Growing protectionism and nationalism are identified as the greatest risk to the African Union’s prospective continent-wide free trade area, with negotiators facing an uphill struggle to meet July’s target for becoming operational.

The establishment of the African Continental Free Trade Area (AfCFTA) – an ambitious attempt to bring together 54 countries with a combined GDP of over US$3tn – took significant steps forward in 2019. At the time of writing only Eritrea has yet to sign up, and according to research by the South Africa-headquartered Trade Law Centre (tralac), 29 African Union member states have now ratified the agreement that underpins its introduction.

According to risk consultancy firm EXX Africa, however, hostilities and restrictions on exports in some African countries continue to present issues that are holding up progress.

“The highly diverse continent is not immune to global trends of nationalism and protectionism, as exhibited by recurrent anti-immigrant violence in South Africa, trade restrictions in East Africa, and economically harmful border closures in Nigeria,” it says in a report published in January.

Robert Besseling, executive director of EXX Africa, says those trends are “by far the greatest threat to AfCFTA implementation”.

The introduction of AfCFTA is grouped into two phases. Phase one includes protocols for trading goods and services, tariff concessions and rules of origin, and is only partly complete. EXX Africa says phase two negotiations, which will cover protocols on competition policy, intellectual property and investment, were scheduled to begin with draft texts published at the end of January, with a target completion date of June – but GTR understands those documents have not yet been made available.

“Phase two is really the most controversial part in terms of bilateral and multilateral negotiations,” Besseling tells GTR. “But if phase one is delayed, the entire agreement will take such a serious knock it could be derailed completely. For the African Union, and the various countries that have ratified the agreement, it would be a symbolic setback if this was delayed at all.”

The project has been touted as a catalyst for a major expansion of intra-African trade, though EXX Africa says a widely-circulated estimate of 52.3% growth by 2022 is based on assumptions and milestones from 2012 “that have yet to materialise. On the contrary, the UN Economic Commission for Africa has predicted an increase … of up to 25% by 2040, which is more likely.”

In order to reach these targets, Besseling says the African Union “would have to see some major advances in the next few months, and a number of major concessions being offered by the countries that have ratified the agreement”.

“Once that’s done you could see phase one implemented according to schedule, but if those major agreements are not reached over the next five months, then you’re starting to look towards a phase one delay,” he says. The target date for beginning trade within the AfCFTA is July 1 this year.

Razia Khan, chief economist for Africa and the Middle East at Standard Chartered, says another risk is a lack of “compelling evidence that corporates, multinational or local corporates, are reacting to these new trade opportunities in terms of reformulating their investment plans”.

Speaking at this week’s GTR West Africa conference in Lagos, Nigeria, she says: “When that happens there will be a more sound basis on which to predict that this will eventually be a growth positive. For the moment though, [there are] some near-term worrying issues that seem to point to reasonably more fragmentation of what should be growing regional markets.”


Barriers to free trade

Nigeria has proven one site of conflict. Africa’s largest economy and most populous nation signed up to the free trade area in July last year, but has placed restrictions on its borders with Benin and others largely due to concerns over the smuggling of fuel and agriculture products.

There have been attempts to resolve the problem. Government officials from Nigeria, Benin and Niger met in Abuja in November to discuss a joint response to smuggling in the region. The trio agreed to set up shared monitoring and evaluation committees, a trade facilitation committee and a border patrol team.

Representatives from Benin and Niger “appealed for the immediate re-opening of the Nigerian borders” but were not successful, according to meeting minutes publish by the Economic Community of West African States (ECOWAS).

On the other side of the continent, Rwanda – a keen supporter of the AfCFTA – has also seen its borders with Uganda shut due to a political dispute. Tensions include the two countries’ support for different warring factions in neighbouring DR Congo.

Concerns are not limited to border closures. The growth of nationalist sentiment in several countries has led to what Besseling describes as “a sense of protecting local businesses to the detriment of foreign investors, by imposing trade or export bans on certain products or commodities”.

“These export bans are targeted explicitly at different industries, such as mining or agriculture, to try and boost local industry – but this completely goes against the grain of the AfCFTA implementation and the spirit of the agreement,” he says. “These types of disputes can really cause the most harm to the entire timeline: not just the phase one and two implementation, but bilateral disputes between countries that could set back the entire schedule.”

Financial institutions operating in Africa – where the African Development Bank estimates there is a US$90bn to US$120bn trade finance gap – would want to see a resolution of the border disputes in Nigeria and Rwanda, and a cooling of protectionist tendencies across the continent, Besseling says.

“Is that likely to happen?” he adds. “I personally don’t think so. We would need to see, over the next few months, some real landmark agreements and resolutions of bilateral disputes and some concessions made on the kind of goods governments want to protect.”