Importation of finished goods into Africa slows down AfCFTA takeoff

African countries will only benefit from the African Continental Free Trade Area (AfCFTA) if the continent invests in value addition.

South Africa’s President Cyril Ramaphosa wondered why Africa is still exporting raw products and importing finished goods that can be produced on the continent.

“Recently, I saw a neighbouring country that had imported bottled water from Switzerland. I said, there is still a long way to go to show that we trade with ourselves,” President Ramaphosa said on January 31 while launching the AfCFTA Guided Trade Initiative (GTI) in Durban.

“A continent that is so endowed with various sources of water, but we still rely on water that we import from elsewhere!”

He said the task ahead for the African countries to benefit from Continental Free Trade Area (AfCFTA) is to export value-added products.

“This is the task that we have; the reason for this is clear. We are principal exporters of many other things that we should not be exporting. We export raw materials, and I often say we export dust, rocks and soil. And we sell this to the world and instead of harnessing our oil and minerals for industrialisation,” he said.

“We should be saying that we will not be buying all these raw materials from you. You should now be insisting that the raw materials be turned into finished goods so that we buy finished goods from you.”

Tanzania’s Trade Minister Ashatu Kijaji called on countries to co-operate in completing key protocols and other important issues related to dispute resolution when doing business in Africa, when she chaired the two-day 13th meeting of AfCFTA Trade ministers held in Durban.

“We are meeting today to review and work on various important issues on which we have yet to reach a consensus, to start business fully on our continent,” Dr Kijaji said, adding that co -operation on road rail and air transport, security, energy, low production, and communication can resolve some of the challenges. The protocols in question are investment and digital business.

When the Investment Protocol was adopted on February 19, 2023, it was expected to be a game-changer. It would govern investment in the free trade area and define the rights and obligations of investors and member states.

Its stated objectives include the protection of sustainable investment, balancing of investor and state interests, protection of indigenous communities, and efficient dispute resolution.

However, the protocol notes that it will not apply to certain matters such as lawful taxation measures and property acquired for non-business purposes.

The draft protocol seeks to replace bilateral investment instruments between member states and requires that they align all regional instruments.

However, the protocol faces difficulty in implementation because investment protection on the continent is regulated by a web of instruments on a national, bilateral, and regional level.

Of the 852 bilateral investment treaties concluded involving African states, 515 are currently in force, and 173 are intra-African.

These instruments, alongside national investment laws and regional initiatives, regulate foreign investment across the continent and to the extent make the implementation of the protocol on investment complicated.

The draft protocol on dispute resolution contains no provisions on dispute resolution but states that such provisions will be included in an Annex to the Protocol, to be finalised within 12 months from the adoption of the protocol.

But the World Economic Forum refers to Africa as the continent with the lowest contribution to world trade, contributing only two percent, from a $3.4 trillion market.

Ken Gichinga, a Kenyan economist, says many African countries are still recovering from a high debt, brought about by the dollar strengthening last year, so they give focus on national issues and less on those of the continent.

According to the latest World Bank International Debt Report, today, about 60 percent of low-income countries are at high risk of debt distress or are already in it.

According to Gichinga, lead economist at Mentoria Economics, the AfCFTA was to be built around regional blocs such as the EAC, SADC, Comesa and Ecowas. But conflicts, non-tariff barriers, poor transport and logistics across borders have combined to limit the continent’s free trade.

“The regional blocs that were meant to be the building blocks are the idea behind the formation of the AfCFTA. But now, within the regional blocs is cacophony. Look at the EAC and all the conflicts in the eastern DRC, South Sudan, border closures between Rwanda and Burundi and the DRC, and numerous trade wars,” he said.

“Look at Burkina Faso, Mali and Niger leaving Ecowas. There will be much more work needed in the regional blocs first to organise before the push to a full continental free trade.”