February 10, 2021
Africa Union launches Africa Continental Free Trade Area: Status of trading among African countries
On 1 January 2021, trading under the Africa Continental Free Trade Area (AfCFTA) was officially launched by the Africa Union in conjunction with the Heads of States. Commencement of trading follows a series of negotiations resulting from the conception of AfCFTA during the 25th ordinary session of the assembly of Heads of State and Government of the Africa Union on 7 to 15 June 2015 in Johannesburg.
AfCFTA is the flagship program of Agenda 2063 which aims to boost intra-African trade in goods and services. The agreement covers 55 Member States with a population of 1.2 billion people and estimated Gross Domestic Product (GDP) of over US$3.4 trillion.
As of 1 January 2021, 34 countries had signed and ratified the AfCFTA agreement thereby meeting the legal conditions required for trading under the Free Trade Area (FTA). Malawi and Zambia ratified the agreement subsequently, bringing the total number of State Parties to 36. ACFTA aims to create a single market for goods and services, expand intra-Africa trade, resolve the challenges faced in intra-African trade (including overlapping regional economic community membership), create a large investment area and leverage on economies of scale to boost manufacturing competitiveness.
Eritrea is the only African country yet to sign the ACFTA agreement.
The status of various provisions under the FTA arrangement include the following:
Phase 1: Trade in goods and services, rules and procedures on dispute settlement
AfCFTA trade in goods
The protocol of trade in goods aims to liberalize 90% of tariff lines to be traded under a preferential rate of import and export duty in 10 years. The protocol recognizes 7% of the tariff lines identified to be sensitive goods and 3% of tariff lines which will be excluded from preferential trade terms subject to negotiation through request and offer mechanism. The latter will not be subject to preferential treatment.
* Anti-concentration clause indicates not more than 10% of intra-African imports should be excluded from preferential terms. The exclusion list will be reviewed after five years from commencement of trading.
The phasing down of tariffs to the preferential rate will take place systematically over a transition period. However, the principle of variable geometry applies where Member States, upon notification and on a reciprocal basis, lower their tariffs earlier than the systematic linear approach. Tariff offers from 44 Member States (including 33 state parties) have been submitted to the Africa Union with outstanding offers expected to be submitted by June 2021.
Under AfCFTA, liberalization of trade is being implemented through the already existing Customs Unions – East Africa Community (EAC), Southern African Customs Union (SACU), CEMAC and Economic Community of West African States (ECOWAS). Each of the Customs Unions is required to prepare its tariff offers, rules of origin and schedules of commitment in trade in goods and services for submission to the AfCFTA secretariat.
AfCFTA trade in services
Consideration of specific commitments on trade in services: 16 specific commitments are under consideration with outstanding tariff offers. The protocol on trade in services has prioritized five sectors for liberalization including financial services, transport, communication professional services and tourism.
Dispute settlement mechanism
Rules and procedures – involve arrangements for dispute settlement. The non-tariff barrier online portal is already in place to enable traders facing Non-Tariff Barriers (NTBs) to report them to the relevant offices and seek support on resolution. The mechanism is expected to be on a state-to-state basis and will involve consultations and conciliation, among others.
Phase 2: Other trade-related aspects
Substantive technical working group sessions were stalled by the COVID-19 pandemic. The sessions aimed to align positions on intellectual property rights, investments and competition policy.
Member States through decision Assembly/AU/Dec.751(XXXIII) agreed to commence e-commerce considerations under the FTA following conclusion of Phase II negotiations.
Status of AfCFTA negotiations and their benefits
Consideration of tariff offers: 41 tariff offers are under consideration with outstanding tariff offers expected to be submitted by June 2021.
Overview of AfCFTA rules of origin and required documentation
Rules of origin are a very key area of play for parties undergoing integration if the states/ member countries are to benefit from preferential rates or enjoy duty-free imports within the member/state parties. For a product to benefit from preferential rates, it must fulfil certain rules to confirm that the goods actually “originated” from that State Party. Supply from a country may not necessarily denote origin. Upon fulfilling the rules of origin, a product is issued with a certificate of origin as proof that the goods originated from a particular country.
Outstanding rules of origin: 81% of product specific rules of origin forming Appendix IV of the draft rules of origin have been agreed by Member States.
The AfCFTA adopts flexible rules of origin which are product-specific comprising the following:
Required documents to qualify for preferential treatment
Implementation of the AfCFTA by selected trading blocs or countries
1. East African Community
Out of the Member States of the EAC, Burundi, Tanzania and South Sudan have yet to ratify the agreement. These states are expected to ratify the agreement by June 2021 to enable the EAC to submit its tariff offers, rules of origin and other schedules of commitment to enable full trading with the rest of the State Parties.
Kenya’s implementation of the AfCFTA
2. Southern African Customs Union
In SACU, Botswana has yet to ratify the agreement. Lesotho, South Africa, Namibia and Eswatini are already State Parties.
South Africa’s implementation of the AfCFTA
The AfCFTA has been ratified by 13 out of the 15 ECOWAS Member States. Benin and Liberia have not yet ratified the agreement.
Common schedules of tariff concessions for trade in goods and specific commitments on trade in services in the five priority sectors have been submitted to the African Union.
As part of the country’s readiness for the AfCFTA, a National AfCFTA Coordinating Office has been established to coordinate the activities of the economic bloc in the country. Additionally, the Government’s flagship programs such as the One District One Factory, Planting for Food and Jobs, Planting for Jobs and Export, the Strategic Industries Anchor Initiative, and the port modernization program are all geared towards making the country the new manufacturing hub of the African region. The Government has developed initiatives such as the new integrated trade facilitation and customs management programs which aim to transform the Ghanaian economy to position it as a leader in continental free trade arrangements.
To ensure the country derives benefits from the AfCFTA, the Government of Ghana is investing in trade-related infrastructure in order to facilitate trade, citing the ongoing expansion of the Ports of Tema and Takoradi, as well as the expansion and rehabilitation of numerous roads and railways.
Further, to help the private sector take advantage of the AfCFTA, the Government has pledged to assist the private sector by developing and implementing a comprehensive set of policies that will empower the private sector. Consequently, a national steering committee to coordinate and guide the support that would be given to the private sector and other stakeholders had been set up by the Government.
Also, the Ghana Investment Promotion Centre (GIPC), the government agency responsible for investment promotion, intends to reform its laws to make the country comparatively competitive without compromising either the political economy or Ghana’s own productive base.
Ghana has already sent out exports to South Africa under the AfCFTA trading terms.
Nigeria ratified the agreement in December 2020. A National Action Committee (NAC) for implementation of the AfCFTA was set up by the Nigerian Government with the mandate to coordinate relevant ministries, departments and agencies, and stakeholder groups to implement the trade readiness interventions detailed in the AfCFTA Impact and Readiness Assessment Report for Nigeria, including projects, policies and programs.
The NAC is further tasked with facilitating the development and implementation of readiness interventions to develop production and service capacities, improve competitiveness and coordinate adjustment programs and facilitate policies, regulations and update of laws as may be required.
Since inauguration, the NAC has conducted a series of strategy workshops to rally stakeholders in various sectors of the economy in developing a national strategy for implementation of the Agreement. As part of efforts in designing a roadmap for the implementation of the AfCFTA, the NAC has also started rallying state governments for support in the development of sub-national strategies.
The NAC Secretariat is working towards setting up AfCFTA implementation Focal Desks in the various states.
The NAC is also working on guidelines for implementation of the Agreement. Meanwhile, a guide on the steps to be taken by Nigerian businesses to export to other African countries that are part of the AfCFTA is available.
Only CEMAC and all its Member States (Cameroon, CAR, Congo Republic, Chad, Equatorial Guinea and Gabon) have submitted tariff offers as a Union. This implies that CEMAC is ready for full trading with all other State Parties that are ready for trading.
Businesses should prepare for the benefits that the AfCFTA presents by considering the following action:
Local EY country teams from across the continent have the experience to assist you in coordinating your AfCFTA trading.
Below is a summary of the status of the different African states regarding the AfCFTA agreement.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Kenya
Ernst & Young Advisory Services (Pty) Ltd., South Africa
Ernst & Young Advisory Services Limited, Ghana
Ernst & Young Nigeria
FFA Juridique et Fiscal member of Ernst & Young Global Ltd, Gabon and CEMAC
Ernst & Young Société d’Avocats, Pan African Tax – Transfer Pricing Desk, Paris
Ernst & Young LLP (United Kingdom), Pan African Tax Desk, London
Ernst & Young LLP (United States), Pan African Tax Desk, New York