On the first of January 2021, the African Continental Free Trade Area (AfCFTA) took effect. One year later, many aspects of the trade pact have been successfully implemented. Negotiations in other areas are still ongoing.
One of the several milestones reached is the increasing number of countries ratifying the agreement. To date a total of 39 Countries have ratified the agreement, making it the fastest ratified instrument in the African Union. This shows that the AfCFTA has gained the support of African government bodies all over the continent.
From the 8000+ products listed in the World Customs Organisation's Harmonised System of Rules of Origin and Tariff, 87% has been agreed on by the members. These products, for which Rules of Origin have been agreed on, bring more stability to the market in terms of certainty and predictability. This means that companies are able to trade these products with certainty regarding the rules.
Another major development is that the Dispute Settlement Protocol has entered into force. The AfCFTA Secretariat is in the process of negotiating rules for the appointment of the members of the Appellate Body of the Dispute Settlement Body. This signal, that Africa is willing to abide by the rules of trade law, is set to boost intra-African trade and investment.
To asssit traders participating in intra-African trade, the AfCFTA Secretariat plans to publish the “AfCFTA tariff book”. The book will contain the rules of origin and the customs procedures applicable to the goods. According to the Secretary-General of the AfCFTA Secretariat, Mr. Wamkele Mene, traders will be able to identify their specific products in this customs tariff book and know which rules of origin apply to each product and the associated customs duties.
Currently, phase 2 of negotiations are ongoing which entail competition policy, investment protection and intellectual property rights. The secretariat has a clear agenda to conclude phase 2 negotiations by the end of 2022. Mr Mene said that the Secretariat is aware of the importance of E-Commerce and a regulatory framework that governs digital trading.
Impact and significance of Covid-19 on the AfCFTA
While the Covid-19 Pandemic has slowed down the work on the AfCFTA, Mr Mene has confirmed that progress is being made. According to him, the pandemic emphasized the importance of accelerating industrial development in Africa, self-sufficiency, and the development of regional value chains across the continent.
New payment system to help facilitate free trading in Africa
Within the regulatory framework of the AfCFTA, a new payment platform by the name of “Pan-African Payment and Settlement System (PAPSS)” is currently in the pilot phase in 6 West-African countries and was launched in Accra, Ghana on the 13th of January 2022.
PAPSS is a centralised payment and settlement infrastructure for payments in intra-African trade and commerce. This project is being developed in collaboration with the African Export-Import Bank (Afreximbank). It will facilitate payments and formalise some of the unrecorded trade due to widespread informal cross-border trade in Africa.
PAPSS brings several benefits to cross-border payments. Among them, PAPSS lowers costs, reduces duration and time variability, reduces commercial banks' liquidity needs, reduces central banks' liquidity needs for settlement as well as for their own payments, and strengthens central banks' oversight of cross-border payment systems.
How can foreign companies use the AfCFTA to their benefit?
South Africa has been used as the gateway to the rest of Africa for many years. If you are a manufacturing company, you could consider setting up a manufacturing plant in South Africa. With the AfCFTA in place, exporting your products from South Africa to the rest of Africa has never been easiser.
You are welcome to contact Enterprise Africa for more information on selling across borders in Africa. With 20 years’ worth of experience in assisting companies enter the African markets, we have the perfect cost-effective solution tailored to your needs.