According to UNCTAD, a UN body focusing on trade; in 2010 intra-African trade only made up 10.2 percent of Africa’s total trade. Continental Free Trade Area (CFTA) aims to remove trade barriers in order to improve intra-African trade. To achieve this, the CFTA draft agreement commits countries to removing tariffs on 90 percent of goods with 10 percent of “sensitive items” to be phased in later. The agreement also liberalises services and aims to eliminate non-tariff barriers which hamper intra-African trade. According to a paper by Brenton, nontrade barriers limit access to necessary inputs; for instance, limited access to inputs such as seeds and fertilisers in the agricultural sector. Non-tariff barriers such as lack of competition and unfavourable regulations may hinder access to inputs of production. Clear regulatory systems of inputs and outputs ensures reliable information about the quality of goods and services available.
Though there may be an initial loss of revenue income, the long-term welfare gain is significantly larger. A research paper by UNCTAD suggests that elimination of all tariffs between African countries would take an annual US$4.1bn out of the trading states’ coffers, but would create an overall annual welfare gain of US$16.1bn in the long run. Short term integration and adjustment costs will be incurred in establishing the CFTA. These short term costs include loss in trade tariff revenue, local SME’s vanishing in front of stronger competition, adjusting unemployment, required investment in infrastructure, political and regulatory reforms. Majority of the welfare benefits to be gained from further integration will only materialise in the long run. These include lower import prices, efficient production, output increase, higher value-added jobs and exports, and technological specialization.
With the CFTA in place, the continent can benefit from a single market for goods and services, having free movement of people and investments; which therefore paves the way for accelerating the establishment of the continental customs union and the African customs union. This in turn would bring about the spillover effects from countries that may develop new technologies and skills in response to the single continental market demands. The removal of barriers amongst the countries allows free flow of experts and skills.
The establishment of CFTA could also resolve the challenges of multiple and overlapping memberships. Countries belonging to many Regional Economic Communities (RECs) face multiple financial obligations. Such countries must also cope with attending various meetings, policy decisions, instruments, procedures, and schedules. The customs officials of such member countries have to cope with varying tariff reduction rates, RoO, trade documentation, and statistical nomenclatures. These varying considerations may undermine the effectiveness of customs officials’ overall performance. The overlaps and multiple memberships may also affect the commitment of member countries and consequently the success of any Regional Trade Agreement (RTA). The CFTA can correct this by encompassing the other REIs and progressively harmonising and integrating their activities, in a similar fashion as ECOWAS playing an umbrella role for the sub-REIs in Western Africa.
Furthermore, Countries will benefit from enhanced competitiveness at the industry and enterprise level. When a country has competitive companies within its sectors, the country itself is more likely to have a competitive advantage as a nation competing in a large single market.
African industrial products may have increased competitiveness through harnessing the economies of scale of a continental-wide market. Small African Countries, having access to this large market, will no longer be restricted to producing their traditional products. Better policies and human resources could make them the focus of new manufacturing operations that serve larger markets. Additionally, in the long run, increased competition due to trade liberalizations provides incentives for domestic firms to operate more efficiently. As firms are faced with competitive pressures, they are forced to use their resources efficiently, implement new technologies and innovate in order to survive under the new conditions.
The CFTA may result in increased food security through reduction to barriers on trade in agricultural products. Export restrictions, in particular, decrease food security as farmers may not be able to secure higher prices in neighbouring markets. This may provide incentives for them to shift to producing other crops or reduce output, creating losses to the economy as a whole. This suggests that when a country lifts these restrictions, as would be the case with the CFTA; countries can benefit from the easy access of inputs of agricultural products. This, in turn, contributes to increased food security.
The CFTA may result in increased rate of diversification and transformation of Africa’s economy and the continent’s ability to supply its import needs from its own resources. As the continent operates as a single market, it can obtain import needs from its own resources. Moreover, as the continent develops its infrastructure to support the single market, employment can be provided for its people and development of engineering services can be fostered. Moving away from dependence on raw materials; it also allows the continent’s economies to diversify. The associated technological development, combined with appropriate industrial policies, will lead to the creation of new industries.
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