The African Continental Free Trade Area (AfCFTA): The Implications for Ghana; A Benchmark Study of European Union
A treaty was signed in Abuja in 1991 by the Member States of the African Union (then Organisation for Africa Union, OAU). The pact stated that there will be a common African Market which resulted in the formation of the African Continental Free Trade Area (AfCFTA). Negotiations on its formation had begun since June 2015 but 44 Member states out of the 55 total member states signed the Pact in March 2018 at the AU Extraordinary Summit that was held in Kigali, Rwanda. As at July 07, 2019, at the 12th AU Extraordinary Summit held in Niamey, 54 member states had signed. At the Summit, Ghana was nominated to host the Secretariat of the African Continental Free Trade Area (AfCFTA). The Secretariat is mandated to implement the African Continental Free Trade Area Agreement (GIZ, 2019).
The aim of the African Continental Free Trade Area Agreement is to promote intra-African trade. It is predicted that the treaty will result in a 52 percent increase in intra-African trade by the end of 2022. The AfCFTA is also expected to improve the lives of the African people, and unify markets (Yeboah, 2019). The free trade agreement means that among the member states, duties, tariffs and other restrictive regulations of commerce are eliminated on substantially all the trade among the member states.
GIZ indicated in Support of the African Continental Free Trade Area that Africa has been growing at an average rate of 3.6 percent in 2019 but there is still more room for improvement. As much as higher expectations are set for the common African Market, there are some implications that must be given attention to. What does the common African Market imply to Ghana? Does the hosting of the Secretariat in Ghana have any implications? Are there any peculiar Challenges that must be foreseen? What can be learned from the European Union? These are some relevant questions that Africa Centre for Entrepreneurship and Youth Empowerment(ACEYE)is asking.
ACEYE deeply explores the history and development of the European Union and present a benchmark for the African Continental Free Trade Area Agreement. In this piece, the Think Tank (ACEYE) presents peculiar issues relating to the African Continental Free Trade Area Agreement.
A Review of the European Union and the Implications for AfCFTA
The European Union was set up following the Second War with the primary aim of fostering peace and unity among neighbouring countries in Europe. As of 1950, Belgium, France, Germany, Italy, Luxembourg and the Netherlands formed the European Coal and Steel Community that united them politically and economically. These six countries stopped charging custom duties on the trade among themselves. There was joint control over the production of some commodities such as agricultural products. From the 1960 to the 1969, the countries within the European Coal and Steel Community experienced higher economic growth. This attracted Denmark, Ireland and the United Kingdom to join in 1973 and the name European Union was formalized. In 1979, a parliament was created for the European Union with representatives from the various countries. By 1986, Greece, Spain and Portugal had joined and by 2004, 12 other countries had joined. The European Union adopted the Euro as the common currency for the member states. Currently, the European Union trade structure has made it the second largest economy after the USA in nominal terms.
Some Benchmarking Issues from European Union and its implications to AfCTA
The Success of EU is not evenly distributed: It appears that the European Union is excelling but the success is not evenly distributed to all member states. For instance, Italy, Greece and Cyprus are in high levels of public and private debt. Italy for instance is experiencing high unemployment rate whiles Germany has a large trade surplus. This implies Ghanaians must have a change of mind-set, give in more efforts and develop appropriate policies for it entrepreneurial development and not to base it hopes on the promising benefits of the AfCFTA lest disappointment may set in.
The Crisis of a member country affects other member countries: In the European Union, the debt of Greece threatened the entire Eurozone and economists say that Greece’s debt crisis threatened Portugal, Italy, Ireland and Spain. This implies that with the AfCFTA, when a member country faces crisis, it is very likely to spread across to other member states. Unlike the European Union that Grew from a smaller number to a larger number, the AfCFTA rather has started with a larger number of member states. It implies that we stand at a risk of contracting crisis from another country. It is good that we can draw lessons from the European Union. ACEYE advocates that the AfCFTA is run rigorously as a collaborative partnership rather than just the waiver of Tarrifs and duties on imports and exports. The European Union developed a political system where common policies were implemented in every member country. It has not been so in the AfCFTA context. For instance, there is no established Governing Council or Parliament for the AfCFTA and the Eco currency has not yet been rolled out but the common market has been rolled out.
ACEYE speculates that as a host nation for the Secretariat, we stand at a higher risk of contracting crisis from other member states. Therefore, ACEYE advocates that Ghana plays active role to ensure that AfCFTA is well structured to have a sound political and Economic system rather than just allowing free trade. The Eco currency must be introduced with the roll-out of the AfCFTA and there should be a centralized Ruling body to ensure that there is harmony in the policies and affairs of the member countries.
There is the possibility of excessive flow of immigrants: As established above, the Member states are all not going to grow successfully under the AfCFTA. However, the AfCFTA gives room for free mobility and as such immigrants from the low growing countries will move from their country to the growing countries. This can lead to overpopulation and burden on the economy of the growing member states. The United Kingdom voted for the Brexit in the European Union and threatened to pull out of the European Union in 2016 because of this problem. Besides immigrants from lower developing countries in the European Union like Greece moving into the United Kingdom, Germany and other well developed EU countries, African and Asian immigrants entered the European Union through the weak borders of these less growing countries. After entering the European Union through these less developing economies, they capitalize on the European Union and entered the well developed countries. Therefore, UK and Germany were hosting more immigrants and refugees and Greece, Hungary, Italy, and so on were entry points used by immigrants.
Africa Centre for Entrepreneurship and Youth Empowerment (ACEYE) foresee such a challenge to Ghana. The challenge will be quite different from that suffered by the European Union. There is the higher probability of firms from foreign countries outside the AfCFTA to enter Ghana which will lead to gradual collapse of indigenous businesses. This will affect the development of local start-ups and protection of local businesses and innovations. Nevertheless, some member countries are inviting more foreign businesses rather than developing local businesses. When a foreign firm enters the AfCFTA through these “weak spots” it can easily enter the Ghanaian market to compete Ghanaian businesses. Although competition is good and healthy for higher standards, there is a need to raise and support local start-ups to a point where are ready to compete with the corporate ‘giants’ who may enter the Ghanaian market. With this, ACEYE advocates that the NBSSI, AGI, Trade and Export Council, Registrar General Department and the Ghana Revenue Authority to put in internal measures and clauses that will help reposition and also protect indigenous businesses whiles ensuring indigenous businesses are not adversely affected by the possible rise of foreign businesses who may possibly land on the shores of Ghana due to AfCFTA.