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The most important sector of the African Economy is Agriculture. It contributes 15 percent to the Gross Domestic Product (GDP) in sub-Saharan Africa and employs more than 60 pecent of the labour force continent-wide. Agriculture accounts for 75 percent of Africa’s domestic trade.
To date, 43 out of 54 African Countries (80 percent) have deposited their instruments of the African Continental Free Trade Area (AfCFTA) ratification, and 88 percent of the negotiations on Rules of Origin have been agreed. The AfCFTA intends to promote agricultural growth and transformation in Africa, contributing to food security, and boosting competitiveness through regional agricultural value chains development and incentivizing critical investments in production and marketing infrastructure.
The Economic Impact of the AfCFTA on Agriculture
There will be a significant boost on African trade as a result of the AfCFTA. By the year 2035, the total exports would increase by nearly 29 percent relative to the baseline. Agriculture exports will experience smaller gains of 49 percent for the intra-Africa trade and 10 percent for the extra-Africa trade. In terms of volume, it is USD 191 billion.
The AfCFTA agreement will increase the regional output and productivity plus also encourage reallocation of resources across different countries and sectors. The total production of Africa will nearly be USD 212 billion higher than the baseline by 2035. The output in the agriculture sector will decrease 0.5 percent (relative to the baseline in 2035) at the continental level. In other terms, it means that the Agricultural output would decrease by USD 8 billion relative to the baseline. The reason for the decline would be a shift from agriculture to the manufacturing and services in the North Africa.
The biggest trade liberalization is anticipated in African States with high initial barriers like Cameroon, Nigeria, Ethiopia, Madagascar, Democratic Republic of Congo, and the Arab Republic of Egypt. Average intra-Africa (trade-weighted) tariffs decline would be from 5 percent to 2 percent in agriculture.
Under the AfCFTA, there will be a sharp decline in Non-tariff Barrier (NTB) ad velorem rates, that is, for purposes of intra-Africa trade the decline is 11.0 percent points on average and a decline of 13.5 percent points in agriculture.
The real wages are expected to increase more for the unskilled labourers (0.74 percent in agriculture, 0.8 percent in non-agricultural sectors) compared to the skilled labourers (0.54 percent).
According to the studies made by Ilaria Fusacchia, Jean Bali and Luca Salvatici, the results demonstrate that the Agreement Establishing the AfCFTA is expected to deepen the agricultural food value chains at the continental level.
The AfCFTA will aid more participation of food and agricultural sectors in complicated global value chains (GVC) trade (defined as trade in intermediates crossing at least two borders) through an increase in forward as well as backward participation. Because of the AfCFTA, countries in Africa will be less dependent on the export of agricultural intermediates for the production of final products with higher value added.
Under the AfCFTA scenario, there will be an elimination of all import tariffs on intra-African agricultural trade flows in 2030. This scenario will cause an increase of 574 percent in intra-African agricultural trade volume by 2030 compared to the baseline without the AfCFTA.
The AfCFTA intends to eliminate tariffs on 90 percent of all goods which are traded between member states in equal annual reductions towards a zero tariff. Elimination and reduction of tariffs will lead to lower prices of food that will influence nutrition and food access.
Agricultural Subsidies in Africa
The ability of African countries to compete in international and domestic agricultural markets was affected by agricultural export subsidies and domestic subsidies made by developed countries. By eliminating and lowering agricultural subsidies, the respective rules have developed to be fairer and market-oriented, as required in the WTO’s Agreement on Agriculture.
Subsidies are permitted in the East African Community (the EAC) and the African Continental Free Trade Area (AfCFTA). Article 17 of the EAC Customs Union Protocol, permits the issuing of subsidies that distort competition, as long as other Member States get notifications highlighting all information on the subsidy. Application of countervailing duties is allowed under article 18.
Under the Protocol on Trade in Goods of the AfCFTA Agreement, article 17 permits the issuing of subsidies in relation to the members’ development programmes. Any Member State that feels they might be negatively affected by the subsidies, can request for consultations with the issuing party.
The issuing of subsidies which threaten to alter competition is conflicting with the Common Market according to Article 52(1) and (3) of the Revised Common Market for Eastern and Southern Africa (COMESA) Treaty. Article 52(2) and (4) of this Treaty allows the application of countervailing measures.
The Member States of the SADC are not allowed to issue subsidies which are trade-distorting, unless they suffer negative effects in the removal of trade barriers but also according to their WTO obligations.
By the fact that tariff negotiations are still on going, the AfCFTA’s State Parties could take this opportunity to add “agricultural products among the ‘‘essential products” in their tariff schedules to reduce overdependence on global food markets” in light of COVID-19.
Should you have any queries or need any advice with respect to international trade law, please do not hesitate to contact Daniel Ngumy or Luisa Cetina.
Martin Gitau, Research Associate