Since it was launched on July 7, 2019, at the 12th Extraordinary Summit of the African Union (AU), the African Continental Free Trade Area (AfCFTA) has seen gradual progress. The AfCFTA was intended to establish a single market for goods, and services, facilitated by the movement of persons to deepen the economic integration of the African continent. The agreement is also to facilitate sustainable and inclusive socio-economic development.
After all, the AfCFTA came into effect in January 2021. However, despite the wide expectation to have a huge significance for the improvement of African economies, the free trade area agreement has not been advancing well due to various reasons mainly related to legal limitations and poor infrastructural facilities.
Except for Eritrea, all African countries have signed the AfCFTA. Currently, the countries are discussing legal frameworks that deal with the source of product, said Tadesse Mulugeta from the Ministry of Trade and Regional Integration. The next dialogue will be on charting export products with their tariffs. The continental free trade agreement is an important stride to improving the quality and market value of local products in the African market that is intended to serve more than one billion people.
Currently, various countries are working on the implementation of the continental free trade area through inking agreements and facilitating infrastructures. These efforts are being made either in bilateral or multilateral cooperation between nations. On 30 June 2022, the Finance Ministerial meeting of the Horn of Africa (HoA) Initiative adopted Regional Trade Facilitation Roadmap, as a framework of action for strengthening trade facilitation in the HoA region.
This came out of the Finance Ministers’ meeting held through video conferencing on June 30, 2022, to review the status of project preparation and implementation under the Initiative. They discuss policy actions to promote regional integration and look ahead at the priorities for the coming period. The meeting further directed that the roadmap be accorded top priority to effectively serve as a guiding framework for comprehensive regional trade facilitation reforms over a three-year period. The meeting was attended by Ministers of Finance and Trade of Ethiopia, Kenya, Djibouti, Somalia, and South Sudan along with high-level representatives of partners including the World Bank, EU, AfDB, and the IGAD.
At the conference, Ethiopia called on partners to support the implementation of the HoAI Regional Trade Facilitation roadmap. The country also demonstrated BY YOHANES JEMANEH readiness to play its part in the application of the Initiative. Finance Minister of Trade and Regional Integration Kassahun Gofe expressed commitment to implementing the roadmap by employing the necessary governance and consultation mechanism.
The Horn of Africa Initiative was launched at the end of 2019 by Horn of Africa countries, to deepen their cooperation and integration to deliver development results for the sub-region through the support of the African Development Bank, World Bank, and European Union by focusing on four pillars. Among the pillars of the HoAI, fostering trade and economic integration is one.
This Initiative has an immense role to hasten the implementation of the AfCFTA if the countries utilize its opportunity to accelerate economic cooperation and trade. Therefore, such regional trade cooperation ought to be developed more to assist the continental free trade agreement that would enable the nations to secure better income by providing plenty of their products to a continent-wide market.
Recently, Ethiopia also announced its pilot project of creating a free trade zone in Dire Dawa city. As announced by the Ministry of Transport and Logistics, the first free trade zone will be established in Dire Dawa which will be followed by other cities and towns in various parts of the country. Transport and Logistics Minister Dagmawit Moges said that Dire Dawa was chosen as the first destination of a free trade zone taking into account the city’s proximity to Ethiopia’s major outlet, the Port of Djibouti. She also mentioned that the task of creating free trade zone incorporates various partners such as the Ethiopian Maritime Affairs Authority, Ethiopian Shipping, and Logistics Service Enterprise, Custom Commission, Ethiopian Airlines, and other stakeholders.
According to Dagmawit, Ethiopia needs to utilize its potential to be the major trade, investment, industrialization, and logistics hub in the Horn of Africa. Free trade zone prioritizes areas including trade, comprehensive logistics service, export processing zone, and export facilitation. “It facilitates the nation’s internal trade as well as the neighboring countries’ import-export corridor,” she said.
The establishment of a free trade zone will help the products to enter Ethiopia within a short period of time, reduce spoilage, ensure the overall development of the country and play a paramount role to increase the country’s participation in international trade, Dagmawit explained.
A detailed work plan has been prepared and discussions were held to realize the free trade area stating that the areas of focus in the Dire Dawa free trade area are general trade activities, comprehensive logistics services, and import-export of the manufacturing sector.
The establishment of the free trade zone is crucial to reduce cost and time and improve urbanization and industrialization along the corridor. “It is vital to economic boost to the corridor and supports the economic development of the nation,” believed Ethiopian Maritime Affairs Authority Managing Director Yehualashet Jemere (Eng.).
Ethiopian Airlines, one of the partners in the establishment of the free trade area, is believed to play its role in hastening the trading process. Ethiopian Airlines Group CEO Mesfin Tassew said Ethiopian Airlines Group has a wealth of experience in cargo and logistics. Mesfin added that it will play a critical role in the free trade areas urging the need to strengthen and expand the free trade areas by benchmarking the best experiences of successful countries. In addition to Dire Dawa, other towns were identified for the future establishment of free trade zones Modjo, Adama, Moyale, Kombolcha, Bahir Dar, and Hawassa.
Cities are hubs for production and consumption. They will become significantly important to advancing the market with value chains. But their current set-up lacks the necessary infrastructure and services in which most of Africa’s cities are not ready to benefit from and support the AfCFTA. This will require substantially greater investments in the continent’s cities.
The importance of cities in unlocking the benefits of the free trade area is premised based on the well-established advantages of having firms that are primary vehicles for producing goods for export. This proximity enables firms to specialize and add value. Cities are also spots in which most trade takes place. Therefore, efforts to establish free trade areas in cities like Ethiopia did, need to be strengthened and expanded by other African nations to enhance continental trade and pave the way for the effectiveness of the AfCFTA.
Research is being conducted to identify bottlenecks to trade and issues preventing the easy movement of goods across the continent. Countries must improve their infrastructural facilities and trading processes to hasten the implementation of the continental free trade area. Moreover, the nations need to focus on continental trade equal to or more than their bilateral trade exchange. Vera Songwe, Secretary General of the ECA and UN Under-Secretary-General said;
“For the AfCFTA to work, we don’t want to just understand what countries need to do to improve their business environment, but what they need to do at a cross-border level.”
The Regional Economic Communities had done “a fantastic job” in opening up trade. However, there are still challenges. For the Secretary-General, it is important to find out what hampers trade and creates blockages at borders as well as how the situation could be properly monitored. ECA research shows the opportunity offered by the free trade area, assuming its successful implementation by 2030. Increasing the road network will better connect areas of production and consumption. Currently, Africa’s road network is about 2.8 million kilometers.
A study conducted by the United Nations Industrial Development Organization indicated that the top 1 percent of trading firms in Africa account for over 75 percent of the total value of exports. Given this fact, governments and business associations should form representational groups to allow these larger companies to address the challenges that they confront in cross-border trade. In this way, they could form a powerful body to pressure for full implementation of the AfCFTA, much as larger companies did in the creation of the European Single Market in the 1980s and 1990s.
The Agenda 2063 flagship initiative of AfCFTA is a continental geographic zone where goods and services move among member states of the AU with no restrictions. The AfCFTA aims to boost intra-African trade by providing a comprehensive and mutually beneficial trade agreement among the member states, covering trade in goods, services, investment, intellectual property rights, and competition policy. Other continental frameworks include Boosting Intra African Trade (BIAT) which aims to deepen Africa’s market integration and significantly increase the volume of trade that African countries undertake amongst themselves from the current levels of about 13 percent to 25 percent or more within the next decade.