African Continental Free Trade Agreement: Great Opportunities and Some Challenges

WHAT IS THE AFRICAN CONTINENTAL FREE TRADE AGREEMENT?

The African Continental Free Trade Agreement (“the Agreement”) is one of the Flagship Projects of the African Union’s Agenda 2063 (“Agenda 2063”).^[1]
The Agreement responds to the aspirations of Agenda 2063, which is underpinned by the vision to build an integrated, prosperous, and peaceful African continent in order to benefit all its people.^[2]
The Agreement presents a window of opportunity for African countries to use trade more effectively as an engine of growth and sustainable development, by not only doubling intra-Africa trade but also strengthening Africa’s common voice and policy space in global trade negotiations, making it a dynamic force in the international arena.^[3]

WHEN WILL IT COME INTO EFFECT?

Due to the wide scope of the Agreement, it will be implemented in two phases.[4]
The first phase (“Phase 1”) aims to provide a framework for the removal of restrictions on trade in goods and services as well as creating a mechanism for dispute settlement.[5] For trade in goods, the Agreement sets the path for eliminating tariffs on 90 percent of product categories.[6]
Whilst Phase 1 came into effect on 30 May 2019, it was due to commence on 1 July 2020.However, with the global Covid-19 pandemic taking the world by storm, the implementation of Phase 1 had to be postponed until 1 January 2021.[7]
The second phase (“Phase 2”), on the other hand, will cover competition policy, investment as well as intellectual property rights.[8]
Phase 2 negotiations were expected to be concluded by the end of December 2020, but will be delayed due to the Covid-19 pandemic. The dates for Phase 2 to come into effect and to commence have yet to be determined.

IS SOUTH AFRICA A PARTY TO THE AGREEMENT?

Yes, South Africa is a party to the Agreement. South Africa signed the Agreement on 2 February 2018 and ratified the Agreement on 31 January 2019.[9]
Currently 54 out of 55 African countries have signed the Agreement, with Eritrea being the only exception.[10]
To date 30 of the 54 African countries have ratified the Agreement.[11]

WHAT ARE THE MAIN IMPLICATIONS?

The first main implication is that the Agreement will bring into effect free movement of African people within the continent. The requirement of having a passport and visa to cross borders, whether it be for travel or work purposes, will be done away with.[12] In other words, foreign nationals will be afforded the opportunity to legally cross the South African borders without being in possession of any legal documentation authorising their stay within the country.
With South Africa being one of Africa’s most economic flourishing countries, it is anticipated that various foreign nationals will relocate to the country in hope of securing better employment, better quality of life and ultimately a better future for their families. Our government will thus be confronted with the daunting task of ensuring that there will be adequate housing, water, electricity, food, medical care, schooling, and employment opportunities available to meet the demand. These will have to made available not only to all South African born citizens, but also to the ever-growing number of foreign nationals for the Agreement to succeed.
Should this Agreement materialize, one could only hope that South Africa’s failing infrastructure will be upgraded with the necessary speed and efficiency. If not, it may result in increased pressure on South Africa’s resources and already high crime rate.
The second main implication of the Agreement coming into effect will result in 90 percent of tariffs on product categories being eliminated.
By such tariffs being phased out and trading costs being lowered, economic stimulus is anticipated to occur in both the domestic and international economy. The hope is that as import prices are lowered and goods become more affordable due to cheaper production costs, consumers will be more willing to increase their consumption through the purchasing of more products.
Furthermore, as raw material become cheaper to import for production purposes, the hope is that more companies will engage in cross-border trade and a broader range of products offered to consumers.[13] The Agreement could therefore result in new opportunities for domestic entrepreneurs to enter new markets and to increase their production.[14]

WHAT ARE THE OPPORTUNITIES POSED BY THE AGREEMENT TO SOUTH AFRICANS?

Unless cross-border movement of goods can be facilitated with greater speed and efficiency, the Agreement may not have the desired effect.
One major opportunity that is foreseen is the development and improvement of the transport infrastructure to ensure that goods are transported at a quicker rate between member countries.
A further opportunity that is foreseen is the development and implementation of technology to achieve the digitalization of border management.
A further major opportunity that is foreseen is the development and implementation of e-commerce infrastructure in order for payments to be affected faster and easier via digital payment solutions between member countries.
Due to increased competition amongst businesses caused by the Agreement, competitive pressures will require companies to be more efficient in the use of its resources, to look for new technologies or production methods and to ultimately be more innovative in how they conduct their business. For consulting firms and training providers, this may again result in great new opportunities.

Should your business wish to expand its footprint into Africa, please feel free to contact one of our experienced attorneys. Through our membership of the Alliott Global Alliance, our firm is ideally positioned to facilitate and assist you with your cross-border legal needs.

Louis Stroebel Heidi Wagner

LLB; LLM (Import/Export Law) BCom (Law); LLB

Director

Corporate and Commercial Law

E-mail: Lstroebel@sstlaw.co.za

Phone: 012 361 9823

[1] Flagship projects are regarded as key programmes and initiatives which have been identified as key to accelerating Africa’s economic growth and development (https://au.int/en/agenda2063/flagship-projects).

[2] https://www.gov.za/blog/afcfta-dream-our-founding-fathers-coming-life

[3] https://www.gov.za/blog/afcfta-dream-our-founding-fathers-coming-life; https://au.int/en/trade-and-industrial-development

[4] https://www.researchgate.net/publication/329450723_African_Continental_Free_Trade_Area_Opportuni-ties_and_Challenges

[5] The African Continental Free Trade Agreement, Theophile Albert, p 8.

[6] The African Continental Free Trade Agreement, Theophile Albert, p 12.

[7] https://www.tralac.org/resources/our-resources/6730-continental-free-trade-area-cfta.html

[8] The African Continental Free Trade Agreement, Theophile Albert, p 8.

[9] Definition of ratified: “to make valid or effective” (https://dictionary.findlaw.com/definition/ratify.html); https://au.int/sites/default/files/treaties/36437-sl-AGREEMENT%20ESTABLISHING%20THE%20AFRICAN%20CONTINENTAL%20FREE%20TRADE%20AREA%20%282%29.pdf

[10] https://www.tralac.org/resources/by-region/cfta.html

[11] https://www.tralac.org/resources/by-region/cfta.html

[12] https://au.int/en/agenda2063/flagship-projects

[13] The African Continental Free Trade Agreement, Theophile Albert, p 18.