More than eight years after African leaders decided in 2012 to establish a continent-wide free trade area, the African Continental Free Trade Area (AfCFTA) agreement was concluded and signed on 21 March 2018 in Kigali, Rwanda. The pact entered into force on 30 May 2019. Of the fifty-five member countries of the African Union, only Eritrea has yet to sign the pact. As at January 2020, 30 African countries had ratified the agreement, meaning “the rights, provisions and obligations of the Agreement now apply.”
On 17 June 2020, AU heads of state and government decided to postpone trading under the AfCFTA to 1 January 2021, from the original takeoff date of 1 July 2020. The delay was to assist member countries to focus on responding to the COVID-19 pandemic. Trade corridors were tasked to facilitate the seamless flow of crucial health-related goods and services within the continent, as member countries sought to curb the coronavirus.
Splintered and small economies suddenly become attractive to investors. These markets provide access not only to the few million people within their borders but to more than a billion people across the entire continent’s US$3trillion GDP
The AfCFTA is often hailed as a game-changer for the continent’s prospects. Splintered and small economies suddenly become attractive to investors. These markets provide access not only to the few million people within their borders but to more than a billion people across the entire continent’s US$3 trillion GDP. Tariff-free inputs also reduce the cost of production. Almost certainly, there will be more jobs on aggregate, although some countries may fare much better than others. This ideal state may not come about easily or for that matter, quickly enough.
Today, some goods and persons already move freely within their respective regions on the continent. The Economic Community of West African States (ECOWAS), East African Community (EAC) & Southern African Development Community (SADC) already allow relatively free movement of persons. But even in these relatively smaller contexts, sailing has not been entirely smooth. For instance, Nigeria shut its borders with neighbouring Benin, Niger and Cameroon only months after signing the AfCFTA in 2019.
In May 2020, Kenya shut its borders with Tanzania and Somalia to curb the spread of Covid-19. Under the guise of curbing the spread of the coronavirus, South Africa announced in March 2020 that it would build a fence on its border with Zimbabwe to stem the flow of illegal immigrants. Despite such provocations, some countries demonstrate remarkable enthusiasm for the pan-African project. More African countries are beginning to ease their visa policies for Africans. However, while many African governments genuinely support the AfCFTA, their anxiety over potential losses of customs revenue from dumping, of jobs, and of sovereignty is palpable.
African firms, over 400 of which earn US$1 billion or more in annual revenues, certainly desire to leverage the potential benefits of the AfCFTA. Despite the myriad challenges that states now expect the AfCFTA to ameliorate, many firms have become successfully pan-African, and can give multinational companies a run for their money on many fronts. For them, the AfCFTA is a welcome development. However, they are likely to be rightly wary of potential conflicts. Yet, being overly cautious may be disadvantageous. Firms that get a head start might maintain their advantages for a long time.
Yet, it may be unwise to place huge bets on the AfCFTA just yet. While Phase 1 negotiations are largely complete, key issues remain outstanding. Originally scheduled to start in mid-2020, Phase 2 negotiations will now open only in 2021 and may not conclude until 2022 at the earliest. Also, other more fundamental and structural issues may weigh on the emerging free trade area. In view of the many potential challenges and constraints, how should firms plan to leverage on the AfCFTA? We adapt the Hambrick & Fredrickson (2005) strategic diamond framework to evaluate the strategic alternatives that firms might consider.
Article was first published by the NTU-SBF Centre for African Studies at Nanyang Business School, Singapore. Figures, tables, & references are in orginal article viz. https://nbs.ntu.edu.sg/Research/ResearchCentres/CAS/Publications/Documents/NTU-SBF%20CAS%20ACI%20Vol.%202020-39.pdf
