Why promoting intra African trade is important

THE signing of the African Continental Free Trade Area Agreement (AfCFTA) by most African countries was a historic step towards rationalising Africa’s regional trade agreements, to deepen economic integration and draw on economies of scale and development of regional value chains to accelerate the process of structural transformation of African economies.

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As at December 2018, 49 out of 55 African countries had signed the AfCFTA. However, the signing does not establish the African Continental Free Trade Area.  It will formally exist when all documents are concluded and ratified by 22 states. Fifteen states have so far ratified theAfCFTA, including Kenya and Ghana. Nigeria is yet to sign nor ratify the AfCFTA.

President of Afreximbank, Professor Benedict Oramah, in a publication released during the Intra-African Trade Fair (IATF) in December 2018 in Cairo, Egypt,  bore his mind on the  importance of promoting Intra African Trade.

“As a flagship project of the African Union Agenda 2063: The Africa We Want, the AfCFTA will bring together 55 African countries with a combined population of more than 1.2 billion people and a combined gross domestic product (GDP) exceeding $2.5 trillion, making the continent the largest free trade area created since the formation of the world Trade Organisation (WTO).

“An integrated African market is likely to see enhanced flow of foreign direct investments (FDI) to participating economies and can shift FDI from natural resources  to industry and manufacturing as investors seek to take advantage of economies of scale associated with increased market size. Implementation of the AfCFTA in the context of the broader Agenda 2063 will also enhance the integration of African economies into the global sphere and strengthen the process of engagement between Africa and its main trading partners, multilaterally within the WTO framework and bilaterally with other trading partners, especially the developing South whose share of global trade has increased significantly over the last few decades.

“The AfCFTA Agreement also provides the framework for a comprehensive and mutually beneficial trade agreement among the member states of the African Union, covering trade in goods and services, investment, intellectual property rights and competition policy. Preliminary estimates and simulations suggest that the AfCFTA could significantly expand industrial production  and intra African trade which compares unfavourably against the performance in other regions of the world.”

Need for commitment 

Oramah noted that the required paradigm shift would not happen suddenly. It was more of a marathon that would require commitment to succeed over time. He said, “Success at raising the scope of cross-border trade under the AfCFTA will depend on the commitment and ability of countries to address a number of challenges and supply-side constraints, including the development of regional value chains to produce more value-added goods and services and increasing access to trade and market information.

The inaugural edition of the biennial intra-African Trade Fair (IATF) organised by the Afreximbank, in partnership with the African Union (AU) and hosted by the Government of Egypt is a continental response and an important step to sustainably addressing the gap in trade information.

Origins of the IATF

In 2017, Afreximbank adopted its five-year strategic plan themed “Impact 2021: Africa Transformed.” The plan set out four strategic pillars for Afreximbank, namely: Intra African trade, Industrialisation and Export Development; Trade Finance Leadership and Financial Soundness and Performance.

The Intra-African Trade Fair 2018 is a culmination of the IMPACT 2021 vision, founding pillars and themes. It aims to provide a unique platform for promoting Intra African trade and facilitating information exchange in the context of implementing the AfCFTA.

According to the Afreximbank president, “Research, consultation and analysis identified the main challenges hindering African trade and found them to be: a lack of access to trade and market information, the fragmented nature of African markets and trade regulations that are founded on the individualisation of African countries and economies.”

“To address these challenges, Afreximbank established the Intra African Trade Initiative business unit (IATI) within the framework of our ‘Impact 2021: Africa transformed’ strategic plan to focus on intra-African trade promotion, facilitation of export development through industrialisation/export manufacturing, thus strengthening the bank’s leadership position in African trade finance.”

He added that “The IATF puts us on the path to tapping presented by the African Continental Free Trade Agreement (AfCFTA) to grow intra African trade and build an Africa that offers opportunities to its young and stability to its citizens.”

The IATF held in Cairo, Egypt from December 11 to 17, 2018. It was essentially a business to business event. During the fair, Afreximbank operated a deal processing centre. It was estimated that $25 billion in trade deals would take place. At the close of the event, over $30 billion trade deals had been recorded.

In his remarks at the end of the programme, Professor Oramah had this to say, “This marks the beginning of a journey of transformation for Africa which we have talked about for so long, but we are just starting to see now.”

The next IATF will hold in 2020, with Rwanda as host country.

However, before 2020 and the next IATF, Albert Muchanga, African Union’s Head of Trade and Industry has expressed confidence that the remaining votes required to enforce AfCFTA will be secured before the next AU summit in February, next month.