Evolving Trade Agreements in Africa

(Nairobi) Sub-Saharan Africa still holds untapped opportunities across various sectors of the economy, particularly in agribusiness, manufacturing, infrastructure, power, construction, tourism and health care, among others. Because of this, Africa’s trade volume is expected to multiply by the year 2030. UNCTAD’s World Investment Report 2019 indicates that Foreign Direct Investments (FDI) into the continent rose to US $46 billion in 2018, equal to an 11% increase in the past year.

Since March this year, leaders from more than 44 African countries have joined the African Continental Free Trade Agreement (AfCFTA), a catalyst for the transformation and integration of African economies towards uplifting the lives of millions of people in the continent as indicated in the Agenda 2063.

Early this month, East African civil societies comprising of SEATINI (Southern and Eastern African Trade, Information and Negotiations Institute) Uganda, Diakonia, Africa Economic Justice Program, Both ENDS, and Rosa Luxemburg Stiftung, held a high-level stakeholder meeting in Nairobi to deliberate on the implications of the evolving trade and investment regime on the East African Community’s realization of the Sustainable Development Goals.

A press release from the meeting noted that the processes involved in the design and negotiations of the AfCFTA are so far not clear and exclusive. “The structures created for the AfCFTA have little or no space for the involvement of civil society, the private sector, and the different social groups and economic constituencies whose interests are implicated,” read the release.

Ms. Jane S. Nalunga, Country Director of SEATINI Uganda says that East Africa Community have experienced challenges with good trading within the member countries. Some commodities like sugar and rice flooded the markets, of which the products’ origins could not be determined. “How do you determine where the products are coming from? The issue of rule of origin is very critical,” Ms. Nalunga said. There is a need to work the rule of origin exhaustively. “If we open up as a continent, which goods are we going to trade on if the rules of origin are not well addressed?”

However, inclusive sustainable development in the developing nations depends on a global policy environment that is conducive to cross-border investment agreements such as bilateral investment treaties and public-private partnership.

Although the continental-wide trade agreement is a promise for future investment in Africa, it is also expected to help small and medium-size enterprises (SMEs,) which contribute to more than 80% of Africa’s employment and 50% of its GDP.

But Mr. Edgar Odari, Executive Director at Econews Africa, says that the agreement challenges the growth of domestic business in the continent. In addition, the liberalization level is not adequate to afford the necessary space and support to a wide-range of smaller and medium domestic enterprises.

“This agreement was rushed because there was no time for consultation with small and medium enterprises. They will be seriously affected by the agreement if you have players coming from the outside market who have better advantages than them,” he explained.

According to SEATINI Uganda, 60% of international treaties, protocols and trade agreements contain provisions on issues that go beyond trade to include investment, e-commerce and intellectual property rights, among others. On average, each African country is a signatory to at least four trade or investment agreements, and is in the process of negotiating at least one, either as a state or as part of a regional bloc.

However, the Bilateral Investment Treaties (BITs) strived to increase Foreign Direct Investments (FDI) into the continent from developed countries who have entered into the trade agreement. Critics pointed out that most investors do not consider BITs in making their investment decisions in developing countries.

The press statement further noted that bilateral trade agreements emphasize the investors interest, but not the rights of the host communities. “Bilateral trade agreements restrict domestic policy space and make it extremely difficult for host states to regulate in the public interest or to harness economic growth for sustainable and inclusive development,” it added.

The skeptics have pointed to these looming challenges. Especially if the trade agreements are poorly drafted, it will increase the already existing imbalances between Africa and the EU, and the continuing marginalization of Africa amidst the changing trade landscape.

Despite the fact that Sub-Saharan Africa is an important source of raw materials for export, a majority of these countries are still performing poorly in terms of trade balance. While most of these trade agreements haven’t adequately addressed the issue of imbalance of trade between African countries and their trading partners, China has become a new emerging trading partner for most African countries.

Kenya’s trade deficit continues, regardless of a slow in import growth. Latest statistics from the Central Bank of Kenya indicate that Kenya’s trade deficit increased by 1.2 percent last year due to a slow down in demand for imports compared to 2017, amid a slight growth in exports. This all took place while the deficit between imports and exports hit a record high of Sh.1.145 trillion within a 12 months period compared to Sh.1.13 trillion for the previous years.

The African continent has become an emerging market for Chinese products. Kenya’s imports from China alone reached a record high of 22 percent. Statistics from Kenya National Bureau of Statistics show that imports from China rose from Sh.337 billion in 2016 to Sh.390 billion in 2017.

Liberalized trade using the African Continental Free Trade Agreement (AfCFTA) is likely to create one huge market across the divide, despite experts expressing their dissatisfaction. Odari asked, “Do we have the products to trade? A manufacturing capacity that is likely to fulfil the demands of the markets across the borders?”

He further explained that opening up African markets without keen consideration of infant industries in Africa will end up with Africa’s markets being exploited by the outside countries.

“Therefore, as civil society, we wish to recommend the urgent need for the EAC partner states to each take proactive steps towards monitoring the expiry of their BITs and consider terminating them for review and renegotiation. Strong consideration should be made for utilization of the EAC model Investment treaty in informing the positions of the EAC partner states during the new negotiations.”