AfCTA will only benefit big businesses if you don’t reform domestic economic policies-US Economist
An Associate Professor at the Regent University, Virginia, US, Prof Brian Baugus, (Ph.D., M.A., M.B.A., B.A.), has posited that the African Continental Free Trade Area’s (AfCFTA) is a good policy with long term benefits that are much larger than the short term costs.
He has however, cautioned that AfCTA will only benefit big business if African nations fail to reform domestic economic policies.
Presenting an Economic Analysis of the African Continental Free Trade Agreement at the 2019 edition of the African Journalists for Economic Opportunities (AJEOT), which was organised by the Institute for Liberty and Policy Innovation (ILAPI-Ghana), the professor said free trade requires responsive firms working in a dynamic economy, many African nations have domestic policies that cause economic stagnation, keeping firms small and unable to respond to changes effectively.
He cautioned that AfCTA will only benefit big business if African nations fail to reform domestic economic policies.
Some analysts including Mo Ibrahim Foundation have said the AfCTA has the potential to become the largest regional agreement in the world in terms of participating countries; creating a single continental market for goods and services as well as a customs union with free movement of capital and persons.
But Professor Baugus among other critical questions is asking the steps that have been taken to ensure this policy is implemented as efficiently as possible and create as few market distortions as possible.
In another set of questions he quizzed, what are the other uses for the resources dedicated to this program? What were their costs and benefits? What private businesses and investment will not happen because the government taxed/borrowed to pay for the program?
According to him, for trade these questions are not as pressing other than the money being spent on the administrative bureaucracy but the alternative to not having free trade is higher costs for products, less products, smaller trade networks, production inefficiencies and so forth, in short a less dynamic slower growing economy.
He said for free trade the benefits are in the longer term, as transition costs fade and the full benefits of increased trade and resource mobility is seen over time.
‘’But the issue here is Africa will not realize anything close to trade’s full potential if each nation continues to make it difficult to start a business. Ghana is 114 out of 190 in ease to start a business. Free trade will look like a failure if that number for every country does not get much better. If domestic economies do not become more business friendly, trade will be like a nice new pot-hole free highway for a country with few cars.
At its heart trade is two partners reaching a mutually beneficial deal. Government need not be in the middle of that,’’ he explained.
Ghana has been chosen by the Assembly of Heads of State and Government of the African Union (AU) to host the Secretariat of the African Continental Free Trade Area (AfCFTA).
The announced was made Sunday, July 7, 2019, at the 12th AU Extraordinary Summit held in Niamey, after Ghana beat off competition from Egypt, Eswatini, Ethiopia, Kenya, Madagascar and Senegal.
The core mandate of the Secretariat will be to implement the African Continental Free Trade Area Agreement, which has since been ratified by 25 member states.
In his acceptance speech, at the closing session of the Summit, President Nana Addo Dankwa Akufo-Addo, thanked the Assembly for the decision, stating that “it is a privilege that, for the first time in our nation’s history, we have the responsibility of hosting an important pan-African institution”.
He expressed gratitude to President Macky Sall of Senegal for stepping down Senegal’s candidature in favour of Ghana and also to the leaders of Egypt and Ethiopia, their Excellences Abdel Fattah el-Sisi and Abiy Ahmed respectively, for similar gestures of solidarity.
The Ghanaian President applauded the member states that have deposited their instruments of ratification at the AU Commission Headquarters in Addis Ababa.
President Akufo-Addo expressed his delight at the decision taken by Nigeria to sign up to the Agreement, stressing that “the adhesion of Nigeria to the Free Trade Area has enhanced considerably its prospects of success.”
With the AfCFTA now the world’s largest free trade area since the formation of the World Trade Organisation, it will cover a market of 1.2 billion people, with a combined gross domestic product (GDP) of $2.5 trillion, across the fifty-four (54) Member States of the African Union that have signed up to the Agreement
However, Professor Baugus has said the implementation would be effective if proper measures are put in place to address what he termed as administrative bureaucracy, which he was worried could cancel deals, prohibit trade that others want and also stressed on the point on the powers to restrain these bottlenecks.
‘’What are the exact duties of the Administrative Bureaucracy? Can it cancel deals? Prohibit trade that others want? What are the mechanisms to restrain its powers? What steps have been taken to insure this policy will implemented as efficiently as possible and create as few market distortions as possible?
”Why is it requiring a bureaucratic administrative apparatus that nations competed to get to lower trade barriers?
”This question is not as applicable in this case but there is one over riding point – why are there still tariffs at any level? An average of 6.1% is still pretty significant and it means that half the tariffs are higher then that. That’s a market distortion Why is it there? Will it be phased out? Over what period of time? Also, are subsidies eliminated?’’
‘’Why is it requiring a bureaucratic administrative apparatus that nations competed to get to lower trade barriers? It may be needed but this is something to watch, it can evolve to actually work against trade over time. A bureaucracy tends to grow and want to justify its existence, if trade is running very smoothly a trade administrative bureaucracy is not needed. May create problems to justify its continuation.’’
”It may be needed but this is something to watch, it can evolve to actually work against trade over time. A bureaucracy tends to grow and want to justify its existence, if trade is running very smoothly a trade administrative bureaucracy is not needed. May create problems to justify its continuation.”
The expert emphasised on the need for citizens not to allow politicians to damage the liberal agenda, which allows free market saying: ‘’If you are a liberal, you are inclined to think free trade is good and should encouraged.
The challenge in these sorts of cases is being sure that the policy is truly what it claims to be, to insure that the vocabulary and the actual content of the policy match.
We must make sure that politicians are not doing damage to the liberal agenda by using market rhetoric for statist policies.
Even in policies we may see as a positive, journalists need to ask the hard questions. Good journalism is suspicious of everything.’’
A Brief History
• 1963 Organization of African States founded with the goal to promote cooperation between African states.
• 1980 The Lagos Plan was adopted which encouraged OAU members to minimize reliance on the West by promoting intra-African trade. Gave impetus to several trade zones and agreements on the continent.
• 1991 the Abuja Treaty created the African Economic Community which promoted the development of free trade areas, customs unions, an African Central Bank, and an African common currency.
• 2002 the OAU was replaced with the African Union, which had a goal to accelerate the “economic integration of the continent”.
• 2012 African Union summit in Addis Ababa, leaders agreed to create a new Continental Free Trade Area by 2017.
• 2015 AU summit in Johannesburg, the summit began three years of negotiations.
African Continental Free Trade
• 2018 Kigali Summit the 10th Extraordinary Session of the AU on AfCFTA, three separate agreements were signed:
• The African Continental Free Trade Agreement – 44 signatories
• The Kigali Declaration – 47 signatories
• The Protocol on Free Movement of Persons – 30 signatories
• There were two significant holdouts: Nigeria and South Africa, the two largest economies in Africa.
• All agreements were subject to ratification by each nation with 22 nations ratifying necessary for the agreement to become effective
• April 2019 the number of ratifying countries reached the critical 22
• July 2019 the number of ratifying countries is 27, the number of signatories is at 54 or 55 (out of 55 AU members)
What Does AfCTA Do?
• Creates the world’s largest free trade zone in terms of countries included
• 54 (55?) Nations
• 1.2 billion people, fastest growing continent could double in 30 years
• Sets the average intra-African tariff at 6.1%
• Expected to boost employment
• Expected to increase intra-African trade by 50% from current levels
• Expected to diversify Africa’s economy