The questions your company needs to ask as Africa frees up trade
Tariffs are due to start falling in 2020, but those who dither can never hope to reap the full rewards
The vision of African leaders for a free trade area across the continent is becoming a reality, and real trade benefits will begin to flow from July 1 2020, when tariffs will start to tumble.
There are still some details to be resolved by negotiators, but the process is on track to see customs duties reduced as of July 2020. It is already possible to see what the initial benefits of the agreement will be and the prospects for increasing trade between African countries.
Specifically, the negotiations will focus on two main areas:
- Tariff phasedown — what specific tariffs will be reduced, and what is the timetable for this? It has been agreed that 90% of goods will move duty-free, but countries still have the ability to impose duties on some sensitive items.
- Rules of origin — what will the rules be for items deemed to be from the African continent? At present there are many rules under different trade agreements and these will need to be harmonised. This is important to ensure that the benefits of the African continental free trade agreement (AfCFTA) accrue to African firms and that the preferential treatment provided by the AfCFTA does not result in imports coming from other parts of the world on false pretences.
As is the case with so much in life, the devil will be in the detail, and companies need to keep a close eye on these negotiations to see exactly where the opportunities will lie and where they will need to press for better access. The big questions any company needs to be asking are:
- Do we understand what the tariff headings are on the products we export and import?
- Do we know what the current duty rates are on the goods we bring into SA and also on those we send to other African countries?
- What will the expected phasedown be of the duties on the relevant products?
- Do we know what the rules of origin status is for our products under African trade agreements, and can we meet local-content rules?
- Do we need to be making submissions to the trade negotiators so that they pay more attention to our products and secure us better access to African markets?
Information is at the centre of all this. If we understand the opportunities, press for better conditions and plan properly, there are huge potential benefits to riding the wave of African trade integration. Those who dither and get deterred by the detail and complexities can never hope to reap the full rewards.
Challenges do still remain for the full implementation of the AfCFTA. Trade facilitation and infrastructure are constrained across the continent, though the aim is to develop infrastructure and the industrial base in parallel to reducing barriers to trade. For example, the programme for infrastructure development in Africa sets out a range of priority regional infrastructure projects in areas such as energy, transport and ICT.
The free movement of people poses another hurdle. There is an AU protocol on the free movement of persons, but SA has not signed it. Concerns exist around security threats from the lack of population registers and management systems in some African countries. Migration is a complex issue, but interested parties might soon come to an agreement specifically addressing the movement of business people.
The diversity of the different African economies and the capacity of member states will further affect competitiveness and determine the benefits yielded from the agreement. For example, customs officials and systems will need to be updated to facilitate the smooth movement of goods. Effective domestication and harmonisation of AfCFTA policies will ensure the implementation of any commitments taken. Strong institutions and action against corruption will be needed to see the full realisation of the benefits of the AfCFTA.
It was never going to be easy. One only has to look at the problems and challenges of the EU to realise that regional integration can be a slow process. However, Africa is widely seen as a continent that is awakening, with unimaginable opportunities for growth, trade, investment and co-operation. The move towards increased co-operation and partnership between African countries provides a welcome alternative to the uncertainty of the broader global trading environment.
The politicians have charted the course; it is now up to business to grasp the challenge.
• Newman is a director of Cova Advisory and Makokera a director of Tutwa Consulting Group.