

X
Enquire Now