The South African Association of Freight Forwarders (SAAFF) hosted a virtual summit from 16 to 17 September 2021, where a range of informative topics were discussed by industry experts. One such topic was the African Continental Free Trade Area (AfCFTA).
Catherine Grant Makokera, director of Tutwa Consulting Group, was one of the speakers who unravelled this multi-faceted topic. According to Makokera, the AfCFTA plays a pivotal role in terms of boosting trade in Africa, which holds great potential for the industry on the continent. The trade area will make the trading of goods and services in Africa more accessible, which could boost the development of the agricultural industry, improve food security and employment opportunities, as well as offer a broader market opportunity. It will also help establish new competitors.
How does it work?
A total of 54 African Union (AU) countries make up the AfCFTA trade areas – only one of the AU countries did not sign the agreement. The AfCFTA is based on existing initiatives by the AU to improve and integrate African economies. The agreement is based on preferential import duty rates to fellow member countries, which have agreed to meet origin requirements. Preferential rates will first be contained in a tariff offer and will then be passed into law. A tariff offer is a member country’s commitment to tariff phasedowns over a period of time, together with qualifying criteria such as rules of origin.
The rules of origin are the criteria used to define where a product is made. These criteria are an essential part of international trade rules because of policies that discriminate between exporting countries. An example of wholly obtained products include agricultural products harvested within member states. A value-added product would qualify as a product that has undergone sufficient transformation in a member state.
Opportunity for trade growth
Makokera assured delegates that the AfCFTA would not replace existing trade agreements such as that with the Southern African Development Community (SADC) Free Trade Area, or with the Southern African Customs Union (SACU) Free Trade Agreement. This is because of the different tariff structures that apply to these existing regions. Instead, it opens opportunities for trade within African regions that we do not yet have trade agreements with, such as eastern (e.g. Ethiopia), northern (e.g. Egypt) western (e.g. Ghana) and central Africa (e.g. Cameroon).
This begs the question: When can trade finally start? Although trade in the AfCFTA was set to commence in January this year, it is yet to happen. The complex nature of trade agreements in Africa is slowing the process, said Makokera. Trade ministers and negotiators are working together to try and resolve the finer details, which is a lengthy process. In the interim, partial implementation, where some products are allowed to be traded, is being considered. Partial trade, said Makokera, could be up and running in early 2022.
Egging on the process
Makokera said South Africa will be reducing tariffs; however, other African countries will need to reciprocate as South Africa will not want to open for trade if others fail to do the same. She advised businesses to act strategically by looking at the opportunities that will be available once the agreement is put in place. For now, it is important to draw a comparison between current trade options with other African countries. Businesses should also focus on strategic plans for expansion into Africa and identify any new competitors.
The private sector can assist in getting the final trade agreements in place. According to Makokera, there is room for businesses and industry role-players to get involved in moving these processes along. – Ursula Human, AgriOrbit
For more information, contact Catherine Grant Makokera at Catherine.grant@tutwaconsulting.com.
