A New Stage Is Set
An African trade agreement heralds a milestone in the continent's economic integration
By He Wenping  ·  2019-07-22  ·   Source: NO.30 JULY 25, 2019

African Union Commission Chairman Moussa Faki Mahamat, Egyptian President Abdel Fattah al-Sisi and Nigerien President Mahamadou Issoufou (left to right) during the launching ceremony of the operational phase of the African Continental Free Trade Area in Niamey, Niger, on July 7 (XINHUA)

The African Continental Free Trade Area (AfCFTA) was officially launched on July 7. According to the African Union (AU), with 55 members, the AfCFTA is the world's largest free trade area (FTA) in terms of membership since the founding of the World Trade Organization, with a huge market covering 1.2 billion people and a collective GDP of $2.5 trillion.

Undoubtedly, the FTA agreement is an epoch-making event in promoting African integration. It was signed against the backdrop of rising anti-globalization and trade protectionism, and signals African countries' resolve to cope with the challenges brought about by a changing international environment through strengthening economic integration.

New impetus

The AfCFTA aims to create a single continental market for various economies in Africa with free movement of goods, services and funds by lowering tariffs and eliminating trade barriers. After the FTA came into effect, the members enjoy zero tariff and no quotas. According to the United Nations Economic Commission for Africa (UNECA), the AfCFTA will gradually eliminate tariffs on 90 percent of goods and will further liberalize service trade. The proportion of intra-Africa trade will rise from the current 14 percent to 52 percent in 2022. Given that non-tariff barriers will be lowered, the trade volume within Africa is estimated to be double that of 2010.

Compared to other continents, Africa has a lower proportion of intraregional trade due to its large number of countries and highly fragmented market. Statistics from UNECA showed that intra-Africa trade accounted for only 17 percent of the total trade value of the continent in 2017, while the ratio was 69 percent in Europe and 59 percent in Asia. According to the 2019 African Economic Outlook report, Africa has 16 landlocked countries and is more fragmented than any other continent. In 2017, 76 percent of African countries had fewer than 30 million people, and about half had a GDP of less than $10 billion.

African countries can overcome their structural weaknesses of small economic and market scale only through joint efforts and economic integration, pooling their strengths and coping with the external economic impact and challenges of globalization by expanding and strengthening their markets.

The significance of the AfCFTA for African development is obvious, and that's why it is the flagship project of the AU's Agenda 2063. In May 2013, the AU issued Agenda 2063 to plan the continent's development for the coming 50 years, showing its consensus and determination to accelerate African integration. Since then, incorporation has become a topic of discussion at every AU summit.

AU members started negotiating the AfCFTA in June 2015, with the hope of integrating various economies in Africa into a single market and deepening African economic integration by further lowering tariffs, eliminating trade barriers and promoting the circulation of goods, services and funds. On March 21, 2018, 44 African countries signed the AfCFTA agreement in Kigali, Rwanda. Over a year later, the agreement took effect after ratification by 24 African countries. It is an achievement to reach such a high-level FTA agreement within such a short period of time for a continent comprising so many countries with different levels of economic development.

The single market in Africa will not only boost intra-Africa trade by reducing internal business costs, creating business opportunities and improving Africa's industrialization levels, but also help create jobs, support sustainable economic development and improve people's livelihood. More importantly, the creation of the FTA will improve the relations between Africa and its external trading partners to realize a win-win situation by creating a bigger market for all concerned. The AfCFTA will reduce the costs of imports, especially those from Europe and Asia, create a huge market for foreign investors, improve the business environment to attract foreign investment and reduce barriers to foreign investment, which will lay a solid foundation for foreign enterprises to invest in African countries.

Driving China-Africa trade

China has consistently supported African integration. In addition to building the AU headquarters in Addis Ababa, Ethiopia, China has also strengthened cooperation with African countries in the three pragmatic areas of infrastructure construction, industrial development and market integration.

In terms of industrial development, Chinese President Xi Jinping announced 10 China-Africa cooperation plans and eight major initiatives at the Johannesburg Summit of the Forum on China-Africa Cooperation (FOCAC) in December 2015 and the FOCAC Beijing Summit in September 2018, respectively, backing both up with $60 billion of financial support. These measures have supported industrial development, trade and investment, human resource development and training, as well as poverty alleviation and green development in Africa.

In the area of infrastructure construction, China and the AU signed a memorandum of understanding (MoU) on China-Africa infrastructure cooperation on January 27, 2015. According to the MoU, China will strengthen cooperation with African countries in railway, highway, regional aviation and industrialization under the framework of Agenda 2063 to promote African integration. Currently, Chinese companies have started construction of railways, airports, industrial parks and ports in countries such as Ethiopia, Djibouti, Kenya and Nigeria.

With the AfCFTA and progress in African integration, the potential of the African market will be further tapped, which will deepen China-Africa cooperation in industrial capacity. Furthermore, the improvement of Africa's business environment will raise its appeal to Chinese investors.

Market size is important for the development of industrial parks and economic and trade cooperation zones. Thus, the creation of a large single market and the development of large-scale economies in Africa will promote China-Africa industrial cooperation.

So far, China has established 25 economic and trade cooperation zones on the African continent. Qian Keming, Vice Minister of Commerce of China, recently said that the cooperation zones are boosting Africa's industrialization, job creation and growth in exports. Statistics show that these cooperation zones have created more than 40,000 jobs and paid nearly $1.1 billion in taxes to host countries. In the coming three years, China will build and upgrade a number of economic and trade cooperation zones to promote industrial development in Africa, and encourage Chinese enterprises to increase investment in African industry, especially in sectors such as manufacturing, agriculture, financial services, trade and logistics, and the digital economy.

The creation of the AfCFTA will energize China-Africa trade. Customs data showed that China-Africa trade was $204.2 billion in 2018, a year-on-year increase of 20 percent. China exported $104.91 billion worth of goods to Africa and imported $99.28 billion, up 10.8 percent and 30.8 percent year on year respectively. China's trade surplus was $5.63 billion, a decrease of 70 percent. Moreover, China has now been Africa's largest trading partner for 10 consecutive years.

At the FOCAC Beijing Summit, Xi mentioned that China would launch a trade facilitation initiative to enhance China-Africa trade and intra-Africa trade. China continues to expand imports from Africa and welcomes African countries to raise their exports to China, so as to share the benefits of China's development. It will increase imports, particularly non-resource products, from Africa to help Africa improve its export capacity and trade integration, as well as promote the modernization of customs and quality inspection mechanisms on the continent.

Prior to the Beijing Summit, China had concluded negotiations on a free trade agreement with Mauritius.

In the future, China must seize the opportunity presented by the AfCFTA to launch free trade negotiations with more African countries and regional organizations, with a view to transforming and upgrading China-Africa trade relations. In this way, China and African countries can join hands to cope with new challenges to globalization and create a better future.

The author is a senior researcher at the Charhar Institute and a researcher at the Institute of West-Asian and African Studies of the Chinese Academy of Social Sciences

Copyedited by Rebeca Toledo

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