AfCFTA – an uphill struggle in quest for regional trade on the continent

Picture : Bloomberg.com

The following article was published by Bloomberg and sketches the day-to-day hardship for cross border trucking through Africa. In a sense it asks the very questions and challenges which the average African asks in regard to the highly anticipated free trade area. While rules of origin and tariffs form the basis of trade across borders, together with freedom of movement of people, these will mean nothing if African people receive no benefit. As globalisation appears to falter across Europe and the West, it begs the question whether this is in fact is the solution for Africa; particularly for the reason that many believe globalisation itself is an extension of capitalism which some of the African states are at loggerheads with. Moreover, how many of these countries can forego the much need Customs revenue to sustain their economies, let alone losing political autonomy – only time will tell.

Nyoni Nsukuzimbi drives his 40-ton Freightliner for just over half a day from Johannesburg to the Beitbridge border post with Zimbabwe. At the frontier town—little more than a gas station and a KFC—he sits in a line for two to three days, in temperatures reaching 104F, waiting for his documents to be processed.

That’s only the start of a journey Nsukuzimbi makes maybe twice a month. Driving 550 miles farther north gets him to the Chirundu border post on the Zambian frontier. There, starting at a bridge across the Zambezi River, trucks snake back miles into the bush. “There’s no water, there’s no toilets, there are lions,” says the 40-year-old Zimbabwean. He leans out of the Freightliner’s cab over the hot asphalt, wearing a white T-shirt and a weary expression. “It’s terrible.”

By the time he gets his load of tiny plastic beads—the kind used in many manufacturing processes—to a factory on the outskirts of Zambia’s capital, Lusaka, he’s been on the road for as many as 10 days to traverse just 1,000 miles. Nsukuzimbi’s trials are typical of truck drivers across Africa, where border bureaucracy, corrupt officials seeking bribes, and a myriad of regulations that vary from country to country have stymied attempts to boost intra-African trade.

The continent’s leaders say they’re acting to change all that. Fifty-three of its 54 nations have signed up to join only Eritrea, which rivals North Korea in its isolation from the outside world, hasn’t. The African Union-led agreement is designed to establish the world’s biggest free-trade zone by area, encompassing a combined economy of $2.5 trillion and a market of 1.2 billion people. Agreed in May 2019, the pact is meant to take effect in July and be fully operational by 2030. “The AfCFTA,” South African President Cyril Ramaphosa said in his Oct. 7 weekly letter to the nation, “will be a game-changer, both for South Africa and the rest of the continent.”

It has to be if African economies are ever going to achieve their potential. Africa lags behind other regions in terms of internal trade, with intracontinental commerce accounting for only 15% of total trade, compared with 58% in Asia and more than 70% in Europe. As a result, supermarket shelves in cities such as Luanda, Angola, and Abidjan, Ivory Coast, are lined with goods imported from the countries that once colonized them, Portugal and France.

By lowering or eliminating cross-border tariffs on 90% of African-produced goods, the new regulations are supposed to facilitate the movement of capital and people and create a liberalized market for services. “We haven’t seen as much institutional will for a large African Union project before,” says Kobi Annan, an analyst at Songhai Advisory in Ghana. “The time frame is a little ambitious, but we will get there.”

President Nana Akufo-Addo of Ghana and other heads of state joined Ramaphosa in hailing the agreement, but a number of the businesspeople who are supposed to benefit from it are skeptical. “Many of these governments depend on that duty income. I don’t see how that’s ever going to disappear,” says Tertius Carstens, the chief executive officer of Pioneer Foods Group Ltd., a South African maker of fruit juices and cereal that’s being acquired by PepsiCo Inc. for about $1.7 billion. “Politically it sounds good; practically it’s going to be a nightmare to implement, and I expect resistance.”

Under the rules, small countries such as Malawi, whose central government gets 7.7% of its revenue from taxes on international trade and transactions, will forgo much-needed income, at least initially. By contrast, relatively industrialized nations like Egypt, Kenya, and South Africa will benefit from the outset. “AfCFTA will require huge trade-offs from political leaders,” says Ronak Gopaldas, a London-based director at Signal Risk, which advises companies in Africa. “They will need to think beyond short-term election cycles and sovereignty in policymaking.”

Taking those disparities into account, the AfCFTA may allow poorer countries such as Ethiopia 15 years to comply with the trade regime, whereas South Africa and other more developed nations must do so within five. To further soften the effects on weaker economies, Africa could follow the lead of the European Union, says Axel Pougin de La Maissoneuve, deputy head of the trade and private sector unit in the European Commission’s Directorate General for Development and International Cooperation. The EU adopted a redistribution model to offset potential losses by Greece, Portugal, and other countries.

There may be structural impediments to the AfCFTA’s ambitions. Iron ore, oil, and other raw materials headed for markets such as China make up about half of the continent’s exports. “African countries don’t produce the goods that are demanded by consumers and businesses in other African countries,” says Trudi Hartzenberg, executive director of the Tralac Trade Law Center in Stellenbosch, South Africa.

Trust and tension over illicit activity are also obstacles. Beginning in August, Nigeria shut its land borders to halt a surge in the smuggling of rice and other foodstuffs. In September, South Africa drew continentwide opprobrium after a recurrence of the anti-immigrant riots that have periodically rocked the nation. This could hinder the AfCFTA’s provisions for the free movement of people.

Considering all of these roadblocks, a skeptic would be forgiven for giving the AfCFTA little chance of success. And yet there are already at least eight trade communities up and running on the continent. While these are mostly regional groupings, some countries belong to more than one bloc, creating overlap. The AfCFTA won’t immediately replace these regional blocs; rather, it’s designed to harmonize standards and rules, easing trade between them, and to eventually consolidate the smaller associations under the continent­wide agreement.

The benefits of the comprehensive agreement are plain to see. It could, for example, limit the sort of unilateral stumbling blocks Pioneer Foods’ Carstens had to deal with in 2019: Zimbabwe insisted that all duties be paid in U.S. dollars; Ghana and Kenya demanded that shippers purchase special stickers from government officials to affix to all packaging to prevent smuggling.

The African Export-Import Bank estimates intra-African trade could increase by 52% during the first year after the pact is implemented and more than double during the first decade. The AfCFTA represents a “new pan-Africanism” and is “a pragmatic realization” that African countries need to unite to achieve better deals with trading partners, says Carlos Lopes, the former executive secretary of the United Nations Economic Commission for Africa and one of the architects of the agreement.

From his closer-to-the-ground vantage point, Olisaemeka Anieze also sees possible benefits. He’s relocating from South Africa, where he sold secondhand clothes, to his home country of Nigeria, where he wants to farm fish and possibly export them to neighboring countries. “God willing,” he says, “if the free-trade agreement comes through, Africa can hold its own.”

In the meantime, there are those roads. About 80% of African trade travels over them, according to Tralac. The World Bank estimates the poor state of highways and other infrastructure cuts productivity by as much as 40%.

If the AfCFTA can trim the red tape, at least driving the roads will be more bearable, says David Myende, 38, a South African trucker resting after crossing the border post into South Africa on the way back from delivering a load to the Zambian mining town of Ndola. “The trip is short, the borders are long,” he says. “They’re really long when you’re laden, and customs officers can keep you waiting up to four or five days to clear your goods.” 

Source: article by Anthony Sguazzin, Prinesha Naidoo and Brian Latham, Bloomberg, 30 January 2020

ICD 2020 – #MakeTradeWork

Picture courtesy of the WCO

To mark International Customs Day 2020 – focusing on the theme of ‘fostering Sustainability for People, Prosperity and the Planet’, the following article from the Spring 2018 edition of World Trade Matters by Jan Hoffmann, the Chief of the Trade Logistics Branch, Division on Technology and Logistics at UNCTAD, is relevant. The article discusses global trade facilitation reforms, the digitalisation of trade and measures towards ensuring long-term sustainability in the maritime industry. 

Confronted with growing populism and a surge in protectionist measures recorded by the WTO, policy makers and enterprises are struggling to avoid a backlash in international trade. At UNCTAD’s Trade Logistics Branch, we support these endeavours by helping to make trade work better. Through trade facilitation reforms, the promotion of digitalisation, and ensuring the long-term sustainability of international transport, we aim at ensuring that the international movement of goods is not confronted with unnecessary obstacles and costs. 

A multilateral agreement to facilitate international trade

Under the Trade Facilitation Agreement (TFA) of the World Trade Organization (WTO), developing countries commit to implement a number of very practical measures that make trade easier and more transparent. Countries are obliged to publish duties and procedures on the web, traders can transmit their declarations prior to the arrival of the goods, payments can be made electronically, and fees and charges must not become hidden taxes to generate income for the government. These are but some of the 37 concrete measures grouped into 12 Articles of the TFA. They are all useful and help make trade more efficient. 

However, many of these measures involve an initial investment or reforms that require human and financial resources to start with, which developing countries many not have. The good news is that the TFA also includes a novel mechanism – the so called “Special and Differential Treatment” – that helps developing countries plan and acquire the necessary capacity prior to being fully committed to comply with all 12 Articles. Concretely, the mechanism puts the developing countries in the position – and obligation – to analyse and notify their own implementation capacity. At UNCTAD, we are working closely with the developing countries to enable them to do so. Our main counterpart in this endeavour are the National Trade Facilitation Committees (NTFCs) that each country must set up under the TFA. UNCTAD’s Empowerment Programme for NTFCs includes training and knowledge development for the members of the NTFC, combined with advisory services and the development of a Roadmap of TFA implementation. 

By the same token, UNCTAD also supports developing countries in setting up Trade Information Portals. Under the TFA, members of the WTO are obliged to make relevant information on tariffs and trade procedures available on-line. UNCTAD’s Trade Information Portals not only help countries become compliant with this obligation, but in the process of analysing and publishing applicable trade procedures, a Trade Information Portal effectively helps countries identify the potential for the further simplification of procedures. Thanks to these new insights, NTFCs can then develop programmes and reforms that subsequently ensure the further simplification of procedures. 

Technological progress will never be as slow as today

My favourite provision of the TFA is Article 10.1., as it provides for a dynamic dimension of the Agreement. According to this article, countries need to minimize “the incidence and complexity of import, export, and transit formalities”, continuously “review” requirements, keep “reducing the time and cost of compliance for traders and operators”, and always choose “the least trade restrictive measure”. As such, even if a country is compliant with all TFA provisions today, countries will need to continue monitoring if existing procedures are still appropriate in view of technological or regulatory developments. 

As trade becomes increasingly digitalised, and new technologies which do not yet exist will be developed, it will be important that governments continuously revise and review the applicable rules and regulations. 

Digitalisation comes in stages. First, we optimize existing procedures, making use of cargo tracking, the Internet of Things, blockchain et al. Second, new businesses are developed which could not exist without the new technologies; new platforms come into being and we see more “uberisation”. Finally, there is transformation and science fiction; still in our lifetime Artificial Intelligence will overtake human capabilities to manage international trade and its logistics. 

But let us take one step at a time. At UNCTAD, we support developing countries through eTrade readiness assessments, the development and upgrade of technological solutions in Customs automation and Single Windows, and by providing a Forum for our members to analyse and discuss the challenges that come with digitalisation. We encourage the development of global standards that allow for interoperability among new systems. The challenge for policy makers it to encourage private sector investments in new technologies and solutions, while ensuring that no new monopolies emerge that might exclude smaller players.  

And it has to be sustainable

While we aim at ensuring continued growth in international trade, there is a catch. The transport of this trade encompasses increasing externalities, such as pollution, green-house-gas emissions, and congestion. 

Ports need to minimise social and environmental externalities. Many port cities are among the most polluted places to live, as ships burn heavy oil, and delivering trucks produce noise and cause traffic congestions. In addition, ports need to be resilient in the face of disruptions and damages caused by natural disasters and climate change impacts. 

International transport, including shipping, needs to play a larger role in addressing global warming and contribute to mitigating the carbon emissions that are causing climate change. Shipping emits less carbon dioxide (CO2) per ton-mile than other modes of transport, but then due to its sheer volume it also produces many ton-miles. Would it be possible that the industry could be charged by its main regulatory body not per ship tonnage (as is currently the case), but per tonne of CO2 emission? 

Currently, the International Maritime Organization is funded proportional to the tonnage registered under the members’ flags. Like this, Panama, Marshall Islands and Liberia pay for the largest share of the IMO budget – and in the end, this is passed on to the ship-owner, who in turn passes this on to the shipper, who will charge the consumer. This is a good established mechanism that could be expanded to also internalize the external costs of CO2 emissions. 

Being the most globalized of all businesses, maritime transport should consider adopting a global regime that helps further internalize its environmental externalities – to ensure prosperity for all.  

It is all about efficiency

Investing in trade facilitation reforms, making intelligent use of the latest technologies, and ensuring that externalities are internalized are all several sides of the same coin. Trade efficiency is necessary to promote an open international trading system. It requires a continuous effort by policy makers to continuously review current procedures, apply the most appropriate technological solutions, and support an efficient allocation of scarce resources. 

Source: Jan Hoffman, UNCTAD – originally published in World Trade Matters, Spring Edition, 2018