The Promise and Pitfalls of Africa’s Continental Free Trade Agreement

December 19, 2019

Originally Published in the December 2019 Journal, Breaking the Silence, Pg. 7

 

Last year, every country in Africa came together to create the largest trading bloc since the World Trade Organization. With the signing of the African Continental Free Trade Agreement (AfCFTA), the continent made history. The AfCFTA promises to create a customs union that allows for the free transfer of goods, capital, and labor across the continent. However, ratification is only a first step. Policymakers face an arduous implementation process to turn the deal’s promise into reality. Since the agreement was made, economic teams in each country have been preparing for June 2020, when the deal will take effect. At this time, each country must remove tariffs on over 90 percent of their goods and must implement a variety of other policy changes. Thus, each country has significant discretion over how the deal is implemented. Accordingly, while the AfCFTA has the potential to accelerate African growth and economic development, African policymakers must ensure that the agreement benefits all Africans. The deal must be implemented such that socioeconomic inequalities between and within countries are minimized and African workers reap the gains from growth. 

 

As many political and international leaders have insisted, the deal has clear potential. It would unite a market of over a billion people with over $3 trillion in GDP. It could spur diversification of African economies and raise intra-continental trade from its current 17 percent rate to the 60 percent or 70 percent rates experienced in Asia and Europe. One prominent study on the issue predicted a 50 percent increase in such trade 12 years after the deal has been fully implemented. Certainly, an Africa where economic activity is easier to undertake, where African countries support one another on the road to development is preferable to the current situation. However, whether this future becomes a reality is dependent on the implementation of the deal. Amidst the discussion surrounding the AfCFTA since its signing, one group of stakeholders has been seldom mentioned: the African people. Any implementation strategy which fails to focus on the majority of Africans’ needs will fail to realize the deal’s potential and invite numerous problems. 

 

First, if improperly implemented, the AfCFTA will be an engine of inequality instead of development. It may hurt many of the individuals it is purported to help. The deal could exacerbate existing inequalities between African countries. Currently, there are large differences between African countries in terms of income and wealth. While a majority of countries have a GDP per capita below $4,000, some countries, notably South Africa, Botswana, the Northern African countries, and Nigeria, enjoy significantly higher levels of development. This inequality, in the context of rapidly dissolving borders, can expose poorer countries to economic exploitation. As some African countries are at a further stage of development than others, businesses and producers in poor countries will not be able to compete economically with more developed industries in rich countries without the aid tariffs. Instead, poor countries would face an influx of cheap foreign goods which will drive nascent industries into extinction and prevent greater development. Indeed, even Nigeria, a relatively well-off country in Africa, delayed signing the AfCFTA out of fear that free trade would run counter to its development goals. Thus, there is a legitimate fear that under rapid trade liberalization economic inequalities will beget greater economic inequalities amongst countries. 

 

Free trade could also exacerbate existing inequalities within countries, leading to the accumulation of economic gains to a wealthy few. Africa already has high levels of economic inequality; half of the world’s 20 most unequal countries are in Sub-Saharan Africa. The existent wealth disparities will make it easier for those with resources to take advantage of increasing trade opportunities while offering little to those mired in poverty. As has occurred in the western world, opening trade will allow the rich to move their capital to the opportunities offering the greatest returns on investment, while leaving little wealth in poor areas and making it more difficult for governments to use economic resources to benefit society. The owners of large companies will be able to expand to exploit newly accessible markets by leveraging economies of scale and superior technology while the small business owners, traders, and producers they put out of business will be left with fewer economic opportunities. In sum, an improperly implemented deal will increase the concentration of wealth and power in the hands of the rich and large corporations.

 

Finally, those who work for these companies will lose their bargaining power with employers. Labor unions and workers’ rights more generally would decline as employers hold the threat of outsourcing and unemployment over worker’s heads. This is why the Nigerian Labour Congress called the AfCFTA a “radioactive neoliberal policy initiative.” Workers in more developed countries may see their wages drop or their jobs move as an abundance of cheaper foreign labor becomes available. These new jobs in poorer countries will pay less and, as with most outsourced work, will feature worse health and safety standards and a general disregard for the lives of employees. Those low-skill jobs which can be moved overseas will be, causing a decrease in wages, labor power, and standards of living. The lives of African low-skill workers, the majority of the continent’s population, will become worse, not better. 

 

This is the worst-case scenario. The AfCFTA is still early in its implementation. In that time, African policymakers can ensure that the agreement benefits the many through taking the following steps. First, the African Union must commit to fighting monopolies, “dumping” practices of flooding markets with cheap foreign goods, and other uncompetitive economic activities. Second, there must be a continent-wide commitment to labor rights including those of manufacturing workers, agricultural workers, and irregular or informal-sector workers, particularly women. Third, the deal must include special provisions for the poorest countries. Currently, all countries must remove tariffs on over 90 percent of their goods by next July. The agreement should provide special dispensation for poorer countries to allow for greater protection of their developing industries. Finally, individual countries, to the extent that they are able, should expand their social safety nets to cover those who will be most adversely affected by trade liberalization. With these policies, Africa can enjoy the obvious benefits of a common market while ensuring that these benefits are widely shared.

 

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