African free trade agreement (AfCFTA): A titan is born

The African Continental Free Trade Agreement (AfCFTA) entered into force on January 1, 2021, signed by almost all countries except for Eritrea. The AfCFTA promises to be a unique opportunity for the regional development of the African continent, with the potential to promote the growth of its nations, economic relations with each other and other regions, and the reduction of poverty. However, it comes when Africa and the world are recovering from the coronavirus pandemic and amid a conflict in Europe with possible consequences on all other continents.

Despite the challenges, the AfCFTA is an opportunity for African countries to develop and settle old trade and diplomatic barriers. According to the Brazil Africa Institute (IBRAF) president João Bosco Monte, the AfCFTA project is “ambitious” because it intends to integrate goods and services. The agreement also provides for facilitating the movement of people. In the opening picture, an Egyptian city.

According to World Bank data, this could be the world’s largest free-trade zone when considering the number of inhabitants: 1.3 billion people. According to World Bank estimations, if it operates as planned, the free trade zone could raise the Gross Domestic Product (GDP) by up to 7%, or USD 450 billion by 2035.

“Even with the delays due to the pandemic, the agreement came into force at a relatively fast pace because it needed to be quick. African countries have a significant commercial demand and a single plan that serves similar interests,” said Bosco. The first drafts for the agreement were made in 2012, and it was signed in 2018.

One of the main challenges for a free trade zone of this type is creating a bank to stimulate commercial exchanges and guarantee liquidity for negotiations, as there are over 40 currencies in operation on the continent. Therefore, these commercial exchanges can be conducted and certified by the Afreximbank, created in 1993 as Africa’s “trade bank.”

Other challenges, however, remain. On the continent, there are still politically unstable nations, border disputes, non-tariff barriers, and precarious infrastructure of roads and railways, which can be an obstacle to the shipment of goods.

Bureaucracy is high in many countries, making it even more difficult to fully implement the project, led by some of the most considerable economic powers in the region: Egypt, Nigeria, and South Africa. Eritrea opted out of the AfCFTA in favor of bilateral agreements.

Professor of Economics at the Pontifical Catholic University of São Paulo (PUC-SP), Antônio Carlos Alves dos Santos, said the potential for the project “to succeed or not to succeed is enormous” and assesses Africa offers “great challenges and gigantic opportunities too.” According to him, the challenges are significant because there are countries in vastly distinct stages of development. “It is an expansion site. There are impoverished countries and, precisely because of that, many opportunities,” he said.

Opportunities for Brazil

Santos noted African countries trade more with nations on other continents than with each other, and promoting regional business is a paramount objective of the AfCFTA. Even so, Brazil and other countries outside the bloc could benefit from the initiative. Both Santos and Bosco recall Brazil is in the “memory” of local governments and business people due to the active Brazilian presence in Africa in the early 2000s.

At the time, it was a policy of the Brazilian government to foster diplomatic and commercial relations between the South American country and Africa through the export of commodities, partnerships to train African producers, and the participation of Brazilian companies in infrastructure works on the continent. Part of this strategy took place through the opening of embassies in Africa.

A resumption of this policy could once again boost Brazil’s connection with the region. The challenges now, however, are different. Many of the companies that participated in the projects went bankrupt or underwent restructuring. In addition, today, many other global players are present in Africa. If they were there before or together with Brazil, they ended up solidifying their presence in recent years. This is the case of France, China, and the United States, whether through commercial partnerships or in the mediation of conflicts. “In addition to a state policy, it is also necessary to partner with a development bank for international exchanges,” said Santos.

Data from the Brazilian Ministry of Economy shows since 2002, exports from Brazil to Africa have followed a year-over-year growth trend, except for periods of crisis and with an upturn in 2020, after declines in 2018 and 2019. In 2002, Brazil exported USD 2.3 billion to African countries, with a total of 12 million tonnes of goods. In 2011, the year with the highest export revenue, it reached USD 12.2 billion. The most significant volume was recorded in 2017, with 23 million tonnes.

The advisor and founding partner of BMJ Consultores Associados, Welber Barral, assesses the AfCFTA successfully ensured “legislative harmonization” for its implementation and considers reducing costs and lowering barriers such an agreement provides will facilitate business. However, he states exporters from other continents need to understand the rules of the agreement to qualify or not for the foreseen benefits.

“There is a lot of opportunity in Africa, especially in the food area, due to the high estimated population growth in the coming years and with a significant increase in the number of consumers, which Brazil could supply. A continental standardization of customs rules could streamline trade and open up opportunities for Brazilian companies to create distributors in Africa, for example, to reach more markets. In the case of the agreement, it is essential to note there are rules of origin. In other words, only products processed in the member countries will take advantage of the agreement,” he said.

Barral also noted many African countries maintain bilateral agreements with their former colonies, which could be an obstacle for the AfCFTA. However, he stated: “Trade is, above all, a form of wealth creation.”

Bosco, in turn, defends Brazil could have a more significant presence on the continent for its companies and government to benefit from the opportunities to arise: “Brazil cannot miss the opportunity to participate in this plan. It is something new, but the efforts being made will bring positive results,” he says.

Source: ANBA – Arab-Brazil News Agency

To read the full original article, please see: 

https://anba.com.br/en/african-free-trade-agreement-a-titan-is-born/

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