Connect with us

World

Experts Speak as African Continental Free Trade Area Agreement Takes Effect

Published

on

The African Continental Free Trade Area agreement (AfCFTA) came into force on May 30, 2019. In April 2019, Gambia ratified the agreement, bringing the total number of African Union (AU) member state ratifications to 22, the minimum threshold for AfCFTA’s implementation. In the last month, the required number of endorsements was received by the AU and the agreement is now in force.

According to Virusha Subban, Partner specialising in Customs and Trade at Baker McKenzie in Johannesburg “AfCFTA aims to eliminate tariffs on intra-African trade, reduce unemployment, increase infrastructure development and create a more competitive, yet sustainable environment for cross-border trade.”

Subban explains that AfCFTA is a treaty between consenting countries whereby a free trade area is constituted which allows member countries to conduct trade with each other without tariffs or other hindrances. Currently, the agreement has 52 signoraties, out of 55 member states, which make up a market of more than 1.2 billion people, with a combined GDP of more than $ 3.4 trillion.

Itumeleng Mukhovha, Associate in Corporate/M&A Practice, notes, “Expanded international and regional trade flows have played a significant role in Africa’s rapid growth in recent years. The AfCFTA marks another milestone toward deeper regional integration and the quest for stronger and sustained growth. As a matter of fact, the AfCFTA is expected to provide businesses across Africa with many opportunities and in so doing, it complies with Agenda 2063: The Africa We Want. Agenda 2063 is an AU goal aimed at socio-economic transformation.

In addition, the Economic Commission for Africa (ECA) estimates that intra-African trade should increase by 52.3%, with the elimination of import tariffs and add $70 billion to the continent’s GDP by 2040.

Currently, trading outside Africa is subject to lower tariffs than the 6.1% tariff imposed on intra-Africa trade. The scope of the AfCFTA will have widespread changes – businesses, traders and consumers in Africa will no longer be constrained by tariffs; and mechanisms will be put in place to assist traders that are burdened by non-tariff barriers.”

In January 2012, the AU decided to adopt a free trade area covering the African continent, which they hoped to have in place by 2017. Fast track to March 2018, where a significant decision was taken towards the fulfilment of the AU’s mandate of a continental free trade area – 44 countries indicated their commitment through signing the agreement in Kigali, Rwanda. Two further agreements were also presented at the Kigali Summit, namely the Kigali Declaration and the Protocol to the Treaty Establishing the African Economic Community relating to the Free Movement of Persons, the Right to Residence and the Right to Establishment.

“Two of Africa’s leading economies, Nigeria and South Africa, however, did not sign the agreement in Kigali in 2018. Both countries had indicated support of the agreement before the Summit, however, the reasons for their reservations took two different routes,” Mukhovka says.

“Nigeria was largely considered as a supporter of the free trade area and was expected to play a major role during the negotiations at the Kigali Summit. However, uproar by local businesses, policymakers and lobbyists within Nigeria led President Buhari to cancel his trip to Kigali in order to respond to complaints that their interests were not being accommodated.

“In July 2018, South Africa, along with five other countries, became party to AfCFTA, joining the-then 44 existing signoraties to the agreement.  The African Union Summit which took place in July 2018, saw South Africa, Namibia, Sierra Leone, Lesotho and Burundi take the total signatories to 49 of the 55 member states. In February 2019, during the 32nd AU Heads of State and Government Summit in Addis Ababa, Ethiopia, Botswana, Zambia and Guinea Bissau raised the number of countries to have signed the agreement to 52.

“However, Africa’s largest and most populous economy, Nigeria, is the most notable non-signatory of the AfCFTA.

“Although the Nigerian government was initially concerned about opening up its borders and turning the country into a receptacle of finished goods, the Minister of Industry, Trade and Investment, Okechukwu Enelamah, recently confirmed that Nigeria will sign the AfCFTA as soon as President Muhammadu Bihari approves an impact-assessment report,” says Mukhovha.

When he signed the agreement last year, President Ramaphosa said that it would create many opportunities and benefits for South Africa and moreover, would grow and diversify the South African economy through the reduction of inequality and unemployment. Ramaphosa indicated that South Africa’s position as a major supplier of goods and services to the continent would also be strengthened by the agreement.

“Through the AfCFTA, South Africa is also expected to be benefit from an increase in foreign direct investment, gain access to a broader range of expertise and the possibility of lower governmental spending.

“This is because, through its implementation, the subsidisation on local industry segments might be removed due to advantageous outcomes of the agreement. However, two disadvantages arising from the agreement include the potential increase in the outsourcing of jobs as a result of the significantly reduced tariffs and the possible degradation of natural resources,” says Mukhovha.

Mukhovha explains further that extractive commodities including oil, minerals and metals, have traditionally been the continent’s leading source of exports, accounting for 76% of exports outside Africa.

“Due to the volatile nature of these extractive exports, financial assurance is not certain. It is hoped that AfCFTA will encourage a shift away from reliance on extractive exports towards more sustainable trade in Africa. Moreover, encouraging more labour-intensive trade such as manufacturing and agricultural goods, will increase employment on the continent,” she says.

Subban says, “AfCFTA will not only have an impact on the trade of goods and services in Africa, but through the implementation of Phase II, it will also see an extension of the disciplines covering investments, competition and intellectual property. According to the AU, finalisation on the supporting instruments to facilitate the launch of the operational phase on AfCFTA will begin in June 2019 at an extra-ordinary head of state and government summit.

“Once all 55 AU member states have joined AfCFTA, it will become the largest free trade zone and the largest customs union in the world, with many more African products and services becoming freely available in other countries in the African Union,” Subban adds.

Dipo Olowookere is a journalist based in Nigeria that has passion for reporting business news stories. At his leisure time, he watches football and supports 3SC of Ibadan. Mr Olowookere can be reached via dipo.olowookere@businesspost.ng

Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

World

Shockwaves Over Trump’s Tariffs Reverberate Across Africa

Published

on

Vsevolod Sviridov High School of Economics

By Kestér Kenn Klomegâh

After taking office early 2025, U.S. President Donald Trump has embarked on rewriting American foreign policy and plans to create a new geopolitical history under the “America First” doctrine.

The first three months have seen efforts to implement tariffs, which finally was splashed early April world-wide, including on a grand scale across Africa.

Seemingly, a blanket of tariffs is one of the standout actions of the new administration. Trump’s changing approach to the world, using geoeconomic tools, including tariffs has now sparked extensive debates and discussions.

Our media chief, Kestér Kenn Klomegâh, took a quick chance and asked Vsevolod Sviridov, deputy director at the High School of Economics (HSE) University Center for African Studies, a few questions pertaining to the aspects and implications of the U.S. tariffs for Africa. Here are the interview excerpts:

How would you interpret trade war between China and the United States?

There has been a global trend towards overspending over the last two decades. We have seen commodity boom, rise of  China with  its global  investments drive  and infrastructure development projects like BRI, excessive budget   spending by the OECD countries during COVID-19, etc. Now   countries are trying to optimize their spending. Considering that there is a certain trend towards deglobalization, external trade and deficits are the first to fall victims to this policy. While China almost halved its lending, US are trying to cut their ODA (see South Africa’s case) and adjust their trade deficit, which is fuelling their vast debt.

What could be the reasons for Donald Trump to extend that kind of economic policy, trade tariffs, to Africa?

His latest actions indicated that was possible. Trump has imposed increased tariffs on 14 African countries, including South   Africa (30%), Madagascar (47%), Tunisia (28%), Côte d’Ivoire (21%), and others. The primary selection criterion was the trade deficit with the U.S., though there are exceptions, such as Libya, which was left off the list despite a US$1 billion deficit. Additionally, seven more countries, including Egypt, Morocco, and Kenya, will face a base tariff of 10%, meaning that for Washington stable relations with them are more important.

The hardest-hit country will be Lesotho (50%), where the textile industry, heavily reliant on the U.S. market, will suffer. However, South Africa will bear the greatest overall impact, as it accounts for 70% of the U.S.-Africa trade deficit. In addition to the 30% base tariff, there will be an extra 25% duty on imported cars. This will affect factories operated by VW, Toyota, BMW, and other automakers, whose exports to the U.S. total US$2-3 billion annually. Angola, which had backed the Democratic Party, is also facing penalties (32%).

If these tariffs take effect as announced, they could lead to the collapse of African Growth and Opportunity Act (AGOA). However, the U.S. has not needed AGOA as much since the 2010s when it reduced dependence on African oil and gas. AGOA is set to expire in September 2025, and Trump’s actions make its renewal highly unlikely.

Trump has suggested that affected countries relocate production to the U.S., but this is difficult for African nations that mainly export raw materials. The new tariff preference system is expected to consider political and economic factors, making it less  predictable and less favourable for African suppliers. On the other  hand, this shift could encourage African countries to focus on regional markets and develop industries tailored to their domestic economies.

It could be excellent, from academic perspectives, to evaluate and assess the impact of AGOA in relation to Africa?

For Africa, the African Growth and Opportunity Act (AGOA) meant establishment of several mainly export-oriented industries, like textile or car manufacturing. For instance, almost 2/3 of cars manufactured in RSA are being exported to US and Europe, with only 1/3 being sold on the local market and tiny part exported to other African countries (20k out of 600k prod).

They created employment opportunities for locals but never contributed to local markets and industries development, technology and knowledge sharing. Collapse of AGOA would mean additional opportunities for African industries and producers to target local and regional markets and develop industrialization strategies considering their national interests first (like Trump does).

Assessing the reactions over the tariffs world-wide, and talking about the future U.S.-Africa trade, and the African Continental Free Trade Area (AfCFTA), what next for Africa?

The African Continental Free Trade Area (AfCFTA) gives Africa a chance to embark on the hard and long journey of developing intraregional trade. Still this emerging market could be easily used by non-African suppliers as a tool to expand their presence, given that without protection nascent African industries are hardly able to compete in price and from time to time in quality. Especially now, when we are clearly seeing that the US are more interested in selling then buying. So any external aid and knowledge sharing assistance in this sphere should be received with caution.

Continue Reading

World

Trump’s Tariffs Will Affect Global Trade—Okonjo-Iweala

Published

on

Green Hydrogen Ngozi Okonjo-Iweala

By Adedapo Adesanya

The Director-General of the World Trade Organisation (WTO), Mrs Ngozi Okonjo-Iweala, has said the recent tariffs announced by the United States would have substantial implications for global trade and economic growth prospects.

Mrs Okonjo-Iweala said this in a statement in reaction to recent tariffs imposed on goods from other countries by US President Donald Trump.

The WTO DG added that the organisation was closely monitoring and analysing the measures announced by the United States on April 2, 2025.

She noted that many members have reached out to the WTO and the organization is actively engaging with them in response to their questions about the potential impact on their economies and the global trading system.

“While the situation is rapidly evolving, our initial estimates suggest that these measures, coupled with those introduced since the beginning of the year, could lead to an overall contraction of around 1 per cent in global merchandise trade volumes this year, representing a downward revision of nearly four percentage points from previous projections.

“I’m deeply concerned about this decline and the potential for escalation into a tariff war with a cycle of retaliatory measures that lead to further declines in trade,” the WTO DG stated.

She, however, noted that despite the emerging tariffs war, the vast majority of global trade is still being conducted under the WTO’s Most-Favored-Nation (MFN) terms.

“Our estimates now indicate that this share currently stands at 74 per cent, down from around 80% at the beginning of the year. WTO members must stand together to safeguard these gains,” the former Nigeria’s Finance Minister said.

Nevertheless, Mrs Okonja- Iweala urged caution while advising members to utilise the platform of WTO to prevent the tariff war from escalating.

“Trade measures of this magnitude have the potential to create significant trade diversion effects. I call on Members to manage the resulting pressures responsibly to prevent trade tensions from proliferating.

“The WTO was established to serve precisely in moments like this — as a platform for dialogue, to prevent trade conflicts from escalating, and to support an open and predictable trading environment. I encourage Members to utilize this forum to engage constructively and seek cooperative solutions,” she remarked.

Continue Reading

World

Saudi, Russia, 6 Others Agree to Raise Crude Oil Output Next Month

Published

on

crude oil output

By Adedapo Adesanya

Eight key producers in the Organisation of the Petroleum Exporting Countries and its allies (OPEC+) on Thursday agreed to raise combined crude oil output by 411,000 barrels per day.

Saudi Arabia, Russia, Iraq, UAE, Kuwait, Kazakhstan, Algeria, and Oman met virtually to review global market conditions and decided to raise collective output by 411,000 barrels per day, starting in May.

The group was widely expected to implement an increase of just under 140,000 barrels per day next month.

The May hike agreed on Thursday is “equivalent to three monthly increments,” OPEC said in a statement, adding that “the gradual increases may be paused or reversed subject to evolving market conditions.”

The eight OPEC+ producers this month started gradually unwinding 2.2 million barrels per day of voluntary cuts undertaken independently from the production strategy of the broader 22-member OPEC+ alliance, which has roughly 3.66 million barrels per day of separate cuts in place until the end of 2026.

CNBC reported that the Thursday meeting was the first one attended by Mr Erlan Akkenzhenov, the new energy minister of Kazakhstan, which has struggled with producing above its assigned quota.

Without referencing individual countries like Nigeria, OPEC said in its Thursday statement that the May output hike will “provide an opportunity for the participating countries to accelerate their compensation” by way of additional production cuts in line with overproduction.

The Thursday decision was taken against the backdrop of broader market trouble triggered by sweeping tariffs on key trade partners unveiled on Wednesday by the administration of US President Donald Trump.

Mr Trump, who has been simultaneously championing higher US oil output, signed a reciprocal tariff policy on Wednesday.

The American President said his plan will set a 10 per cent baseline tariff across the board.

The plan imposes steep tariff rates on many countries, including 34 per cent on China, 20 per cent on the European Union, and Nigeria got 14 per cent.

Continue Reading

Trending