INSIGHTS: IMPORTS AND EXPORTS
African Continental Free Trade Area to be ‘implemented by January’
Aim is to create single market for goods and services and customs union with free movement of capital, business travellers
The African Continental Free Trade Area (AfCFTA) agreement, which was originally supposed to be effective from July 1 2020 but was delayed as a result of the Covid-19 pandemic, will be implemented by January 1 2021, according to the secretary-general of the AfCFTA secretariat, Wamkele Mene.
He says AfCFTA is the only mechanism at the continent’s disposal to boost its economic recovery after the devastation caused by the pandemic and is an opportunity to establish robust supply and value chains for Africa as well as diversify its productive capacity, particularly from its current overreliance on the export of primary commodities.
The aim of AfCFTA is to create a single market for goods and services and a customs union with free movement of capital and business travellers. Once it comes into effect it will create the largest free trade area in the world, measured by the number of countries participating.
The World Bank estimates once AfCFTA has been implemented, it will facilitate trade measures that will cut red tape and simplify customs procedures that will drive $292bn of the $450bn in potential income gains and will help to usher in the kinds of deep reforms necessary to enhance long-term growth in African countries. The bank believes the agreement presents a major opportunity for African countries to bring 30-million people out of extreme poverty and raise the incomes of those who live on less than $5.50 per day.
However, for the continent to realise the full benefits of AfCFTA requires the political will to put significant policy reforms and trade facilitation measures in place. The World Bank says creating a continent-wide market will require a determined effort to reduce all trade costs, including legislation and regulations to enable the free flow of goods, capital and information across borders; create competitive business environments that can boost productivity and investment; and promote increased foreign competition and foreign direct investment.
Furthermore, by increasing regional trade, lowering costs and streamlining border procedures, full implementation of AfCFTA would help African countries increase their resilience in the face of future economic shocks like Covid-19 and help usher in the kinds of deep reforms that are necessary to enhance long-term growth.
There is no question AfCFTA has the potential to help African countries diversify their exports, accelerate growth and attract much-needed foreign direct investment. Head of Trade at Standard Bank South Africa, Thandiwe Legwaila, says one of the biggest risks to the implementation of AfCFTA is that the severe economic impact of the pandemic on some African countries may make it difficult for them to comply with the implementation plan as it relates to the reduction or waiving of import and export tariffs in the short term given that the income from tariffs makes a significant contribution to the fiscus.
However, delaying the implementation of the agreement, she says, would be a missed opportunity to the continent.
This article is part of a special Business Day feature titled Insight: Imports and Exports, published in November 2020. Read the other articles in the series:
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