With the world being a global village, trade is an important economic factor for the development of many economies. Trading dates back to centuries where an early form of trade- barter, saw the direct exchange of goods and services for other goods and services.
As time evolved and globalization emerged, trade changed, becoming broader and more complex. The formation of trade blocs such as the European Union (EU) and the Pacific Alliance, paved way for policies such as free trade; constituting bilateral and multilateral trade, which greatly expanded market access and spurred economic growth.
On the continent of Africa, the African Union (AU), which exists to promote sustainable development at the economic, social and cultural levels as well as the integration of African economies, outlines several flagship projects of which the African Continental Free Trade Agreement (AfCFTA) is a part of.
The AfCFTA is an agreement advanced by the African Union that will create the largest free trade area in the world by facilitating the flow of goods and people within the continent. AfCFTA’ s objective is to accelerate intra-African trade and boost Africa’s trading position in the global market by strengthening the continent’s common voice and policy space in global trade negotiations.
The agreement which came into force in May 2019, initially requires members to remove tariffs from 90% of goods, allowing free flow of commodities and services within the continent.
Research according to the African Development Bank in 2014 states that only 16% of international trade takes place between African countries. The United Nations Conference on Trade and Development (UNCTAD) also reports that Intra-African exports were 16.6% of total exports in 2017, compared with 68.1% in Europe, 59.4% in Asia, 55.0% in America and 7.0% in Oceania.
In Africa, small individual economies often struggle to attract the much-needed investment. With the implementation of the AfCFTA, the AU estimates that intra-African trade will see a 60% boost by 2022.
The AfCFTA will bring together fifty-four African countries with a combined population of more than one billion people and a combined gross domestic product of more than US $3.4 trillion.
Ghana’s selection as the headquarters for the AfCFTA Secretariat can be attributed to the political stability the country has, its strategic geographical location in West Africa, and being touted by the World Bank and International Monetary Fund as one of the fastest growing economies in 2019.
Amid high expectations from Ghana, the Ministry of Trade and Industry is to champion the implementation of the AfCFTA. The Ghana Investment Promotion Centre (GIPC)- under the office of the President, also has a distinctive role to play in its implementation, by virtue of its core mandate of facilitating foreign & domestic direct investment in the country.
Ghana’s first President Kwame Nkrumah had a dream to create the United States of Africa – Africa as one unified body standing strong and able enough to compete and trade in the global space.
Nkrumah’s dream, arguably coming into fruition with the implementation of the AfCFTA, will create a single continental market for goods and services, with free movement of persons and investments.
GIPC’S ROLE
GIPC in collaboration with relevant stakeholders is to work with the appropriate agencies to ensure that the right infrastructure and policies are put in place aiding the creation of a favorable investment environment in Ghana within which the free trade area’s objectives can be realized for the country.
The Centre’s main role here is advocacy; to push for policies that enable the smooth implementation of doing business in Ghana, thereby promoting pro-business regulatory reforms.
With restrictions lifted on foreign investments, investors will flock to the continent. This adds capital to expand local industry and boosts domestic business (World Economic Forum, 2018).
PROSPECTS
Economic Growth Opportunities
A free trade agreement will increase Ghana’s competitiveness, boost industrialization and infrastructure development for the economy.
Industrialization will have spillover effects such as job creation and increase revenues from various services delivered across the continent.
With increased trade activity, the economy is expected to see exponential economic growth and development which the International Monetary Fund in 2019, predicted Ghana to be the fastest growing economy buoyed by its commodities and recovering manufacturing industry.
More Opportunities for Foreign Direct Investment (FDI)
The removal of existing tariff and non-tariff barriers to pave the way for free trade will enhance the flow of foreign direct investment. This will make room for new investments, partnerships, and opportunities. An instance sighted in a policy brief document by the George Mason University showed that in the USA between 1994-2019, policies of free trade were reviewed to allow for an average of $25.6 billion in foreign direct investment to support the American economy each year.
A free trade area will be an enabler for the attraction of Foreign Direct Investment (FDI) into Ghana and the continent.
Competitive Advantage – Abundant Resources to Tap Into
Ghana is a country with abundant natural and human resources. The country has large amounts of oil and gas, gold, cocoa, timber, industrial diamonds, bauxite, manganese, fish, rubber, hydropower, silver, salt and limestone. (OBG Survey, 2018)
Ghana must therefore strategize, and leverage on trading the commodities with other African countries for mutual benefit. Furthermore, emphasis must be placed on value addition to increase earnings from our exports.
CHALLENGES
The implementation of the world’s largest free trade area since the formation of the World Trade Organization (WTO) in 1995, raises some concerns regarding expected benefits to be derived. Some challenges arising from the AfCFTA include the potential increase in the outsourcing of jobs as a result of the significantly reduced tariffs and protectionism concerns.
Protectionism
Protectionism in theory or practice means shielding a country’s domestic industries from foreign competition by taxing imports of goods and services in a bid to indemnify natives of such opportunities within.
In Ghana, there are protectionist laws that prohibit foreigners from engaging in retail trading activities unless prescribed requirements are met – Act 865 Sub-sections 27 & 28 of the GIPC law.
Protectionism can thus pose a challenge for the successful implementation of a free trade area. The government may have to consider reviewing portions of the act as well as incentivize indigenous companies to ensure that they are equipped to compete internationally.
Dumping
Ahead of the full ratification of the AfCFTA, some countries have raised concerns about their local businesses being taken over by foreign suppliers who may be able to produce at a lower cost due to some competitive advantages.
According to the Africa News Report in 2018 for instance, 22 African nations signed for the ambitious trade deal to become operational. Nigeria is however one country that delayed in its ratification stating ‘‘We will not agree to anything that will undermine local manufacturers and entrepreneurs, or that may lead to Nigeria becoming a dumping ground for finished goods.”
Inadequate Financial Resources & Infrastructure
Infrastructure – or the lack of it, is one of the leading challenges in Africa. The continent suffers from a huge infrastructural deficit compared to other parts of the world. It is estimated that this constrains productivity by up to 40 percent and reduces the continent’s GDP by about 2 percent every year. (AFDB, 2019. With the enforcement of the AfCFTA the urgency for infrastructure development on the continent is inevitable.
Another major challenge is the need for adequate financial resources to push the attainment of the policy’s agenda. Maximizing the AfCFTA’s benefits will require that Ghana develops proactive national strategies that will identify opportunities for financial growth and prosperity.
These legitimate concerns do not take away the expected benefits the AfCFTA may bring as the continent works to expand intra-African trade through improved harmonization and coordination of trade within Africa.
The AfCFTA is more than just a free trade agreement; it’s about establishing a unified continental market, including the free movement of labour and investments.
If there is to be any hope for long term prosperity in Africa, Africans must be given the predictability that comes with the rule of law, the protection of private property and free markets, and decentralized management of resources. This will harness local knowledge along with the creativity, diligence, and thrift that is natural to Africans. (Franklin, 2005)
To conclude in Osagyefo Dr. Kwame Nkrumah’s words, “Africa must unite now. It’s the only way we can take over the world. United we stand, divided we fall.”
Implementation of the AfCFTA may experience challenges in its early stages, but its success depends on African nations fully supporting the Agreement and its execution with the understanding that the short-term losses will lead to huge gains in the long term.
When protectionist concerns are well taken care of, and efficient and participatory institutional architecture is put in place, Africa will be the future!
Source: GIPC