Africa’s AfCFTA free trade agreement takes baby steps

4 Mins read

Africa’s AfCFTA free trade agreement takes baby steps

It’s been a long time coming, but several African nations have started trading a trickle of goods under the African Continental Free Trade Area (AfCFTA) agreement.

Kenya has shipped locally-made car and truck batteries as well as a consignment of Kenyan-grown tea to Ghana in the past months. Rwanda has also exported processed coffee beans to the West African nation.

“It’s a positive move,” said Nixon Paloma, Group Finance Officer at Associated Battery Manufacturers. The firm is one of only two companies in Kenya taking part in a pilot project called the Guided Trade Initiative.

The initiative gives companies dealing in certain products in selected countries support through the AfCFTA process. The idea is to test — and prove — that the AfCFTA system works and get intraregional trade finally rolling under AfCFTA. As well as Kenya, Rwanda and Ghana, it includes Cameroon, Egypt, Mauritius, Tanzania and Tunisia.

The world’s largest free trade area became operational with much fanfare on January 1, 2021. But the implementation of the single continental market has been delayed for several reasons, from the COVID pandemic to the lack of agreement on the rules of origin for some product lines and the failure of 10 out of the 54 signatories to ratify it.

Opening new markets

Associated Battery Manufacturers has long exported its lead-acid and solar batteries to more than a dozen African nations. But these are mostly within the free trade area of COMESA, the Common Market for Eastern and Southern Africa, where the Nairobi-based firm benefits from the lack of duty on its products.

The company, with a turnover in the region of $120 million (€114 million) per year, wasn’t exporting further than the Democratic Republic of the Congo, Paloma told DW, as it “didn’t have any advantage from having duty free status.”

This isn’t unusual on the continent, where intra-African trade is only around 15% of total trade. That’s much lower than in other world regions, such as Europe, where it’s 67%, and Asia, where it’s 60%.

In the past few months, though, the battery company has shipped two AfCFTA-certified consignments of car and truck batteries to Ghana, with a value of some $60,000 per container.

Before it could do that, the firm had to get its products audited by Kenya’s revenue authority and manufacturer’s association to ensure the batteries meet the rules of origin. These are criteria tailored to the specifics of each product that guarantee it is made in the exporting country and is therefore eligible for AfCFTA’s preferential tariffs.

The Nairobi-based firm’s products contain some 70% local inputs and 30% imported components, which means they qualify as “Made in Kenya,” Paloma explained.

Source: Brookings Institute, computed from UNCTAD 2021 figures

Barriers to trade

Paloma said that exports to Ghana this year under the AfCFTA agreement only reduce the normal 20% import tariff for the batteries by 2%. But with the tariff set to fall by 2% a year until it hits zero, the company is keen to start building its brand in West Africa, he said. That way, its name will already be established when the duty-free status kicks in.

Under the AfCFTA agreement, cross-border taxes on 90% of goods are supposed to fall at the latest by 2030, although the tariffs on numerous products will be phased out even earlier.

But tariffs are only one of the many barriers to trading across Africa. Logistics is another major hurdle. The first consignment of batteries took six long weeks to travel from the ports of Mombasa to Tema, near Accra, because the goods went via Singapore.

“The issue is there is not enough trade to warrant sizable ships to carry goods from one [African] port directly to the next,” Nixon Paloma said. “They find it easier to take those goods to a transshipment port in Asia or Europe, where they’ll get enough load that goes to West Africa.”

But three-quarters of Africa’s goods are carried on roads, which are often poorly built. According to the African Development Bank, this increases the cost of logistics on the continent, which can add 75% to the price of African goods.

Adding value to raw materials

Igire Coffee, the only Rwandan firm to export AfCFTA-certified goods so far, also sees the free trade deal as a chance to explore West Africa’s untapped markets for its “Made in Africa” coffee as tariffs fall.

The women-led company has airfreighted 105 kg (231 pounds) of roasted arabica coffee beans “Made in Rwanda” to Ghana, with more to follow.

In countries like Ghana and Nigeria, people are purchasing coffee grown in Africa, CEO Briggette Harrington told DW from Kigali. But it’s being shipped overseas for processing and packaging and then shipped back again, which “makes absolutely no sense.”

She hopes that by opening up intraregional trade, AfCFTA will give more African companies an incentive to add value to the continent’s abundant natural resources and raw materials instead ofselling them overseas.

The share of processed and semi-processed goods in intra-African trade is considerably higher than in trade with the rest of the world, according to trade briefing by the UN’s International Trade Centre.

“Western companies pay $6 a kilo for green coffee beans that then sell for between $45 and $50 a kilo after processing,” she said. “The women who fertilize, tend and harvest the beans might only get $2 a kilo. We have to change that.”

Igire Coffee is the first “Made in Rwanda” product to be sold under the AfCFTA free trade agreement

Pushing the numbers

While the number of companies with certified AfCFTA products is still tiny, countries like Ghana say they are assisting hundreds of firms obtain the rule of origin certification.

One of them is the Benso Oil Palm Plantation (BOPP) in western Ghana, which was recently visited by the team. The firm, which directly employs some 500 people and indirectly provides work to some 1,500 more, grows oil palm and processes the fruit into crude palm oil and palm kernel oil.

“They profiled this company and came to the verdict that we qualify,” said BOPP director Samuel Awonnea Avaala, who hopes that BOPP’s certification is through by the end of the year.

While much of the palm oil is turned into cooking oil and consumed domestically, BOPP mainly exports the palm kernel oil, used in cosmetics and soaps, including to countries like Singapore, Spain and Canada.

The company is “gearing up” to export more within the continent, Avaala said. “Trading within Africa has its own advantages. We need to improve on that so that African countries trade more and more amongst ourselves.”

‘Africans should always put themselves first’

Source: DW

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