AfCFTA delays to implementation: an opportunity to fine tune Cameroon’s strategy?
In the third of the Hogan Lovells' 'A Local Perspective Blog' Brice Tcheuffa of Etah-Nan & Co, Cameroon and Sylvie Simbi Rugabira and Lédéa Sawadogo-Lewis of Hogan Lovells, Paris, discuss the implications of the recent AfCFTA delay and potential for Cameroon.
On 17 August 2020, the African Continental Free Trade Area (“AfCFTA”) Secretariat Building was inaugurated in Accra, marking, according to Ghana's minister for trade: "a giant step forward towards realizing the dream and vision of the founding leaders of our continent, to establish an African Economic Community." Tellingly, in light of the global COVID-19 pandemic, this inauguration took place via Zoom, bringing into focus two trends which currently characterize the treaty: firstly, the African Union’s and political leaders’ goodwill and determination in concretizing this project, and secondly, the predictable impact of the COVID-19 pandemic on its implementation.
AfCFTA is, by number of participating countries, the largest trade agreement since the formation of the World Trade Organisation, with its implementation expected to form a $3.4 trillion economic bloc with 1.3 billion people across the continent. Structured along a main treaty text, the AfCFTA Establishment Agreement, it is supplemented by four key protocols and entered into force on 30 May 2019, launching a two-stage negotiations phase. Actual trading under the treaty was scheduled to begin in July 2020, but in late April 2020, a decision was unanimously taken by the African Union to postpone implementation to at least January 2021, owing to the COVID-19 pandemic.
As Mr. Wamkele Mene, AfCFTA’s recently appointed and first Secretary General, stated: “Apart from COVID-19, reaching 50% intra-African trade, and hopefully above that, depends on our capacity to accelerate regional value chains and the manner and pace in which we implement the agreement.”
Recognising this, we will discuss the implications of the postponement, addressing some of the potential benefits and drawbacks of delaying implementation. A focus on Cameroon’s particular experience with AfCFTA will provide a more in-depth and concrete appreciation of some of the consequences of postponement.
A. Potential benefits
Since COVID-19, with lockdowns and restrictions aimed at minimising the rapid spread of the virus but negatively impacting economies, African countries have witnessed first-hand the importance of intra-African trade in essential goods and services. For many years, Africa has been heavily dependent on imports from other parts of the world such as Europe, China and the US - arguably, the pandemic brings into even sharper focus the need for a free trade area to increase cooperation between African states, thereby fuelling political leaders’ will to make it a reality. The postponement of AfCFTA's implementation phase may therefore increase African states' determination to continue discussions, notably on the investment, intellectual property and competition protocols.
Moreover, the pandemic has shown that e-commerce and digital solutions should occupy a preponderant position within the AfCFTA scheme. As a result of COVID-19, there has been increasing demand for online products in the e-commerce industry, given the challenges presented by physical trading. Earlier this year, the African Union Commission accepted the Electronic Commerce protocol during the 33rd African Union Ordinary Session held in Ethiopia, and African leaders now have the opportunity to further negotiate this in order to promote the emergence of e-commerce platforms at national, regional and continental levels. In the Secretary General’s words: “It is a question of leveraging all those technological innovations and advantages into a common platform for free trade in Africa, under the AfCFTA agreement.”
B. Potential drawbacks
Among Africa’s trading partners, China, Europe and the US still have the largest share. While African exports have declined since COVID-19, intra-African trade remains comparatively low. Postponing the AfCFTA implementation date means Africa will continue to be dependent on outside imports until at least January 2021.
Further, as of April 2020, only 30 countries out of the 54 had ratified AfCFTA. Cameroon and Angola officially approved ratification; however, deposit of the instruments of ratification is pending. In other words, there appears to be some reluctance on the part of 24 African countries to ratify AfCFTA, and a delay in its implementation could hinder these same countries’ will to ultimately ratify it.
African countries should consider these potential benefits and drawbacks, as negotiations continue toward a new implementation date. On balance, the potential of the largest free trade zone in the world remains vast. To get a real sense of how this delay is affecting individual countries, we will look at these considerations from the perspective of Cameroon.
C. Cameroon and the AfCFTA
Cameroon ratified the AfCFTA Agreement on 31 October 2019, only 18 months after its signature on 21 March 2018. The unusual urgency with which its government rushed to ratify it could be justified by the tantalizing opportunities a free continental market of about 1.3 billion people presents to the economy as it strives to make Cameroon an emerging economy by 2035. Indeed, the effective implementation would bolster the diversification of the country’s economy and improve trade flows within and beyond the Central African Economic Community.
The ratification of AfCFTA squarely fits with the government’s constant and consistent efforts towards strengthening economic integration and boosting of intra-African trade. Cameroon is a member state of CEMAC (Economic and Monetary Community of Central Africa) and ECCAS (Economic Community of Central Africa States) which have adopted measures for free movement of goods and persons within their respective economic blocs, and has also signed bilateral trade agreements with Nigeria and Ivory Coast (with ongoing negotiations for bilateral trade agreements with Morocco and Tunisia).
This notwithstanding, the opportunities presented by AfCFTA far exceed any other trade agreements. In preparation, the government of Cameroon has elaborated a National Strategy for its implementation, which details the action plan to be developed for the integration, implementation and successful effectiveness of the AfCFTA agreement, and, above all, the merit of integrating Cameroon’s long-term development strategy (‘Vision 2035’) and the new Master Plan for Industrialization. This document proposes a series of measures, including inter alia:
Adoption of AfCFTA by various national stakeholders, in particular through capacity building of all socio-economic actors;
Revision of the legal and institutional framework, with the creation of a national AfCFTA implementation Committee and an Export Promotion Agency;
The qualitative and quantitative improvement of economic and commercial infrastructures,
Reducing tariff and non-tariff barriers to trade by streamlining controls on cross-border corridors and actively promoting cooperation focused on harmonizing quality standards at sub-regional and continental levels;
Promoting the production and processing of primary products, by encouraging innovative production capacities in order to have surpluses to export;
Development of cross-border and continental value chains;
Establishment of an implementation and monitoring-evaluation mechanism, including the creation of a national AfCFTA
This ambitious AfCFTA implementation strategy will require the mobilization of significant financial and human resources for its deployment, which should be detailed via a resources mobilization strategy during the first semester of the implementation of the national strategy.
The global pandemic has caused a decline in exports and tax revenues, with Cameroon feeling the brunt of its devastating effect in a socio-economic context marked by the fall in oil prices and security tensions across its northern regions (Boko Haram) and English-speaking regions (secessionists). The combination of these factors compels the government of Cameroonto make necessary budgetary adjustments resulting in the downgrading of the strategy’s implementation in order of priority.
However, Cameroon has not yet crossed that bridge, and there is confidence that, in its efforts to soften the blow of COVID-19, government will find solutions to turn this situation into opportunity; because as was rightly pointed out by Mrs. Vera Songwe (Executive secretary of ECA), AfCFTA is “… an important part of the equation to reach emergence”.
Although the pandemic has had a negative effect on the implementation of AFCFTA in the immediate, it does paradoxically provide some silver lining in that its postponement is an occasion to fine-tune the national implementation strategy by considering the impact of the crisis and intensifying sensitization of all economic actors. Furthermore, whereas the pandemic has affected some sectors of the economy (particularly the tourism industry), other sectors have experienced a boost, particularly those relating to products used in the fight against the pandemic (soaps, test-kits, protective clothing, disinfectants, medical consumables). The comparative advantage of Cameroon on the African market for some of these products (export of soap has significantly grown) is an opportunity for the expansion of those industries.
In any case, for Cameroon as for Africa in general, it is necessary to effectively face the difficulties that arise and find appropriate collective solutions. It is in this capacity that we share this optimistic perspective of the World Bank: "A successful implementation of AfCFTA would be crucial. In the short term, the agreement would help cushion the negative effects of COVID-19 on economic growth by supporting regional trade and value chains through the reduction of trade costs. In the longer term, AfCFTA would allow countries to anchor expectations by providing a path for integration and growth-enhancing reforms. Furthermore, the pandemic has demonstrated the need for increased cooperation among trading partners. By replacing the patchwork of regional agreements, streamlining border procedures, and prioritizing trade reforms, AfCFTA could help countries increase their resiliency in the face of future economic shocks."
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