A step closer to a united Africa: AfCFTA Guided Trade Initiative Explained

“… AfCFTA is not just on paper but a reality. And we are moving from talk and negotiations to action. ” - Mr Alan Kyerematen, Ghana Minister of Trade and Industry speaking at the launch of the Africa Guided Trade Initiative in Accra.

The African Continental Free Trade Area (AfCFTA) is the world’s largest free trade area bringing together 55 African countries with a population of 1.3 billion people to form a single market. Amidst skepticism and a myriad of challenges, the idea of a unified Africa is closer to reality.

The free trade area started operating on 1 January 2021, but there has been little trade amongst countries. Deadlines for key elements of the free trade area have passed and negotiations are still ongoing. Despite this, what Africans nations have achieved so far is impressive. From the relatively short time it took for states to sign the agreement, to commercial activity now underway, no other region of agreement of this size has done so at the same pace.

On the 30th of September, Igire Coffee, a women-led Rwandan coffee processing firm , exported its first shipment to Ghana under the rules of the AfCFTA. This shipment is one of many among the 8 countries participating in the AfCFTA Guided Trade Initiative.The initiative launched on the 7th of October in Accra to pilot ‘commercially meaningful’ trading. Participating countries were selected from 29 others that submitted tariff schedules.

WHY ISN’T THE AFCFTA FULLY OPERATIONAL YET?

Trading under the agreement officially started on 1 January 2021, following a six month delay as a result of the impact of Covid-19. Many issues remained to be negotiated at the time, which hindered meaningful trading.

The relevant issues for trading of goods were the agreement of tariffs for goods and Rules of Origin were eventually finalised in July 2022.

Once  fully operational, the AfCFTA will have a total gross domestic product (GDP) of around US$2.5 trillion. It is estimated it will increase the size of Africa’s economy to US$29 trillion by 2050. In practice, this means businesses can move goods across the continent without import and export taxes (tariffs). Further down the line, individuals will be able to travel and work from one country to another without the need for visas.

THE AFCFTA TO REMOVE 97% OF TARIFFS BY 2030

Countries party to the AfCFTA have agreed to drop tariffs on at least 90 percent of goods. Tariff reductions will happen over 5 or 10 years, depending on a country’s level of economic development. The agreement allows trade in sensitive goods to be exempted.

Preferential treatment for goods made in Africa

Only goods originating in Africa can be traded tariff free. This is a bit tricky, as in today’s globalised ecosystems, the origins of a product is complicated by cross-country supply chains. Rules of Origin  criteria in AfCFTA  determine where products are made or sourced. Products that make use of materials from non-African countries must prove that the materials have been “substantially transformed” before they can be traded tariff free. 

WHAT'S THE SIGNIFICANCE OF THE AFCFTA GUIDED TRADE INITIATIVE?

It has been said that the AfCFTA has “lost its momentum.” Whilst true that there have been many delays, the AfCFTA is taking practical steps to ensure that there is material trading activity amongst countries. 

In comparison, the European Union started with only 6 member states in the 1950s and it took several decades before the majority of the continent began trading effectively as a single market.

The Guided Trade Initiative will test the system to make sure that the agreed processes and documents are fit for purpose. 96 different products from the 8 countries will be freely traded under the rules of the AfCFTA. This includes horticultural products, pharmaceuticals, rubber, aluminum kitchenware, sugar, steel, and wooden products. A yearly review will take place to add new products and countries to the initiative. 

Businesses, including those not from countries in the initial participating countries, looking to take part in the initiative can do so through consulting the relevant trade departments in their country. 

A tariff e-book and Rules of Origin manual are available online for use by businesses and customs officials.

This is a new beginning to a simpler trading system in Africa.