Why the AfCFTA can’t simply plug the US trade gap
Africa’s continental free trade area offers long-term promise, but expecting it to quickly compensate for US trade losses may be unrealistic.
There’s a lot of hype right now about how intra-African trade through the African Continental Free Trade Area (AfCFTA) could replace the considerable loss of African exports to the United States (US) precipitated by the Trump administration’s steep tariff hike.
Intra-African trade – which, at about 15–16% of all African trade, is relatively low – seems to have increased a bit because of the AfCFTA, but not much.
At a seminar this week, Elizabeth Sidiropoulos, executive director of the South African Institute of International Affairs, asked Wamkele Mene, secretary-general of the AfCFTA, whether the eruption of tariff wars and the major disruption to the global trading system were not, paradoxically, the kind of shock Africa actually needed.
She suggested that such a shock might ‘really, really drive and accelerate our efforts in creating an integrated African market.’
Mene essentially agreed, noting that 49 of the African Union’s 55 member states had ratified the agreement establishing the AfCFTA, thereby accepting the obligation to eliminate intra-Africa trade barriers.
Intra-African trade, at about 15–16% of all African trade, is relatively low and has increased only slightly under the AfCFTA
Nevertheless, the big question remained: how does Africa navigate the current turbulence, which could devastate economies that had benefited from access to the US market through the African Growth and Opportunity Act – such as South Africa, Angola, Nigeria and Madagascar.
The answer, Mene said, was to ‘successfully insulate Africa’s economy from the current storm that is taking place’ to ensure ‘the economic self-sufficiency of our continent’ in the medium to long term.
He pointed out that Africa represents a market of 1.4 billion people with a combined GDP of US$3.4 trillion, though fragmented – something the AfCFTA is meant to address. In the medium to long term, the AfCFTA could provide a domestic African market to replace, say, South Africa’s lost auto market in the US.
He added that all countries of the Global South were confronting the same predicament, and so Africa and others had to build partnerships based on trade and investment. China, he noted, had just announced that over 30 African countries would now enjoy duty-free, quota-free access to its market.
And the African Union had also started discussions with the United Arab Emirates and needed to broaden partnerships with the Latin American countries as well.
South Africa’s former trade and industry minister Rob Davies said the impact of US tariff hikes would be drastic for many African countries, especially South Africa, given its higher level of exports to the US.
Davies also endorsed the AfCFTA as the way forward but warned that countries worldwide that had relied on the US market would now be trying to sell their goods elsewhere, including to Africa.
The emerging picture, he said, was that only a few African countries – such as Nigeria, Morocco and South Africa – had so far managed to sell their value-added products to the rest of the region.
Countries worldwide that had relied on the US market would now be trying to sell their goods elsewhere, including to Africa
He suggested three possible outcomes for the AfCFTA.
The first was that the continent would be ‘frozen in the lights,’ with a flood of imports from outside the region reducing the value of intra-African preferential access. Meanwhile, African states might compete for better US deals by offering mineral access and similar concessions, making the African market less attractive and stalling the AfCFTA.
The second possibility was that a few African countries might use the AfCFTA as a market for their finished goods, risking retaliation and polarisation within the continent.
He noted this had already been visible at the Southern African Development Community (SADC) level years ago, where member states had sometimes favoured imports from elsewhere over those from SADC. This too could stall the AfCFTA.
Davies said Trump’s tariffs reflected a transition in the world economy from globalisation and neoliberalism at the end of the 20th century to a new, more multipolar order. Its features include greater protectionism, ‘some of it disguised as climate-justified measures,’ and more regionalism.
The third possibility is the challenge of developing the African region as a mechanism for growing regional value chains. That would require deliberate efforts to create opportunities for smaller economies to join value chains by producing intermediate goods.
‘That’s a longer and harder road to travel, but ultimately the one that I think the region has got to travel. So, I think that we’re at a crossroads,’ he said.
Eckart Naumann, independent economist and associate of the Trade Law Centre, said the AfCFTA could potentially offer many new opportunities. But it had had a slow start partly because rules of origin and reciprocal tariff phasedown schedules still had to be finalised.
He said South Africa was currently able to trade with only seven countries under a ‘Guided Trade Initiative,’ which seeks to jump-start trade among countries that have begun implementing the AfCFTA.
He also noted that the AfCFTA did not replace the criteria for preferential trade within existing sub-regional trade blocs, such as SADC, but should be seen as the umbrella agreement for intra-Africa trade among countries not in the same trade bloc – such as South Africa and Kenya, or Nigeria and Egypt.
Naumann said replacing US export markets with African ones would not be easy, as building new markets with different characteristics would take time. For some products, such as autos, rules of origin had not yet been agreed.
Though trade has begun under the AfCFTA, progress has been limited as many rules and tariffs have yet to be negotiated
Donald MacKay, director of XA Global Trade Advisers, warned: ‘There’s a bit of false hope being created around the AfCFTA. We’re not going to replace the US with Africa, for the simple reason that the stuff we sell to the US is not the same kind of stuff Africa is buying, in anything resembling comparable volumes.’
He added that smaller products might have some potential, but even if South Africa sold the same volumes to Africa as to the US, it would struggle to secure the same prices.
Though trade has begun under the AfCFTA, progress has been limited, partly because many of the necessary rules and tariffs have yet to be negotiated. For example, rules of origin for vehicles and textiles have not yet been agreed on.
But MacKay argued that implementation is not the real issue. He noted that the SADC Free Trade Agreement had not significantly boosted South African exports to the region (beyond the Southern African Customs Union), partly because of high transport costs but also because of limited market affordability.
‘You will be able to sell some basic foodstuffs, for instance, but the C-class Mercs we send to the US are not miraculously going to be picked up in Africa,’ he said.
Which raises the fundamental question: can free trade really be an instrument of development?
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