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

Amos Gyau

How might the CFTA benefit West Africa?

Accounting for more than a third of Africa’s total population, West Africa is home to over 360 million people – 60% of whom are employed in the agricultural sector. The region has huge potential for both the intra-regional and global trade that are so crucial for economic growth and food security; yet intra-regional trade among West African countries lies well below that of other regions of the world, despite the presence of the Economic Community of West Africa States (ECOWAS), which aims to promote trade between regions. The same truth holds for the entire continent:  according to the United Nations Conference on Trade and Development (UNCTAD) in 2016, total exports among West African countries was estimated to be around 10.6%, compared to 59% and 69% for intra-Asia and intra-Europe exports, respectively.

Promising potential

Against this background, the establishment of the Continental Free Trade Area (CFTA) is expected to be the vehicle to boost intra-regional trade and establish integration among African countries.  The purpose of the free-trade area is to ensure significant growth in intra-Africa trade, as well as encouraging African states to employ trade more effectively as an engine of growth and sustainable development. Under the CFTA, nations will commit to cut tariffs on 90% of goods with the aim of increasing intra-Africa trade. Heads of State and Governments who attended the 28th Ordinary Session of the Assembly of the African Union signed up to the implementation of the CFTA.However, despite the promised benefits of the CFTA, West Africa’s largest economy, Nigeria (along with other 10 other African Union member countries), refused to sign the CFTA with the reason that the agreement will undermine local businesses.

Despite the refusal of major players to ratify the agreement, the CFTA - if well implemented - will reinforce other economic agreements, such as ECOWAS, and give West African countries political weight and the negotiating power that no single state could wield on its own. It also has the potential to lower trade costs and allow consumers to access a greater variety of products at lower prices. This is because it will create opportunities for economies of scale and allow food to flow from more to less abundant areas within the region – a divide usually reinforced by national borders. This is especially pertinent for West Africa, where population growth is high and the challenge of food security acute. The CFTA will also diminish the continent’s vulnerability to external shocks, and enhance the participation of Africa in global trade as a respectable partner, reducing its dependency on other parts of the world.

Key challenges and moving forward

Despite the opportunities offered by the CFTA, there are a number of significant challenges that need to be addressed in order for the agreement to realise its full potential. First, most West African countries rely on tariffs as a major source of revenue and, as a result, there is fear of significant tariff revenue losses and an uneven distribution of costs and benefits among member countries. There is therefore a call for member countries to look for innovative ways of sharing the costs and benefits associated with CFTA in an equitable way. Second, the agreement’s implementation is likely to face a host of practical challenges on the ground, region including poor roads, limited storage facilities, poor law-enforcement and often poor policies and regulations, unequal market power, and weak local and national institutions which all work together to determine the success or failure of free trade agreements.

Nevertheless, the CFTA is an important step in bringing African countries closer to their development goals. Successful negotiation and implementation of the CFTA agreement is therefore needed to bring economic and social benefits to countries in the ECOWAS region, and the continent at large.

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.