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South African Trade and the African Continental Free Trade Agreement (AfCFTA)

AfCTAOrigins of the AfCFTA

On 21 March 2018, the African Union (AU) sat through an extraordinary session in Kigali that brought the African Continental Free Trade Agreement (AfCFTA) into existence after 3 years of negotiations; 44 out of the 55 member states of the AU signed the agreement in Kigali, Rwanda. The AfCFTA serves as a culmination of relentless efforts by the AU in pursuit of three of their key economic policies: the Lagos Plan of action for Africa’s Economic Development of 1980, the Abuja treaty of 1991 and recently Agenda 2063 of 2015.

The Lagos Plan of Action, which seeks to improve African self-reliance by capitalizing on the abundant natural resource wealth for development in the continent through more aggressive industrialization and increased intra-African trade. The Abuja Treaty  is an integration plan of the eight regional economic communities at a later stage; these economic regions are a means to an end, with the end being a single unified African economic community. The AU’s Agenda 2063 views the AfCFTA as a flagship project in the transformation of Africa to a global powerhouse and the AU has committed itself to implementing it, and similarly aims to accelerate the growth and development of Africa through significantly increased intra-African trade and to strengthen Africa’s voice in the constantly negotiating world of global trade.

Potential of the AfCFTA

The AfCFTA is the first of its kind since the General Agreement on Trade and Tariffs (GATT) and it will be the largest free trade area in the world. When fully functional, the AfCFTA will boast a total combined continental gross domestic product (GDP) of US$2.1 trillion and a total population of 1.26 billion people, with an African GDP growth between 1-3% and employment growth of 1.2%; this would see Africa as the 3rd largest market after China and India. The instrumentalization of a market of 1.26 billion people, as proven effective by China on the international stage, will fulfil Agenda 2063’s objective of strengthening Africa’s voice at the policy and trade negotiations table. Taking note of the reality that Africa has been experiencing a trade deficit since GATT, the AfCFTA has the potential to reduce that deficit by 50%; this will partly be made possible by an increase in Intra-African trade by 33%. A drastic reduction in import prices also stands to reduce the costs of imported raw materials and intermediate inputs, which will then make it cheaper for downstream producers in the respective importing countries to process and sell. The reduction in local production costs will lead to an increase in the competitiveness of African producers; this will present them with an opportunity to compete in the markets of more economically developed nations.

Status of the AfCFTA

To date, 54 out of the 55 African states which are also member states of the AU have signed the AfCFTA agreement with the single signature absent, being that of Eritrea. Article 23 of the agreement establishing the AfCFTA posited the threshold ratifications for the agreement to enter into effect was 22, that threshold was met in April 2019 when the Saharawi Republic and Sierra Leone deposited their instruments of ratification with the AU commission. As of May 2020, 30 countries have deposited their instruments of ratification and met local requirements, with Cameroon and Angola being the most recent on October 2019 and April 2020 respectively. Setting up the secretariat has not been offset by the novel coronavirus, and the official commissioning and handing over of the AfCFTA secretariat building in Ghana was concluded on the 17th of August 2020 via Zoom.

South Africa and the AfCFTA

In February 2019, South Africa deposited its instruments of ratification after parliament ratified the establishing agreement of the AfCFTA. The South African President issued a statement to say the South African ratification of the AfCFTA reaffirms the country’s position to foster a single, unified and diversified African market free of trade barriers. In pursuit of this, South Africa has been the leading importer and exporter in inter-African trade for the past decade; the country has also led and entered into a duty free Southern African Customs Union (SACU) and the Free Trade Agreement (FTA) in the SADC region. The AfCFTA provides South Africa with an opportunity to realize this objective on a grander stage with better coordination from the AU. Certain industrial and immigration policy changes will need to be made in order to allow for the free movement of goods and possibly, persons. The economic growth and inter-dependence that stands to be brought by the AfCFTA is certain to bring more than just economic interaction; socio-economic interactions are bound to increase in the continent. It is most likely that South Africa will be one of the destinations of choice as it is one of the continent’s best performing economies; in this regard, South Africa may be confronted with the need to alter an immigration policy that appears to have an anti-African nuance

Not only is South Africa the second highest grossing economy in the continent after Nigeria with a GDP of US$350billion at the end of the 2019 financial year, it is also Africa’s most diversified economy bound to be a player in the success of the AfCFTA.

South Africa accounts for 27% of all intra-African exports and 12% of all intra-African imports, thus accounting for most of intra-African trade in 2019. South Arica’s intra-African exports are fairly diverse, however, some of the main exports to other African countries in 2019 were: Petroleum Oil (excluding crude oil), Electric Energy, Goods vehicles and steel products; These products accounted for 20% of all South African intra-African exports in 2019. In total, the country counted US$34.4 billion from intra-African trade with exports amounting to US$24 billion and imports amounting to R10.4 billion, see Figure 1; thus, resulting in a trade surplus of US$13.6 billion.

Figure 1.

 figure1

Source:https://www.tralac.org/resources/our-resources/13142-south-africa-intra-africa-trade-and-tariff-profile.html#:~:text=For%202019%2C%2027%25%20of%20South,for%20South%20Africa's%20world%20trade.    


As the leading exporter of petroleum oils (excluding crude) and electric energy, South Africa could seize this opportunity of the laxing of trade tariffs to advance the National Development Plan’s (NDP) sustainable development and energy security initiatives. With properly altered industrial policy, South Africa could lead the climate sensitive development discourse in Africa by instrumentalizing both SASOL with bio-fuels and ESKOM with renewable energy. SASOL already exports a great number of petroleum oils to parts of Africa and ESKOM already provides electricity for some of the SADC member states. South Africa’s intergovernmental panel on climate change is having negotiations on how to transition to a climate sensitive economy without mass casualties of livelihoods. The transition in pursuit of the NDP and Sustainable Development Goals will create new value chains through the manufacturing, maintenance and construction of the renewable energy infrastructure which may be exported across Africa with minimal charge in the era of the AfCFTA.

Most Intra-African trade comes from the Southern African Development Community (SADC); what the AfCFTA will do is that it will open the north and  western African markets, where South African companies have not been competing successfully due to heavy trade duties. The AfCFTA could mean more tax revenue through employment creation, VAT and corporate tax; which stands to act as the substitute for the loss of income from removing tariffs and other non-tariff barriers, taking into account the numbers in terms of exports and imports.

Moreover, the AfCFTA caters for South Africa’s position on regional integration; which envelopes ambitions of a more developed and peaceful region. The opportunity presented by the AfCFTA to SADC member states is that of other markets to export their goods and services without the worry of tariffs thus bringing about more revenue to be used on much needed development in the respective countries. South Africa’s commitment to the AU and Agenda 2063 also requires the country to support the AfCFTA as the establishment of the agreement is part and parcel of the Agenda.  Economic inter-dependence has served as a stabilizing factor in regions, as evident with the European Union, through creating relations that transcend the economic sense of the word; this means that African states would have a greater role to play in ensuring that any arising conflict is resolved quickly through the AU Peace and Security Council as that conflict would be affecting the economies of member states party to the AfCFTA.

Conditions for Success

The AfCFTA will not be implemented in a vacuum, it requires that the political leadership of states party to the AfCFTA show greater political will and willingness to build consensus in policy change to achieve the full potential of the continental free trade agreement; this requires strategies such as the reduction of non-tariff barriers and other protectionist measures. States such as South Africa and a few others (Nigeria, Egypt, etc.) will have a bigger role to play as regional leaders or economic hubs by exercising good governance and showing a significant reduction in corruption as those are two of the most needed aspects to amplify the good of the AfCFTA, otherwise the absence of the latter pair could offset the success of the agreement and make it redundant as it could be used as a site for corrupt leaders and businesses to disenfranchise the poorest in society. States party will need to show great commitment to the agreement and not crack in the face of other bilateral and multilateral agreements that seek to undermine the AfCFTA.

 

Neo C. Komane works as a Junior Researcher at the National Labour and Economic Development Institute, which is the research division of the Congress of South African Trade Unions. Before that he worked at Friedrich Ebert Stiftung - South Africa, where he worked on International Relations. He currently serves as a Research Committee Member of the International Association of Political Sciences Students. His research interests include, but are not limited to: International Conflict, Defense Policy, Industrial Policy and Foreign Policy.

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