CFTA has great potential

By VICTOR NYANGAU

In March this year, there was a jubilant mood in the Rwandan capital, Kigali, when African leaders gathered to sign an accord herald as a critical step in the actualisation of free trade from Cape Town to Cairo, signalling a new era in intra-African trade.

The Continental Free Trade Agreement (CFTA) is a multilateral agreement whose idea was conceived in 2012 and has finally been endorsed across Africa by 44 countries. The vision of the CFTA is to build an integrated market in Africa connecting more than a billion people and harnessing the enormous potential of the continent. Under a free trade agreement, all the signatory countries will agree to reduce trade tariffs and import quotas amongst each other. Principally, the CFTA as it is currently is the initial stage of closer economic co-operation across the more than fifty countries that make up the African Union.

Consequently, this should ease Africa’s transition into a fully-fledged union. The CFTA, it is hoped, will mimic the successes of the now faltering European Union whose underlying ethos was the benefit accruing from free movement of people, a customs union, a common market and even a single currency.

Effectively, the CFTA is expected to unlock Africa’s potential by shifting focus from being a harvesting ground for resources including human capital and raw materials that are subsequently exported to the more flourishing economies of the West and East for beneficiation. Additionally, there is a spirit of optimism emanating from the benefits that are expected to accrue to African countries including increased intra African trade, enhanced competitiveness through exploiting opportunities for large-scale production, continental market access and better reallocation of resources.

Should the agreement bear the expected results, it will pave way for a new era where Africans from all walks of life will access an abundance of goods and services that are made in Africa. However, some dissenting voices have raised concerns casting doubts on the viability of the CFTA project as a whole. In a time when the world’s big economies are moving towards bilateral agreements as opposed to multilateral instruments, criticisms have emerged over the CFTA.

The main areas of contention include the likely abuse of preferential trade terms resulting in dumping of finished goods manufactured elsewhere other than within Africa, potential job losses for the less educated due to increased competition from the continental pool of human resources and imbalance in trade and resource flows owing to divergent levels of industrial development.

Opponents of the CFTA argue that its introduction is akin to adopting a laissez faire approach to economic development, which will renege on the benefits of regulation and controlled capitalism. Another concern that has been expressed by the dissenters is how the current regional economic blocs will be phased out as countries adopt the continental agreement.

Economic blocs such as the East African Community (EAC), Common Market for East and Southern Africa (Comesa) and the Southern African Development Community (SADC), which provide preferential economic ties amongst their members would have to be eradicated in favour of the CFTA.

Victor Nyangau, Senior Associate with PwC Kenya’s Tax practice.

Source: Business Daily