By Lamin Momodou Manneh
Senior Special Adviser, Office of the Governor,
Central Bank of the Gambia
Introduction
We would like to start this article with the recollection that the Agreement that established the African Continental Free Trade Area (AfCFTA) was formally signed on March 21, 2018 in Kigali, Rwanda and the condition for it’s entering into force was ratification by at least 22 African countries. In the event, that threshold was reached by May 30, 2019, when, in fact, 24 states deposited their instruments of ratification. It is notable that the ratification by the Gambia of the AfCFTA Agreement constituted an important triggering factor in the final coming into force of the AfCFTA, being the 22nd state to do so. The historical significance of this should be an important motivating force for expeditious implementation of the AfCFTA by the country, which is the main rationale behind this article.
As we pointed out in an earlier article, published by the Standard Newspaper on January 16, 2024, it is essential to also remember from the outset that the establishment of the AfCFTA constituted a crucial step towards the ultimate realization of the high ambition and aspirations of Africa’s foremost Pan-Africanistleaders like Kwame Nkrumah, Haile Selashie, Gamal Nasser, Kenneth Kaunda, Julius Nyerere etc for the continent’s political and economic integration, which they correctly saw as an important guarantor for survival with dignity of African countries on an increasingly complex and competitive global political and economic scene and for meaningful transformationof their economies.
As it is well-known by now, the initial push by Nkrumah and other early Pan-African leaders for greater continental unity first led to the establishment of the Organization of African Unity (OAU) in 1963, which was eventually transformed into the African Union (AU) in 2002. One of the key objectives of the African Union was the acceleration of the process of “economic integration of the continent”. Another important goal was to “coordinate and harmonize the policies between the existing and future regional economic communities for the gradual attainment of the objectives of the Union.”
From the foregoing, it is clear that the AfCFTA represents a crucial step towards the realization of the above goals and objectives of the African Union. Under the AfCFTA Agreement, member countries committed themselves to eliminating tariffs and non-tariff barriers on most goods and services over a period of 13 years. The broader long-term objectives are the creation of a single-liberalized market; reduction of barriers to movement of capital and labour to facilitate cross border investments; development of regional infrastructure to facilitate the intended higher levels of cross border trade; and faster pace of transformation of Africa’s economies, accompanied by greater inclusivity.
Much has by now been written on the potential benefits of the AfCFTA in quantitative terms and, on paper, are indeed enormous: creation of a single market for goods and services of over 1.3 billion people across the African continent; a combined GDP of around $3.4 trillion; and the biggest grouping of countries within a single economic community in terms of numbers throughout the world. It could be a game changer for Africa’s economic transformation and inclusive development aspirations. But for now, much of these considerable expected benefits still remain in the realm of potentials! And as our veteran Development Policy Analyst, Ambassador Abdoulie M.Touray (Baax), never ceases to caution, “we cannot eat potentials”, rather emphasis has to be placed on “implementation, implementation and implementation”.
Admittedly some notable steps have been taken by African stakeholders to implement the AfCFTA Agreement. But it is undisputable that the implementation processes have to be accelerated at a much faster pace by all the African countries. We have argued before that being a small, open economy with a narrow productive and export base, the Gambia stands to benefit measurably from its optimal participation in the AfCFTA. I believe that the pathway to realizing the full benefits of the AfCFTA lies through a granular approach to identifying and analyzing the key sources of those benefits and the policy implications of each of them.
In the rest of the article, we will first recall the estimated benefits envisaged from the full implementation of AfCFTA, the disaggregated sources of these benefits and their policy implications before presenting a brief summary of the implementation status by the African countries as a whole. After presenting this broad picture we will then focus on the status of AfCFTA implementation in the Gambia and concluding with the way forward
The Estimated Benefits of AfCFTA Implementation and the Policy Implications for Realizing them
As we pointed out in earlier articles, international development organizations like the United Nations Economic Commission for Africa (ECA), the African Development Bank, UNCTAD and the World Bank as well as the AfCFTA Secretariat itself, have carried out comprehensive and very useful studies on both the potential benefits and challenges presented by AfCFTA. It is also notable that they have strived to quantify as much as possible these expected benefits, their sources and the measures required for their realization.
But without prejudice, I have found the World Bank’s analytical frameworks on AfCFTA in that regard to be probably most useful forthe kind of evidence-based policy making that is of concern to us in this article. They are comprehensively presented in two seminal studies the World Bank carried out: the first was in 2020 entitled “The African Continental Free Trade Area: Economic and Distributional Effects” and the second one in 2022 entitled “Makingthe Most of the African Continental Free Trade Area – Leveraging Trade and Foreign Direct Investment to Boost Growth and Reduce Poverty”. Together, the two studies have come up with three scenarios for computing the potential benefits from the full implementation of the AfCFTA.
The first scenario looks at the impacts that would arise from only the implementation of measures for lowering or removing tariffs and non-tariff barriers on trade in goods and services among the participating member states and it is referred to as the “AfCFTA Trade Scenario”. The World Bank estimates that under this scenario, the AfCFTA has the potential to raise the continent’s GDP by 7% by 2035 and help lift about 40 million people out of extreme poverty, mainly through expanding intraregional trade and substantial employment creation. The considerably impeding effects of non-tariff barriers on intraregional trade in Africa is underscored by the fact that about two-thirds or US$450 billion of these potentially huge income gains from trade liberalization under AfCFTA will be accounted for by removal of “long delays across most of the continent’s borders and lowering compliance costs in trade, making it easier for African businesses to become more integrated into regional and global supply chains” (World Bank, 2020). Thus, the imperative to remove non-tariff barriers in particular cannot be overemphasized for realizing the potential gains of AfCFTA.
The World Bank’s suggested second scenario for assessing the impact of AfCFTA is dubbed “the AfCFTA FDI broad scenario” and it incorporates the effects of deeper integration, which goes beyond trade by taking into account the additional benefits that would accrue from increased flows of foreign direct investment (FDI). The small size of the markets of individual African countries like the Gambia’s has long been identified as one of the major constraints to increased FDI flows to them. The creation of the bigger continental single market under AfCFTA underpinned by the removal of tariff and non-tariff barriers will potentially trigger significant inflows of FDI, including cross border investments. Under this scenario, the AfCFTA is expected to boost real income gains in the continent by 8% by 2035.
The World Bank’s third scenario for assessing the additional benefits of AfCFTA would accrue from “ harmonization of policies on investment, competition, e-commerce and intellectual property rights. Deeper integration in these policy areas would build fair and efficient markets, improve competitiveness, and attract further FDI flows by reducing political and regulatory risks and raising investor confidence.” This scenario is referred to as the “AfCFTAFDI deep scenario” and it is expected to generate additional income gains by the African countries as a whole by up to 9% by 2035.
The projected substantial increases in FDI flows under the AfCFTAare expected to facilitate the structural economic transformation changes the Africa continent as a whole aspires to, and is in fact, in acute need of. In particular, the integration of the national firms into the regional value chains will be significantly expanded. That in turn will enhance their global competitiveness and facilitate their participation in global value chains, especially of industrial products. Significant numbers of more productive and sustainable jobs will be created in the process, thus helping the continent tackle some of its perennial and persisting development problems, which include gender inequality, increasing youth unemployment and poverty.
From the foregoing, it is evident that the AfCFTA offers the participating African countries substantial opportunities for meaningfully transforming their economies and accelerate inclusive development. But these expected benefits will not fall from the sky like “manna”. Important challenges have to be overcome through concerted and sustained policy actions at both the individual country and collective continental levels in order for them to be fully realized.
The policy implications are clear: first each African country has to devise or strengthen its own AfCFTA strategic plans; secondly, they have to underpin these strategic plans with robust implementation frameworks and structures; thirdly, such implementation frameworks have to embed processes for continuous in-depth reviews of the protocols of the AfCFTA Agreement and strive to domesticate them;fourthly, depending on their individual realities, each country should work out the pathways for their full participation in the AfCFTA, including the timeframes for implementing each of the protocols and expanding their productive and export sectors; and finally, they should put in place more dynamic technological, investment promotion, competition, trade-related intellectual property rights and e-commerce policies. Needless to say, the private sector has to be center staged in all these processes.
The AfCFTA Secretariat captures very well in the following words the above-cited challenges and policy actions necessary for overcoming them: “As we navigate the path ahead, we are acutely aware of the challenges that lie in our path. The road to full implementation requires us to address issues of infrastructure, logistics, regulatory frameworks and trade facilitation. It demands our collective efforts, unwavering commitment and creative solutions. We must harness the power of innovation, digitalization, and technology to overcome these obstacles and create an environment that that empowers businesses, particularly small and medium enterprises to thrive in the global market place.” (AfCFTA Secretariat, May, 2023).
A Snapshot of the AfCFTA Implementation at the AfricanContinental Level
From the foregoing, it cannot be over-emphasized that effective, inclusive and sustained implementation of the AfCFTAAgreement and its protocols are the key to the realization of its expected outcomes. It is therefore, encouraging that the African State Parties and their supporting policy makers have put in place an impressive array of enabling frameworks, instruments, strategies and institutions for expeditious implementation of the AfCFTA.
First, it is useful that a clear two-phase approach to the implementation of the protocols has been mapped out. The first phase entails implementation of the protocols relating to the trading in goods and services as well as dispute settlement mechanism. The second phase covers the protocols relating to investments, intellectual property rights, competition policy, digital trade and finally women and youth. Secondly, 54 AU member states out of 55 have by now signed the AfCFTAAgreement while close to 50 have deposited their instruments of ratification. Thirdly, the Secretariat for coordinating the implementation of the AfCFTA Agreement was established in February 2020, its Secretary-General sworn in in March 2020 and its headquarters building commissioned in Accra, Ghana in August 2020. Fourthly, an AfCFTA Adjustment Fund was established in February 2022, in conjunction with AFREXIMBANK with an initial value of $1billion. The objective of this Fund is to support both the public and private sectors to adjust to short-term disruptions that would arise from the implementation of the AfCFTA Agreement, notably reductions in tariff revenues and increased competition pressures on domestic industries.
The important instruments that have been finalized and adopted include the AfCFTA e-Tariff book, which is a web-based electronic Tariff Book containing up-dated schedules of Tariff Concessions; the Rules of Origin Manual, which covers the provisions governing the determination of the origin of goods under the Agreement; the launching of the Pan-African Payment and Settlement System (PAPSS), that is expected to facilitate the efficient and secure flow of money across the continent; the Dispute Settlement Mechanism (DSM), which will allow the State Parties to settle disputes related to trade; and the Non-Tariff Barriers (NTBs) Online Reporting Mechanism, to which persistence of NTBs could be reported.
The African State Parties recognized from the outset the imperative for putting in place national AfCFTA implementation strategies elaborated through inclusive and participatory processes to ensure ownership and effective coordination and implementation of the AfCFTA commitments. The implementation processes were expected to be driven by multi-institutional National Implementation Committees. So far about 35 African countries have elaborated their AfCFTA strategies and established the accompanying National Implementation Committees.
To facilitate actual trading activities under the AfCFTA, the State Parties introduced in October 2022 the Guided Trade Initiative (GTI). As pointed out by UNECA, “the GTI serves as an institutional framework for expediting trade under AfCFTApreferences, particularly because most of the State Parties have not yet published or transmitted their provisional schedules of tariff concessions”. Initially, the GTI commenced with 7 countries and only a few tradable products, but that number has since increased to 31 countries as of the last count in 2023, with the participation of over 35 companies and covering a wider range of products with the aim of trading 96 products under the scheme (AfCFTA Secretariat, 2023). We will next turn to the status of AfCFTA implementation in the Gambia.
The Status of AfCFTA Implementation in the Gambia
As we have noted in previous articles, given the small size of itseconomy and narrow export base, the Gambia potentially stands to gain significantly from a full participation in the implementation of the AfCFTA. The Gambia has long nurtured aspirations for rapid and meaningful economic transformation. As President Adama Barrow pointed out not long ago, during the First Republic, the regime of President Jawara expressed strong desire for the Gambia to be the Singapore of Africa, while during the Second Republic, President Yahya Jammeh aspired to introduce the Dubai model of transformation in the Gambia. President Barrow also places economic transformation at the center of his development agenda for the country but has indicated that he would like the “Gambia to be the Gambia”. Whilst this is legitimate sentiment, the country could still benefit enormously from the experiences of Singapore, Dubai, Qatar, South Korea and even Rwanda, Cote D’Ivoire and Senegal nearer home.
Two avenues through which the Gambia could benefit from the AfCFTA are the following: first by facilitating meaningful industrialization in the country through enlarging the markets available to industries and increased investments; and second, through acceleration of meaningful structural economic transformation. Both are very pertinent to the prospects for the Gambia’s development goals as set out in the First and Second National Development Plans of the Third Republic.
One of the major constraints to the desired extent of structural economic transformation in the Gambia is the relative and absolute small market size of the economy, particularly formanufacturing enterprises. The other is inadequate investments, both from outside as FDIs and from within as private equity and savings. Investments in industries also facilitate technological progress, and the interactions between them are normally transformed into a virtuous cycle. Important potential benefits of the AfCFTA for the Gambia are to allow it to increase FDI inflows, accelerate technological progress and enhance its participation is sub-regional and regional value chains.
My assessment of where things stand currently regarding implementation of AfCFTA in the Gambia indicates that despite the Government’s expressed commitment to domesticating the African free trade initiative, the country is not yet on the fast lane of actual implementation. Before elaborating a little bit on this assertion, let me acknowledge the following actions already taken, or are being taken, by the Government through the Ministry of Trade, Industry, Employment and Regional Integration towards the full implementation of the AfCFTAAgreement. First, it has indeed put in place the strongly recommended AfCFTA Implementation Strategy and established the accompanying multi-institutional implementation committee. It is also working on a credible strategy for revitalizing the country’s industrial sector as well asredynamizing agro-processing and fisheries sectors, particularly through the setting up of special economic zones and agro-processing facilities along key border areas. It is also notable that MOTIE has embarked on on-site visits to selected industries and enterprises to discuss with them their potential participation in trading under the AfCFTA.
However, the Gambia has yet to join the Guided Trade Initiative, which is key to facilitating actual trading under the AfCFTA. Importantly also, while critical infrastructure projects, like the seaports and airport as well as cross-border roads, are underway, their current states present formidable challenges to effective participation in the AfCFTA. Similarly, the bottlenecks in the energy sector need to be urgently tackled. The country’s persisting disputes with its closest neighbor, Senegal, on both tariff and non- tariff barriers and more recently on possible export or import bans on key inputs for the construction industry like basalt and cement are highly disturbing for strong advocates of AfCFTA implementation in the region. Furthermore, there is still considerable scope for building up a strong cadre of trade policy and negotiation specialists as well as export promotion experts, especially at MOTIE and in our foreign embassies.
The views expressed in this article are not necessarily those of the Central Bank of the Gambia.