The African Continental Free Trade Area and Opportunities for India

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On 23rd February 2022, the Vivekananda Foundation organised a lecture on "The African Continental Free Trade Area and Opportunities for India". The Continental Free Trade Agreement (CFTA) is a critical African project to accelerate the continent's long-term integration and economic goal. The CFTA represents an immense opportunity to address Africa's economic vulnerabilities in the global economic order, manifested and exacerbated by WTO and other multilateral and bilateral trade agreements imbalances.

Louis Yaw Afful, the Group Executive Director, AfCFTA Policy Network, was the event's principal speaker. APN network is the largest international membership network of professionals focused on African continental free trade. Based in Ghana, Mr Afful is an experienced trade practitioner with a demonstrated history of working in international trade. He serves on several international boards such as the GLOBAL Chamber of Commerce and is a Ghana Chamber of SMEs member. He has featured at several international conferences, talk shows, and interviews, including the BBC, CGTN, eNCAnews, DWRadio, and almost all media networks in Ghana. He is also given recognition by the Chief Technical Advisor of the African continental free trade unit of the African union as championing the course of Afcfta on the continent.

It is unfortunate that while Africa is growing strong and our relationship is also improving, the awareness related to African issues is still lacking. We must work more with Africa for our mutual benefits and interests. A robust economic relationship will lead to a strong political relationship, which is an essential element of our partnership. From that perspective, AfCFTA will be a game-changer, and India must do all that is required to make it a success.

Mr Louis, in his address, introduced APN as the first and largest trade association that is working for AfCFTA. It has a solid international membership and more than 8000 trade professionals in Africa. Earlier, Mr Louis was part of the Assembly Group of initial discussion concerning Continental Free Trade as it was called before. Thus, he has seen the agreement's evolution and understands it better. Currently, APN is working on various issues wrt AfCFTA, particularly on "Women in African Trade". In June this year, there would be an African globalisation implementation summit, an international summit in Seychelles, and he encouraged India and its private sector to participate in it.

In 1963, Ghana's first president, Kwame Nkrumah, declared, "AFRICA must unify," criticising that African countries traded raw commodities to their former colonial powers rather than trade among themselves. He envisions more intra-African trade, harmonised systems, and removed borders. His pan-African ambition was never realised. Yet today, African countries trade with Europe twice as much as they do with each other. They are largely made up of commodities.

In contrast, manufactured goods account for more than half of intra-African commerce. However, a drive for a Continental Free-Trade Area (CFTA) incorporating all 55 countries in the region is fueled by that spirit of cooperation. Negotiations began in 2015, were signed in 2018 and were put in motion during 2021.

The agreement has three steps before getting implemented. First, a nation needs to sign the agreement. It needs to be ratified in their national parliament, and finally, they need to submit the ratification letter to African Union Commission. Currently, more than 35 countries have signed and ratified it, but very few submitted the letter.

Though it was expected to be implemented earlier, due to covid, it got postponed. Now with 41-42 party actors engaging in it, the projections of AfCFTA are close to the Indian economy. As it covers more than 2 billion African population, majorly youth, it aims to create around 15 billion GDP for each country and an overall 3 trillion US$ for the continent in the immediate future,

The products have been divided into two parts

1. Sensitive products for which tariff will be removed later
2. Necessary products for which tariff is already removed or getting removed

Phase 1 of the negotiation, which is currently ongoing, aims to finalise the protocol on trade in services. Phase 2 will involve negotiations on the protocol on investment, competition policy and intellectual property. Phase 3 will deal with e-commerce. However, in the post-covid world where we are rapidly going digital, e-commerce discussion can be accelerated. Finally, phase 4 is proposed to be on women's trade-related issues.

As AfCFTA aims to free movement of goods and people and eliminate tariffs, rules of origin will be a crucial issue as the trade will become customs-free. Exemption on 87% of the goods have been approved, and the automobile is in progress. If 60% of the product is made in Africa, it will be called African product and eligible for tariff reduction. With AfCFTA, there won't be any more Preferential Trade agreements at the bilateral level. For some countries that don't have adequate infrastructure and might loose due to their market exposure, Afriexim bank will offer them adjustment facilities.

The CFTA has created substantial investment opportunities in some priority sectors. For example, nearly $400 billion in investments are necessary in the transportation sector alone to reap the full benefits of the CFTA.. Other vital sectors where India might add value are trade in Services, ICT, transport, financial services and professional bodies. Investing in the real sector will remain a priority, and Indian businesses can contribute. Companies like Airtel Bharti, Vodaphone India and Tata are some examples of Indian success stories in Africa.

Given health has been declared a liberalised sector, the pharmaceutical industry will grow. Indian companies can easily set up their businesses in different parts of Africa. The aviation sector is growing; it's an opportunity for potential investors to settle in Africa. As there will be more trades among Africans, financial services will be required. Bank of Baroda and other banks should be opened in India. Academia, education is liberalised, many universities can set up there. The leather sector is another area of potential.

As there will be a lot of de-regularisations, it is time for action. However, security would be an issue with a more open market, and the AfCFTA committee is working on it. As per some reports, particularly from ITU, cyber fraud in many African countries is high. However, as their national issues, national legal or law enforcement authorities need to look at it. A grievance redressal system is developing; if there is a complaint, the host country must reply within 48 hours. They need to respond to the trade Ministry. It's a good process. Protocols are being followed, and time will come when an African Customs Union will be established. Many diplomatic barriers will be curtailed at that time.

The issue of China-Africa trade was also raised where there is a significant trade deficit for Africa; China is also accused of doing business with a few selected countries, mostly on raw commodities. AfCFTA can change that. As African countries open their market to each other, many raw materials can be procured from a neighbouring country based on competitive advantages. Importing inputs from within Africa, not outside like China, will also reduce the cost of the product. However, the onus lies on African countries.

Concerning infrastructure, many countries are working together to overcome the investment deficit. Ghana- Burkina Faso, joint infrastructure project, is one such example. Trade-related infrastructure of roads, rails, aviation, and maritime have been prioritised to overcome the funding gaps. Both Soft and hard infrastructure are being looked into. For example, quality assurance facilities are required to harmonise product standardisation. Every country is mandated to invest in infrastructure. Indeed, political stability is an important issue. However, serious investment is needed.

Indian relation with Africa is historic. Unfortunately, it is not progressing as fast as it should. More outreach needs to be done, awareness needs to be created, connecting business chambers. As a way forward to the discussion, VIF decided to prepare a policy brief highlighting India’s opportunity with AfCFTA and submit it to the Ministries for a more extensive study.