African Continental Free Trade Agreement (AfCFTA):
- The 12th Extra-Ordinary Summit of the African Union (AU) concluded in early July at Niamey, the capital of the Niger Republic.
- It saw 54 of 55 of its member states signing the African Continental Free Trade Agreement (AfCFTA) for goods and services. Of these countries, 27 have already ratified it.
- Actual cross-border free trade could start by July 2020 with an elimination of custom duties on 90% of the tariff-lines.
World’s largest FTA:
- If taken to its logical conclusion, this audacious project would eventually create an African Common Market of 1.2 billion people.
- The AfCFTA would be world’s largest FTA, and in a world dependent on African markets and commodities, it would have global impact.
Concerns about the viability of the AfCFTA:
- There are three main reasons to be sceptical about the viability of the AfCFTA.
- AU’s ineffectiveness:
- The African Union (founded as the Organisation of African Unity in 1963) has been largely ineffective in dealing with the continent’s many problems such as decolonisation, underdevelopment, Islamic terrorism and the Arab Spring.
- The AU’s grand plans, including the Muammar Qadhafi-funded Africa Unity project, have been spectacular flops.
- It is, therefore, natural to be sceptical about the AfCFTA, the AU’s most ambitious project so far.
- Lack mutual complementarity for trade:
- The national economies in Africa are generally weak with a low manufacturing base.
- They also lack competitiveness and mutual complementarity.
- Only a sixth of Africa’s current total trade is within the continent.
- World over trade protectionism is on the rise:
- The AfCFTA seems to be countercyclical to the ongoing global protectionist trends as seen in the U.S.-China trade conflict, Brexit and the stalemates at the WTO and the United Nations Conference on Trade and Development (UNCTAD).
- World trade is likely to grow only by 2.6% in 2019, a quarter of last year’s figure.
- Commodity prices are stagnant and globalisation is often being reversed.
- With Africa accounting for only 3% of global trade, there are concerns if AfCFTA can defy the contrarian global tendencies.
Despite concerns, there are reasons to be cautiously optimistic:
- Economic integration makes sense: Greater collective self-reliance through African economic integration makes eminent sense in these time of strong global headwinds, including a lessening Chinese zeal for Africa.
- Good planning done: The AU Commission has prepared an extensive road map towards the AfCFTA with preliminary work on steps such as incremental tariff reduction, elimination of non-tariff barriers, supply chains and dispute settlement.
- Base is strong: Moreover, vigorous “informal” trade across porous national borders is already a fact of African life. Further, the AfCFTA can build upon the experience of the continent’s five regional economic blocks.
- Political will can help overcome logistical difficulties: The logistical and financial networks across the continent are poor and customs formalities are foreboding, but these can be eventually overcome with stronger political will.
The market size makes AfCFTA important:
- A recent UN projection showed that nearly half the world’s population growth between now and 2050 would come from sub-Saharan Africa, the population of which would double to nearly two billion.
- This surge in consumer base would make the proposed AfCFTA even more important.
- Thus, by adopting the AfCFTA, African leaders are only following the economic logic.
Africa and India
Africa and India trade:
- Africa is already an important economic partner for India with total annual merchandise trade estimated at $70 billion or nearly a tenth of our global trade.
- India is Africa’s third largest trading partner.
- Africa still has unfulfilled demand for Indian commodities, especially foodstuff, finished products (automobiles, pharmaceuticals, consumer goods) and services such as IT/IT-Enabled Service, health care and education, skilling, expertise in management and banking, financial services and insurance.
India needs to be prepared to benefit from AfCFTA:
- India needs to anticipate the AfCFTA’s likely impact on its interests and try to influence and leverage it to enhance India-African economic ties.
- In principle, African economies becoming more formalised and transparent would be in India’s interest.
- While local manufactured items and services may ultimately compete with Indian exports, Indian firms can co-produce them in Africa.
- If handled in a proactive manner, the AfCFTA is likely to open new opportunities for Indian stakeholders in FMCG manufacturing, connectivity projects and the creation of a financial backbone.
Some steps India could take to help the execution of AfCFTA:
- India donated $15 million to Niger to fund the Niamey AU Summit.
- As the next step, New Delhi can help the AU Commission prepare the requisite architecture, such as common external tariffs, competition policy, intellectual property rights, and natural persons’ movement.
- It can also identify various African transnational corporations which are destined to play a greater role in a future continental common market and engage with them strategically.
- The cross-linkages of a three million strong Indian diaspora spread across Africa can also be very valuable.
There could even be India-African FTA in future:
- Once the AfCFTA becomes a beneficial game changer, African nations and India could even come up with an India-African FTA.
- Before Africa was “discovered” by the West, it had a thriving overland trade.
- Large camel caravans ferried commodities such as ivory, gold, mineral salt, precious stones and slaves across prosperous trading centres such as Timbuktu, Ghana, Kano, Burnu, Agadez, Edo, Zinder, Ghat, Addis Ababa, Dar es Salaam and Cairo.
- Subsequent colonialism and mercantilism destroyed internal trade routes, replacing them with an ecosystem in which Africans had better links with their foreign “mentors” than among themselves.
- By the AfCFTA, the Africans are only trying to correct this historic distortion.
GS Paper II: International Relations