Moussa Faki Mahamat (center), Chairperson of the AU Commission, greets the attendees after the AfCFTA agreement was signed in Kigali, Rwanda, on March 21, 2018 (XINHUA)
The African Continental Free Trade Area (AfCFTA) agreement took effect on May 30. It is expected that the free trade area will be officially launched on July 7. As of the end of May, 52 out of the 55 African Union (AU) member countries have signed the agreement, except for Nigeria, Eritrea and Benin. According to the AU, when all of its 55 members sign up, the AfCFTA will be the world's largest free trade area in terms of membership since the founding of the World Trade Organization, and will be a huge market covering 1.2 billion people and a collective GDP of $2.5 trillion.
Undoubtedly, the signing and launch of the AfCFTA will be an epoch-making event and a new milestone in promoting African integration. More importantly, the AfCFTA agreement was signed against the backdrop of the rising trend of anti-globalization and trade protectionism, and signals African countries' resolve to cope with the challenges brought by a changing international environment through strengthening economic integration.
The AfCFTA aims to create a single continental market for various economies in Africa with free movement of goods, services and funds by lowering tariffs and eliminating trade barriers. If the free trade zone can be launched on July 7, the 52 members of the AfCFTA will enjoy zero tariffs and absence of quotas. According to the United Nations Economic Commission for Africa (UNECA), the AfCFTA will gradually eliminate tariffs on 90 percent of the goods and will further liberalize services trade. The proportion of intra-Africa trade will also rise from the current 14 percent to 52 percent in 2022. Given that non-tariff barriers will also be lowered, the trade volume within Africa is estimated to double that of 2010.
Compared with other continents, Africa has a lower proportion of intra-regional trade, due to a large number of countries and a highly fragmented market. Statistics from UNECA show that intra-Africa trade accounted for only 17 percent of the total trade value of the continent in 2017, while the ratio is 69 percent in Europe and 59 percent in Asia. According to the African Economic Outlook 2019, Africa has 16 landlocked countries, and is more fragmented than any other continent. In 2017, 76 percent of African countries had fewer than 30 million people, and about half had a GDP of less than $10 billion. In this context, African countries can only overcome their structural weakness of small economic size and market through joint efforts and economic integration, so as to pool their strength and cope with external economic impact and challenges of globalization by means of expanding and strengthening their markets.
The significance of the AfCFTA for African development is obvious, and that's why it is the flagship project of the AU's Agenda 2063. In May 2013, the AU issued the Agenda 2063 to plan the continent's development in the coming 50 years, showing its consensus and determination to accelerate African integration. Since then, African integration has become a topic for discussion at every AU summit. In fact, AU members started negotiating the AfCFTA in June 2015, with the hope of integrating various economies in Africa into a single market and deepening African economic integration by further lowering tariffs, eliminating trade barriers and promoting the circulation of goods, services and funds. On March 21 last year, 44 African countries signed the AfCFTA agreement in Kigali, capital of Rwanda. Over a year later, the agreement took effect after ratification from 24 African countries. It is a great achievement to reach such a high-level free trade zone agreement within such a short period of time for a continent comprising so many countries with different levels of economic development.
The single market in Africa will not only boost intra-Africa trade through reducing internal business costs, creating business opportunities and improving industrialization levels of Africa, but also help create jobs, support sustainable economic development and improve people's livelihood. More importantly, the creation of the free trade area will improve the relations between Africa and its external trade partners, so as to realize a win-win situation by creating a bigger market for itself and for its trade partners. On the one hand, the AfCFTA will effectively reduce the costs of imports, especially those from Europe and Asia, and on the other hand, the free trade area will create a huge market for foreign investors, improve the business environment to attract foreign investment and reduce barriers to foreign investment, so as to lay a solid foundation for foreign enterprises to invest in African countries.
Driving China-Africa trade
China has consistently supported African integration. Besides building the AU Headquarters in Addis Ababa to improve the working conditions for the staff engaged in promoting African integration, China has also strengthened cooperation with Africa in three pragmatic areas of infrastructure construction, industrial development and market integration, aiming to promote the development of the free trade area on the African continent. In terms of industrial development, Chinese President Xi Jinping announced 10 China-Africa cooperation plans and eight major initiatives at the Johannesburg Summit of the Forum on China-Africa Cooperation (FOCAC) in December 2015 and the FOCAC Beijing Summit in September 2018 respectively, both backed by $60 billion of financial support. These measures have supported industrial development, trade and investment, human resource development and training, as well as poverty alleviation and green development in Africa.
In the area of infrastructure construction, China and the AU signed the memorandum of understanding (MoU) on China-Africa infrastructure cooperation on January 27, 2015. According to the MoU, China would strengthen cooperation with African countries in railway, highway, regional aviation and industrialization under the framework of Agenda 2063, so as to promote African integration. Till date, Chinese companies have started construction of railways, airports, industrial parks and ports in countries such as Ethiopia, Djibouti, Kenya and Nigeria, promoting the realization of African integration with their actions.
With the AfCFTA and progress in African integration, the potential of the African market will be further realized, which will greatly deepen and intensify China-Africa cooperation in industrial capacity. The improvement of business environment in Africa will raise its appeal to Chinese investors.
Sufficient market size is important for the development of industrial parks and economic and trade cooperation zones. Thus, the creation of a big single market and development of large-scale economies in Africa will further promote China-Africa industrial cooperation.
So far, China has established 25 economic and trade cooperation zones on the African continent. Qian Keming, Vice Minister of Commerce of China, recently indicated that the 25 cooperation zones are boosting Africa's industrialization, job creation and growth in exports. Statistics show that the 25 cooperation zones have created more than 40,000 jobs and contributed taxes of nearly $1.1 billion to host countries. In the coming three years, China will build and upgrade a number of economic and trade cooperation zones to promote industrial development in Africa, and encourage Chinese enterprises to increase investment in African industry, especially in sectors such as manufacturing, agriculture, financial services, trade and logistics and digital economy.
The creation of the AfCFTA will energize China-Africa trade. Customs data show that China-Africa trade reached $204.2 billion in 2018, a year-on-year increase of 20 percent. China exported $104.91 billion to Africa and imported $99.28 billion, up 10.8 percent and 30.8 percent year on year respectively. China's trade surplus was $5.63 billion, a decrease of 70 percent. China has been the largest trade partner of Africa for 10 years in a row.
At the FOCAC Beijing Summit, President Xi specially mentioned that China would launch a trade facilitation initiative, aiming to enhance China-Africa trade and intra-Africa trade. China continues to expand imports from Africa and welcomes African countries to raise their exports to China, so as to share the benefits of China's development. China would increase imports, particularly non-resource products, from Africa, so as to help Africa improve its export capacity and trade integration, and support modernization of customs and quality inspection mechanisms in Africa.
"We support the building of the AfCFTA and will continue to hold free trade negotiations with interested African countries and regions," stressed Xi.
Before the opening of the FOCAC Beijing Summit, China had concluded negotiations on the free trade agreement with Mauritius, making a breakthrough in China-Africa free trade area cooperation.
In the future, China should grasp the opportunity presented by the AfCFTA to launch free trade negotiations with more African countries and regional organizations, with a view to transforming and upgrading China-Africa trade. This way, China and African countries can join hands to cope with new challenges brought by globalization and create a better future.
Copy Editor/Chen Yiran
Author: He Wenping is an adjunct senior fellow of the Charhar Institute, researcher of Institute of West-Asian and African Studies, Chinese Academy of Social Sciences.
Source: ChinAfrica, 2019-07-09