‘It costs less to ship a car from Paris to Lagos than from Accra to Lagos.’
With these words, a webinar on the new African Free Trade Area (AfCFTA) was launched to discuss the importance of assessing the current trade relations with Africa, and how the new agreement will enable them to build on this.
The AfCFTA, which came into force this year, is the largest trade agreement in the world, and aims to double intra-Africa by 2022. It potentially covers 55 countries, with 1.3 billion people and a combined GDP of $3.4 trillion.
Rules of origin
In the current fragmented market, firms face high costs in often small markets, with the connecting infrastructure not developed to the required extent. Combining these countries inside the AfCFTA, which makes Africa a far more formidable force to be reckoned with, is ambitious, but can really make a difference.
However, the pan-African trade accord is still a work in progress. The negotiators are locked in discussion on tricky issues such as rules of origin, where there is still vital work to be done on autos, sugar, clothing and textiles. Offers have been made covering 81% of tariff lines where there are agreed rules of origin.
Imports are being categorised as:
- non-sensitive (90%)
- sensitive (7%)
- excluded (3%)
This means that the trade accord will, in time, lead to zero tariffs on 97% of goods. While there is no question about the benefits of the AfCFTA, questions which remain to be answered include: what does this really mean for business, how will the AfCFTA agreement relate to other regional arrangements, and how will it be funded and enforced?
Firms must look to whether AfCFTA imports, which will attract lower tariffs, will erode their own market share.
Manufacturers must closely examine this competition from imports, must assess the risk, should monitor new imports, and must also be aware of any changes which will be forced in the sourcing of raw material.
Exporters should examine the opportunities – are there new markets to export to? They must also look at who their competition will be, both in these new markets and in existing markets. And it is vital to be on top of the paperwork, in terms of rules of origin, certificates, invoice declarations and so on.
The devil is in the detail – the agreement is product specific, driven by tariff classification. It is vital that a firm should lay out its future strategy in Africa and must be aware of who they are in competition with.
The rewards could be enormous. Currently, for instance, there is a 3,000% tariff on South African sparkling wine to Egypt, but it should fall to zero under AfCFTA. This would deliver a big advantage for South African sparkling wine in the Egyptian market.
As we have stressed, these negotiations are still in process. We have incomplete offers for tariff cuts on the table, so it is important for South African firms to get involved in the process.
The Department of Trade, Industry and Competition (DTIC) has asked for inputs to make sure they are getting the information they require from the ground. We must also stress that the impact of the AfCFTA will be limited unless we address non-tariff barriers, infrastructure, customs administration capacity and so on.
We hope to release a software tool to enable firms to monitor the progress of the negotiations, and to pinpoint what is agreed, in real time.