Opinion

Will Africa’s new Continental Free Trade Agreement make a tangible difference to the prosperity of African agribusiness?

Wandile Sihlobo

Africa must overcome key infrastructural and institutional challenges

On the 21 March 2018, 44 member states of the African Union (AU) signed the African Continental Free Trade Agreement (AfCFTA) during an extraordinary Summit of the AU held in Kigali, Rwanda. The AfCFTA is arguably one of the world's largest free trade blocs (by number of member states) and there are several reasons to be excited about this development. However, it is important to note that the AfCFTA will only be legally binding once it is ratified by at least 22 country signatories. It is very impressive to think that the official engagements for this agreement started in 2002 and the signing is now a reality in 2018. One sticking point, however, is the fact that neither South Africa nor Nigeria, which are among Africa’s largest and most influential economies, have signed the agreement.

The AfCFTA is very strategic considering that, from a demand perspective, the continent‘s market will grow to over 2 billion people by 2030. Meanwhile, from a supply perspective, the agricultural and agribusiness sector is expected to grow to €0.86 trillion by the same period. Moreover, the fundamental reason why private sector participants ought to be excited in the wake of the AfCFTA, over and above the projected growth of the supply and demand side of the agri-food sector, is due to what is called ‘regulatory convergence’.  If, under a worst-case scenario, Africa fails to capitalise on the growth of its own market for one reason or the other, we can draw optimism from the harmonisation of trade and investment rules and regulations. That alone provides a sufficient basis for the continent’s food sector to be growth-ready, as and when market conditions permit the industry to capitalise on it.

It may sound counter-intuitive for one to be excited by the state of readiness of an outcome, rather than the outcome itself. But such a level of ambition becomes plausible, if you have a situation where the infrastructure, institutions and systems are not sufficient to provide the initial conditions for growth to take place. At this stage, it is the pre-conditions that matter the most, rather than prematurely-induced trade growth – which, in all likelihood, will lead to inequitable growth. Perhaps, for now, Africa needs to make every effort to negotiate and strengthen its own ‘rules’. Africa’s institutions need to be developed and, where in existence, they need to be strengthened in order to get the best out of the AfCFTA.

At least this part of the debate speaks to a broader global trend of pluri-lateral trade agreements, which are based on ‘rules’. Many experts have argued that part of the reason why Africa’s ambition has not matched that of other advanced nations of the world is due to its reluctance to negotiate issues, such as trade in services. South Africa’s Minister of Trade and Industry Dr Rob Davies has stated that the continent is simply not ready to start opening up markets because the extent of their impacts on the smaller economies is yet to be fully understood. While that fear is well placed, the AfCFTA should lay the groundwork for a work programme that will begin to explore those new generation issues with respect to rules and regulations.

The irony of the AfCFTA is that it comes into fruition at a time when the continent is still facing some fundamental challenges among its own Regional Economic Communities, which include the East African Community, the Southern African Development Community and the Common Market for Eastern Southern Africa. Some of the issues – such as rules of origin – will be resolved as countries negotiate the AfCFTA. The agreement could be seen as the server if some of these pertinent issues are addressed in the AfCFTA text.

*This blog was co-authored by agro-economists Tinashe Kapuya and Bonani Nyhodo

The Technical Centre for Agricultural and Rural Cooperation (CTA) is a joint international institution of the African, Caribbean and Pacific (ACP) Group of States and the European Union (EU). CTA operates under the framework of the Cotonou Agreement and is funded by the EU.