Africa Bulletin - Firmenkunden
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Africa Bulletin April 2021, No. 6
The African Continental Free Trade Agreement (AfCTA):
a potential engine for regional integration
Flowers being exported from Kenya to the Netherlands, just However, real barriers have also stood in the way of intra-
to be shipped all the way back to the African continent to be African trade. Tariffs have played a role, but non-tariff
imported into Nigeria. This is just one illustrative example of barriers – which, according to an IMF study, include infra-
a far larger issue affecting the entire continent, namely, the structure, credit access for the private sector, the business
lack of established intra-regional trade routes within Africa. environment and trade logistics (e.g. customs and trade
regulations)1 – have been more detrimental.
Intra-African trade needs an upgrade
The idea of reducing tariffs and fostering regional economic
Intra-regional trade is underdeveloped in Africa compared cooperation is not new in Africa. Indeed, at present, there is
with other parts of the world (as illustrated by the yellow a network of 17 regional economic blocs across Africa. Nev-
sections in Chart 1). The majority of African trade is con- ertheless, the IMF believes that the existing arrangements
ducted with other continents, such as Europe and Asia. One are underperforming, mainly due to a low level of imple-
main reason is Africa’s abundance of primary commodities mentation, a lack of institutional backing and multiple mem-
(such as minerals and agricultural products) which attract berships.2 The Southern African Development Community
continued interest from advanced economies and thus (SADC) and the East African Community (EAC) have
dominate Africa’s exports to other continents. proved the most successful at fostering regional integration,
with export volumes among members accounting for 20%
and 17% of total intra-African trade volumes, respectively.
Chart 1: Share of intra-regional exports, 2019 In contrast, exports between member countries are least
developed in the Central African Economic and Monetary
16% 68% Community (CEMAC), which accounts for just 2% of the
total. Due to the low levels of intra-African trade, related
customs revenues are generally also suppressed, ranging
from 2.5% of GDP in Djibouti (a small port-driven economy),
Africa Europe
to less than 0.1% of GDP in Nigeria (Africa’s largest economy).
84%
32% At a time when infrastructure investments in Africa are
gathering momentum (to a large extent as a result of the
Chinese Belt and Road Initiative), working towards over-
Intra-regional exports Exports to other countries coming barriers to intra-regional trade and establishing a
pan-African regulatory trade framework is a logical and
Source: United Nations Conference on Trade and Development (UNCTAD) important priority.
1
IMF: Regional Economic Outlook: Sub-Saharan Africa— Recovery Amid Elevated Uncertainty, Washington, 2019
2
IMF: The African Continental Free Trade Area: Potential Economic Impact and Challenges, Washington, 2020
Commerzbank AG | Africa Bulletin April 2021 | Page 2
Liberalised trade in goods as a first step the sovereign states, which convene in ministerial councils
or the AfCFTA assembly.
After several years of negotiation, 54 out of the 55 countries
within the African Union (Eritrea being the exception) have For the time being, the existing regional economic blocs in
signed the long-awaited treaty to establish the African Con- Africa will remain in place. In these cases, AfCFTA regula-
tinental Free Trade Area (AfCFTA). Meanwhile, more than
tions act as the minimum standard and will, in practice, pri-
35 countries have ratified the agreement and trade regula-
marily apply to trade with African countries outside the
tions have started to be gradually implemented from Janu-
ary 2021. The agreement covers only intra-African trade in respective blocs.
goods “made in Africa”, i.e. most of the current export/
import transactions are unaffected, as they are conducted Implementation of the free trade agreement lies in the
with countries outside the continent. hands of the individual signatory countries. Therefore, it is
likely that sizeable administrative hurdles will remain for
It has been agreed that in trade of goods, 90% of tariff lines exporters and importers, especially in terms of the paper-
will be gradually reduced to zero over a period of five years work required to obtain preferential treatment under
(+five years for less-developed countries).3 Tariffs on 7% of AfCFTA.
“sensitive goods” will be eliminated within 10 years (+three
years for less-developed countries), whereas tariffs on 3% of The next steps towards deeper intra-regional trade
“excluded products” remain in place. Each country decides integration
individually which products need to be protected as “sensi-
tive” or “excluded” goods, and this process is expected to Signing and ratifying the AfCFTA was just the first step
be finalised by mid-2021. Around the same time, it is towards overcoming the various obstacles to regional inte-
expected that rules of origin will have been negotiated; gration in the coming months and years. The key to unlock-
something that is essential for the smooth running of ing the transformative potential of the trade agreement is
AfCFTA given these rules define the criteria that determine implementing the terms effectively at the country level, as
whether a product can be labelled as “made in Africa”. well as orchestrating the required policy reforms; all of
which may take some time.
Regarding trade in services, regulations will be liberalised,
starting with five priority sectors (business services, finan- The major challenge in the context of the agreement is the
cial services, transport, communication and tourism). This is ubiquity and high cost of Africa’s non-tariff barriers. These
a complex process involving harmonising regulatory stan- hinder trade within the continent and need to be substan-
dards across countries, and details are currently still being tially reduced. To tackle this burden effectively, the full
negotiated. spectrum of barriers should be addressed, including seek-
ing to improve the business environment and plug the infra-
After five years, member countries have the option to structure gaps. Progress on these matters will be key for the
declare their withdrawal from the agreement. This would success of the AfCFTA, as non-tariff barriers are a critical
become effective after a transitional period of two further obstacle for intra-regional trade and are estimated to have
years. an even bigger impact than tariff liberalisation.
Many outstanding issues have already been identified and
In order to facilitate the agreement, an institutional frame- incorporated into the agenda for upcoming discussions,
work has been established comprising a committee for as shown in Chart 2. Phase 1 is already progressing, and
trade in goods, another for trade in services, and a dispute the protocols for Phase 2 comprise intellectual property
settlement body. Online apps have also been announced, rights, investment and competition policy, for which nego-
inter alia, to report perceived violations of the treaty. A per- tiations are scheduled to start in 2021. These additional pro-
manent secretariat is hosted by Ghana and will support tocols will, in effect, lay the foundations for a single market
these committees, while decision-making powers lie with on the continent.
Chart 2: Stepwise negotiation of AfCFTA
Phase 1 Protocols on trade in goods, Phase 2 Negotiations on intellectual Phase 3 Negotiations on e-commerce
(signed) trade in services and rules and property and rights, investment
procedures on the settlement and competition policy
of disputes
Source: Adapted from UNDP
3
A group of 6 countries (Ethiopia, Madagascar, Malawi, Sudan, Zambia, Zimbabwe) has secured an even longer transitional period of 15 years for tariff liberalisation
Commerzbank AG | Africa Bulletin April 2021 | Page 3
A major constraint for economic growth and development Chart 3: Expected additional intra-African goods
could be weak enforcement of rules of origin. As the exports in 2040* in USD bn
AfCFTA does not preclude a member state from entering
into a trade agreement with third countries, the potential for 70
trade deflection remains an issue that could undermine the
process of industrialisation across the continent. Third par- 60
ties could re-route their exports to the member nation with
43.3
the lowest external trade barriers and gain access to the
50
broader intra-regional market. 41.1
40
The African economic miracle?
36.1
The launch of the trade agreement’s operational phase has 30
shifted focus towards achieving an integrated, industrialised
9
and prosperous continent. 20
8.8
When looking at research and analysis on the expected 4.5
10 16.8
impacts, there are several reports by international agencies, 12.5
9.5
such as the IMF and the World Bank. Findings suggest that
0
intra-regional trade in Africa will grow, but starting from a
Low ambition Intermediate High ambition
relatively low basis, as already mentioned.
scenario ambition scenario scenario
At present, intra-African goods exports amount to USD74 Agriculture and food Energy and mining Industry
billion (2019). The United Nations Economic Commission
*compared to non-AfCFTA scenario of USD300 bn
for Africa (UNECA) predicts these exports to increase to
approximately USD300 billion in 2040 in a non-AfCFTA sce- Source: Adapted from the United Nations Development Programme (UNDP)
nario. Under the new agreement, exports are estimated to
benefit from additional volumes ranging between USD50 economic growth. Income and distribution at the country
and 70 billion (see Chart 3).4 Industrial goods are expected level will vary significantly, depending on the openness of
to yield the most benefit, including machinery, vehicle each nation. According to a study by the World Bank, the
equipment, electronics and pharmaceuticals. Today, this highest gains are expected in countries that currently have
sector accounts for 47% of intra-African exports. The share high trade costs, such as Côte D’Ivoire, which should see an
could increase to 60% in the most optimistic scenario of increasing income of 14% by 2035.5
additional exports in 2040 (see Chart 3). This indicates that
expanding regional trade and accelerating the process of Realising the potential, and driving recovery from the
industrialisation are highly correlated. The development is COVID-19 pandemic, both hinge on the remaining negotia-
likely to further facilitate the creation of national and tions under the agreement. But to reap the full benefit,
regional value chains, as is currently already happening in infrastructure investments are key, and these may also act
Ghana, for example, with the cocoa trade: rather than just as a booster in the medium term. Coordinated action to
exporting the raw materials, there has been a shift towards connect fragmented markets can translate into compara-
value-enhanced processing and increased chocolate pro- tive and competitive advantages. For instance, countries
duction. can focus on producing certain goods and services, and
their resources will be shifted to the most efficient sectors,
The banking sector plays an important role in facilitating which should produce economies of scale. The expected
investment and trade within the continent. Several major productivity gains can, in turn, increase the returns on
African banks have already expanded from countries like infrastructure investments. To pursue this dynamic and
South Africa, Morocco, Nigeria and, more recently, Egypt, business-oriented approach, the concept of “Industrial
to become pan-regional players across the continent. At Parks and Special Economic Zones” will become increas-
Commerzbank, we aim to partner with such banks as it ingly important.
enables us to efficiently cover the continent, and find solu- They could serve as magnets for investors by shifting for-
tions for our corporate customers by bridging continents eign direct investment (FDI) from primary commodities and
and regions. natural resources, towards manufacturing and industrial
production. However, this will be a lengthy process and will
Overall, the AfCFTA impact on government income will be depend on the willingness for regional cooperation and a
only marginal in the short term. But in the medium term, unified understanding of those needs; something that, in
tariff revenue losses will likely be compensated for by the past, has not always been unanimous.
upcoming welfare gains due to higher trade volumes and
4
UNDP: Making the AfCFTA work for women and youth, New York, 2020
5
The Worldbank Group: The African Continental Free Trade Area – Economic and Distributional Effects, Washington, 2020
Commerzbank AG | Africa Bulletin April 2021 | Page 4
Opportunities and effects from a non-African perspective Alongside the positive effects, there are also challenges.
The shortage of foreign currency reserves could further
Since the AfCFTA is expected to touch all economic sectors intensify, driven by the costly infrastructure investments and
of the African continent, this raises the question of the expected commodity price reductions in the coming years.
extent to which other areas of the world may also be In the long term, there is the possibility that intra-
affected by the agreement, and whether there may be ways African trade could replace imports from outside Africa,
to participate from outside the continent. such as Europe. In addition, it is likely that Africa’s negotiat-
ing power in international trade negotiations could
One possibility for immediate participation is, of course, strengthen at the expense of advanced economies, as
FDI. Increased capital inflows are expected due to higher Africa’s importance in global value chains increases.
economic growth and progress on the continent. In previ-
ous years, inflows were mainly directed towards countries Conclusion
such as Ghana, Egypt and Ethiopia. But the elimination of
tariffs should provide further encouragement for investors AfCFTA is a crucial initiative that could have a transforma-
to also invest in other countries, tapping into the African tive impact on African economies. The first successful step
market via production facilities and distribution possibilities was liberalising the trade in goods that are “made in Africa”,
within the continent. but it remains to be seen if the agreement will make further
progress towards intra-regional integration on the continent,
When looking at trade, there are only limited immediate and a single market among the African Union members.
opportunities for non-African corporates in the short term.
For goods that do not contain African products, we do not To maximise the potential benefits of the agreement, fur-
see any immediate benefits. Yet, for those goods containing ther negotiation and decisive action, as well as collective
African products, there may be the opportunity to label efforts on the part of African states, are necessary.
them “made in Africa”, and thereby entitled to the associ-
ated advantages – depending on how the rules of origin are For the time being, there are only limited immediate
negotiated, defined and enforced. opportunities for non-African corporates participating in
trade. These include foreign direct investment into promis-
Opportunities for trade of non-African products should ing sectors, acting as a supplier for infrastructure projects,
arise in the medium and long term, as a result of the or simply satisfying the general consumer demand of the
improved business environment. In addition, there will also fast-growing African population.
likely be opportunities to benefit from investment in infra-
structure and related export contracts for the expansion of
ports, road networks and railways.
Commerzbank AG | Africa Bulletin April 2021 | Page 5 Commerzbank AG 60261 Frankfurt am Main, Germany www.commerzbank.com Corporate Clients, Financial Institutions Regional Head Africa: Christian Toben +49 69 136-84012 Andreas Schaible +49 69 136 21199 christian.toben@commerzbank.com Credit Risk Management Head of Country Risk Research: Christiane Seyffart +49 69 136-849 54 Frank Bergmann +49 69 136-440 55 frank.bergmann@commerzbank.com Status: April 2021 Disclaimer This document has been created and published by the Commerzbank AG, Frankfurt/Main or rary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited the group companies mentioned in the document (“Commerzbank”). period while seeking full authorisation, are available on the Financial Conduct Authority’s web- This is a financial promotion/marketing communication (together “communication”). It is not site. “investment research” or “financial analysis” as these terms are defined in applicable regula- tions and has not been prepared by a research analyst. The views in this communication may DIFC (Dubai): This document has been approved for distribution in or from the DIFC, Dubai, differ from the published views of Commerzbank Corporate Clients Research Department and United Arab Emirates (the U.A.E.), under the applicable Regulatory Law 2004 and the DFSA the communication has been prepared separately of such department. Rules by Commerzbank AG, DIFC branch. This document may only be received in or from the This communication may contain short term trading ideas. Any returns or future expectations DIFC, Dubai U.A.E., by Market Counterparties and Professional Clients as defined in the DFSA referred to are not intended to forecast or predict future events. Any prices provided herein Rulebook Conduct of Business Module Section 2.3. Commerzbank AG, DIFC branch, is regu- (other than those that are identified as being historical) are indicative only, and do not repre- lated by The Dubai Financial Services Authority (the “DFSA”). Commerzbank AG, DIFC branch, sent firm quotes as to either size or price. Suite 11-15, Gate Village 05, 4th Floor, Dubai International Financial Centre, PO Box 506596, This communication is for information purposes only. The information contained herein does Dubai, United Arab Emirates. not constitute the provision of investment advice. It is not intended to be nor should it be con- strued as an offer or solicitation to acquire, or dispose of, any of the financial instruments and/ Japan: This material has been prepared by Commerzbank purely for purposes of information or securities mentioned in this communication and will not form the basis or a part of any and discussion; and thus, does not constitute or form part of any offer, recommendation, invi- contract. Potential counterparties/distributors should review independently and/or obtain tation or solicitation to subscribe to or to enter into the specific services. This research report independent professional advice and draw their own conclusions regarding the suitability/ and its distribution do not constitute and should not be construed as a “solicitation” under the appropriateness of any transaction including the economic benefit and risks and the legal, Financial Instrument Exchange Act (FIEA) of Japan. This document may be distributed in regulatory, credit, tax and accounting aspects in relation to their particular circumstances. Japan solely to “professional investors” as defined in Section 2(31) of the FIEA and Section 23 Levels, bases and relief from taxation may change from time to time. of the Cabinet Ordinance Regarding Definition of Section 2 of the FIEA from Commerzbank Any information in this communication is based on data obtained from sources believed by international offices outside Japan. Note that Commerzbank AG, Tokyo Branch has not partic- Commerzbank to be reliable, but no representations, guarantees or warranties are made by ipated in its preparation. Commerzbank with regard to the accuracy, completeness or suitability of the data. The past performance of financial instruments is not indicative of future results. No assurance Singapore: This document is furnished in Singapore by Commerzbank AG, Singapore branch. can be given that any financial instrument or issuer described herein would yield favourable It may only be received in Singapore by an institutional investor or an accredited investor as investment results. respectively defined in section 4A of the Securities and Futures Act, Chapter 289 of Singapore This communication is intended solely for distribution to Professional Clients and/or Eligible (“SFA”) pursuant to section 274 or section 275 (as applicable) of the SFA. Nothing in this doc- Counterparties of Commerzbank. It is not intended to be distributed to Retail Clients or poten- ument constitutes accounting, legal, regulatory, tax, financial or other advice and/or recom- tial Retail Clients. Neither Commerzbank nor any of its respective directors, officers or employ- mendations to the recipient of this communication. Further, the communication/information ees accepts any responsibility or liability whatsoever for any expense, loss or damages arising provided herein does not constitute a “financial advisory service” within the meaning of the out of or in any way connected with the use of all or any part of this communication. Financial Advisers Act, Chapter 110 of Singapore (“FAA”) and therefore, the regulatory require- Commerzbank and/or its principals or employees may have a long or short position or may ments and duties that may be owed to a client pursuant to or in connection with the FAA are transact in financial instrument(s) and/or securities referred to herein or may trade in such not applicable to the recipient in connection with this communication. Recipients are advised financial instruments with other customers on a principal basis. The information may have been to seek independent advice from their own professional advisers about the information con- discussed between various Commerzbank personnel and such personnel may have already tained discussed herein. acted on the basis of this information (including trading for Commerzbank’s own account or communication of the information to other customers of Commerzbank). Commerzbank may US: This document has been approved for distribution in the US under applicable US law by act as a market maker in the financial instruments or companies discussed herein and may also Commerz Markets LLC (“CMLLC”), a wholly owned subsidiary of Commerzbank AG and a US perform or seek to perform investment banking services for those companies. registered broker-dealer. Any securities transaction by US persons must be effected with No part of this communication may be reproduced, distributed or transmitted in any manner CMLLC. Under applicable US law, information regarding clients of CMLLC may be distributed without prior written permission of Commerzbank. This communication or the manner of its to other companies within the Commerzbank group. This report is intended for distribution in distribution may be restricted by law or regulation in certain countries. Persons into whose the United States solely to “institutional investors” and “major U.S. institutional investors,” as possession this document may come are required to inform themselves about, and to observe defined in Rule 15a-6 under the Securities Exchange Act of 1934. CMLLC is a member of FINRA any such restriction. and SIPC. Banking services in the U.S. will be provided by Commerzbank AG, New York Branch. By accepting this communication, a recipient hereof agrees to be bound by the foregoing Securities activities in the US are conducted through CMLLC and swap transaction with limitations. Commerzbank AG. Commerzbank AG is not a member of SIPC and is a provisionally registered This communication is issued by Commerzbank AG and approved in the UK by Commerzbank swap dealer with the CFTC. Any derivatives transaction with US persons must be effected in AG London Branch, authorised and regulated by Bundesanstalt für Finanzdienstleistungsauf- accordance with the provisions of the Dodd-Frank Wall Street Reform and Consumer Protec- sicht (BaFin) and the European Central Bank. Authorised by the Prudential Regulation Author- tion Act. Some products or services may be unavailable in the United States. ity and with deemed variation of permission. Subject to regulation by the Financial Conduct Authority and limited regulation by the Prudential Regulation Authority. Details of the Tempo- Copyright © Commerzbank 2021. All rights reserved.
You can also read
