Trade Without Boundaries?

The African call for greater autonomy and self-determination can be heard throughout the continent, whether in Algiers, Accra or Addis Ababa. While the slogan “African solutions for African problems” has mainly been used as a statement to curb foreign influence in conflicts, the African Union (AU) has developed a concrete project to bring sustainable prosperity to Africa: the African Continental Free Trade Area (AfCFTA).

As a key component of the continent’s Agenda 2063, almost all African countries plan to open their markets to each other over the next few decades, facilitating the easy exchange of goods and services – an ambitious endeavour that would create the world’s largest free trade area. However, in the face of multiple crises and a difficult relationship with the role of multilateral organisations on the continent, the first voices are starting to doubt if the agreement will ever be fully implemented. But what is the real status of the African Union’s key project? How could its implementation affect the future of the African continent? And what steps are being taken to achieve this goal?

From Protectionism to Free Trade

Since the founding of the African Economic Community (AEC) in 1991, several member states of the African Union and its predecessor have worked towards greater economic integration on the continent, which is still considered to be the world’s worst integrated region. Trade with countries in Europe, the Middle East and Asia has always been more lucrative, especially for the economically stronger African countries.

On the other hand, there is a desire for greater African representation in global economic policy issues. Following negotiations in Johannesburg and Kigali, in 2018 all member states with the exception of Eritrea decided to establish the AfCFTA and gradually open their markets to each other. By 2063, up to 90 per cent of customs duties are to be eliminated, trade is expected to create jobs, poverty is to be reduced and Africa is to become a global economic engine. In concrete terms, this means that Africa’s cumulative gross domestic product would increase to 3.4 trillion US dollars, income would increase by 450 billion US dollars by 2035 and up to 30 million citizens of the African continent would be liberated from extreme poverty. In the manufacturing industry alone, 16 million new jobs could be created by 2063. In short: the mammoth AfCFTA project is expected to tackle a wide variety of problems.

The Free Trade Agreement and the Continent’s Economy

The African continent will continue to be the youngest in demographic terms for the foreseeable future. With a current average age of just under 19 years and a population growth of 2.4 per cent per year, 4.5 billion people will live there by 2050. This harbours both potential and risks for Africa’s economic growth.

It is now clear that the continent’s economically stronger countries in particular are experiencing lower population growth, which could lead to a situation similar to that in Central Europe over the coming decades. The fact that well-educated workers from these countries are also emigrating to global economic powerhouses and leaving their home countries is a cause for concern in light of the current “brain drain vs. brain gain debate”, although intra-African labour migration might possibly offset this.

The example of the European Union shows that a continental free trade area can function more effectively if the free movement of its citizens is guaranteed. Even if the African Union and the regional economic communities cannot ensure this as yet, initial initiatives have already been created in some regions, such as the EAC (East African Community), so as to open up to its citizens a continent with traditionally poor levels of regional integration. Other initiatives, such as Kenyan President William Ruto’s abolition of visas in early 2024 – making it the first country to do so – suggest that, despite economic protectionism, a Pan-African sentiment is spreading in some countries which goes beyond anti-colonial debates. Cities such as Nairobi, Cape Town and Accra are already regional melting pots with the potential to become African business and innovation hubs.

At the same time, the risks of the free movement of persons should not be ignored. Organised crime, militias and terrorist organisations unfortunately still dominate the debate as well as the everyday lives of many people in the Horn of Africa, the Sahel and the Gulf of Guinea. The resurgence of the Al-Shabab militia in Somalia and its plans to establish a caliphate in the self-declared “Somali heartland”, including parts of Kenya, Ethiopia and Djibouti, through armed violence and attacks financed by smuggling and extortion of protection money, thwart the EAC’s current efforts to eliminate visa requirements between its members.

Aside from security policy risks, scepticism and rejection of freedom of movement prevail in some countries, especially in northern Africa. Racist and populist comments by Tunisian President Kais Saied in autumn 2022 and summer 2023 were followed by violent clashes between Tunisians and migrant groups in the capital Tunis and in the port city of Sfax. Similar phenomena were observed in South Africa in 2022, where Zimbabwean and Nigerian citizens in particular were victims of xenophobic campaigns, arson attacks and persecution. Ethiopia, a country of origin, transit and destination for various migration movements, is also trying to cope with the numbers of refugees from the neighbouring Eritrea and Sudan in the face of a more than difficult economic situation.

These examples from North and East Africa show that a lot of work still has to be done in order to harness the positive effects of the free movement of people. For example, in order to drive forward intra-African trade, which is still below average and accounts for only 15 per cent of total African trade, practicable solutions to the challenges should be found.

“African solutions for African problems” – visitors to the Ethiopian capital Addis Ababa encounter this slogan as soon as they enter the country at the international airport. In other major African cities, too, such slogans are either immortalised as graffiti or recited like a mantra by leading politicians at international conferences.

Especially by joining the G20, the African Union has set itself the goal of becoming a stronger voice globally, also in order to tackle continental challenges in a more structured way. The creation of a free trade area to strengthen the resilience of African societies is an important step with which the AU could also escape from (financial) dependence on external donors. An African Union that delivers results will also be more attractive to its member states. It increases the chances that the states’ membership fees will be transferred in good time, thus also promoting financial independence.

Strengthening the private sector and an associated breaking away from the state’s tendency to control companies create a new dynamic and “ownership” of one’s own destiny. New elites are emerging who are globally networked and bring experience from metropolises such as Singapore, Dubai or New York back to their home countries. Equipped with networks, ideas and the necessary start-up capital, it is now the second or third generation who are investing in their parents’ or grandparents’ home countries. This is already taking place, but still needs to be actively pursued. The relevance of these players for the future of the continent is illustrated by the fact that the African Union has its own department for diaspora affairs. There is an interest in working for the future of the home countries beyond remittances, but it just needs to break through the encrusted administrative processes; this continues to be a difficult endeavour that must be tackled at both national and continental level. Small but effective steps include the introduction of electronic visas in many countries on the African continent, making it easier for entrepreneurs to travel within Africa. In a report from 2023, the World Economic Forum assumes that it will primarily be young entrepreneurs of African origin who will drive the implementation of the AfCFTA. At the same time, the continent has been experiencing rising industrialisation rates again since 2010, which is a basic prerequisite for value creation and economic diversification.

Despite all the challenges of a geographical, cultural or linguistic nature, the African Union and the private sector have designed various initiatives to achieve stronger networking between private sector players and entrepreneurs. The Intra-African Trade Fair, for example, affords opportunities to overcome historical borders. A simpler exchange of experience and the possibility to trade across borders with low bureaucratic hurdles still appears to be a utopian dream, but would increase prosperity and create an environment that could react quickly to economic, political and ecological shocks.

The African Union, under the auspices of Commissioner Albert Muchanga, has already launched several consultations and so-called High Ranking Panels to involve the private sector at continental level. Discussions in Nairobi and Gaborone have shown that larger companies in particular see an opportunity for expansion if the institutional framework is right.

Even if the principle of “change through trade” has been more than just put to the test since Russia’s war of aggression against Ukraine at the latest, there is consensus among experts on the African continent that closer trade relations could contain interstate conflicts and reduce the likelihood of new outbreaks of violence. For this reason, more and more initiatives are being launched with the aim of involving the private sector in peace-building processes and of quickly reintegrating conflict regions into trade networks.

A common interest in the peaceful use of trade routes would reduce the risk of armed conflicts within and between states. Costs incurred by the parties when conflicts break out would increase dramatically with greater regional integration, making peace and security more attractive, writes the head of the African Union Peace Fund, Dagmawit Moges. On a continent where coups, civil wars and crises have unfortunately made headlines in recent years, greater regional integration through a continental trade policy is a welcome alternative that creates mutual dependencies.

The will of the African Union to see trade as a fundamental component of Agenda 2063 and as the key to the continent’s development is evident in the strategy papers and articles of the various institutions. It is now up to member states and AU institutions to break old path dependencies in the nexus between trade and security and find strategies through which greater security can positively influence trade relations, and trade relations can in turn lead to a more sustainable security architecture in individual member states.

Due to multiple problems, the African Union has been unable to achieve its goal of being perceived as a single entity. Despite some regional economic communities (RECs), such as the West African ECOWAS or the East African EAC, having already been able to record their first small success stories, the overall picture of African integration still looks rather unsatisfactory. The concentration of passenger traffic on a few hubs and, above all, the return to strategies of strengthening national identities are preventing Africa’s potential from being fully tapped. The North-South divide is striking and has become increasingly problematic in recent years. Strengthened regional economic communities would provide a vehicle for circumventing established social and economic divisions. Currently, they are often overburdened, but their importance will increase until the AfCFTA is fully implemented, and they will thus be strengthened institutionally.

What Has Stymied Faster Implementation of the AfCFTA So Far?

Even though the implementation of the free trade agreement remains high on the African Union’s list of priorities, the implementation phase got off to a rather slow start. In addition to global challenges that have made implementation more difficult, there are also structural problems that have so far tarnished the prospects of success.

The COVID-19 pandemic has hit the African continent hard. The pandemic has further deepened economic rifts within Africa, says analyst Anabel Gonzalez. The start of implementation of the agreement, ambitiously planned for summer 2020, had to be postponed at the time. In addition, the focus has shifted and (reduced) donor funding was redirected to other areas, such as early crisis detection or global health. Closed borders, ports and airports further restricted the already weak trade between African countries.

Open competition requires a large number of companies, which, driven by the competitive situation, provide the market with a wide range of products or services and need to constantly innovate in order to remain competitive. The problem is that there is hardly any serious competition in many countries on the African continent. All too often, state-owned companies dominate entire sectors and make it almost impossible for the private sector to successfully gain a foothold in the market. At the same time, it is primarily state-owned companies that are often “too big to fail”, but have been making losses for years and are a burden on state bud­gets. Driven by the fear that emblematic companies such as South African Airways could be sold to foreign investors, which would forfeit a piece of national identity, decision-makers are avoiding necessary changes of direction. Meanwhile, the first wave of privatisation in countries such as Nigeria has shown that liberalisation at any price can also be counterproductive and weaken countries in terms of competition. Both the AU and individual member states need to open markets and strengthen the private sector in a balanced way.

It comes as no surprise that a free trade agreement spanning 30 million square kilometres and 54 countries is no easy task. A total of 15 countries on the African continent have no access to the sea. In some Sahel countries, it is sometimes more than 2,000 kilometres to a port, which means the majority of trade has to be carried out either by road or by air freight. Africa’s major rivers are also difficult to navigate for inland transportation, not to mention the deserts and dense forests.

Although the weak trans-African infrastructure is still considered one of the smaller obstacles, it cannot be neglected. One example is the ambitious port project in the Somali city of Berbera, which is seen as an alternative to the port of Djibouti, especially for Ethiopia, Africa’s most populous landlocked country. The port project, financed by the United Arab Emirates and operated by the Emirati company DP World, has been completed for some time now, as has the road to the Somali-Ethiopian border – however, the road construction on the Ethiopian side has not yet been completed due to domestic political problems.

The poorly developed infrastructure, geographical challenges, high customs duties and the associated corruption at border crossings have so far driven up logistics costs. Products to be transported from East to West Africa have so far had to be transhipped in the major ports on the Arabian Gulf and shipped either via the Suez Canal and the Mediterranean or around the Cape of Good Hope. Onward transport to landlocked countries is so laborious that logistics companies do not even offer it, or it is so expensive that this branch of trade is scarcely worthwhile. According to the Economist, this is exacerbated by the paradox that retailers often cannot find logistics companies, while logistics companies complain about too much vacancy. The reason for this is the imbalance in trade volumes – too much is being imported (especially from outside Africa), while at the same time hardly any exports are being delivered to the port cities. The market is therefore not very lucrative for logistics companies.

After the failed “Arab Spring” that was heralded in 2010/2011 in North Africa, the rise of Boko Haram and the so-called Islamic State in the Sahel and West Africa, and the consistently unstable political and economic performance of many African countries, the 2020s were supposed to mark a turning point and set the continent up for decades of growth. So far in this new decade, however, the African continent and thus also the African Union have been primarily preoccupied with conflicts and coups. Since 2020, there have been more than 15 coup attempts in Africa. The main obstacles to effective continental trade are also smouldering internal and interstate conflicts. In particular, the ongoing problems in the Sahel region, the link between North Africa and Sub-Saharan Africa; the civil war in Sudan; and tensions in the Horn of Africa are currently posing a threat to national implementation strategies for the AfCFTA or blocking trade routes. This is why some experts, such as an employee of the United Nations Economic Commission for Africa (UNECA) and the Nigerian professor Adekeye Adebajo, are now sounding the alarm. The objectives of the AfCFTA are now extremely vulnerable to the ongoing security crises, the increasing number of coups and interstate conflicts.

What Does the AfCFTA Mean for Europe and Germany?

The demand “African solutions for African problems” is clearly formulated and should be taken seriously. The AfCFTA is an African project that should primarily benefit the development of the African continent and be supported by Africans. What is clear, however, is that the successful establishment of an African free trade area can also only benefit Europe, and therefore Germany.

In recent years, the African side has increasingly levelled criticism at European actors and donors, accusing them of pursuing development policies that ignore the interests of the recipient countries. Discussions were also held, particularly in Germany, about whether development policy should be much more strategic and focused on the country’s own interests. The AfCFTA is a prime example of how these interests do not necessarily have to diverge. This project could play a key role in the nexus of development, trade and foreign policy.

A harmonised trade policy also means a more reliable basis for negotiations for European companies. A pan-African market ensures more reliable exchange between African and European SMEs. At present, it is hardly worthwhile for European companies to gain a foothold in Africa, since the administrative hurdles are simply too high. On the other hand, African SMEs have hardly been able to establish themselves in Europe. Many of them, such as the coffee industry, are still hoping for bilateral agreements and are suffering from European directives on supply chains. It is obvious that in order to become more competitive (African companies) and remain so (European companies), a compromise must be found. Greater economic integration between the European Union and the African Union would force their decision-makers to engage in such debates.

An economically prosperous African continent would not alter current demographic trends, but it would create new opportunities. Dynamic labour markets and the free movement of people would afford new opportunities to facilitate regular migration between African countries, but also to curb irregular migratory movements within the continent and beyond.

The so-called pre-political space has scarcely existed on the African continent to date. Associations are rarely aware of their political responsibility and only a sporadic exchange takes place between politics and business. This is problematic especially when mammoth projects such as free trade zones and market liberalisation are rarely carried out in consultation with companies. For this reason, the emergence of an active private sector, but above all a pre-political space, should be promoted so as to find innovative solutions to regional, continental and international challenges. In this way, common positions can be developed, the “African voice” in economic policy issues can be strengthened and the new concepts can also be used as an impetus for other regions of the world.

How Can We Help Shape the Implementation of the AfCFTA and What Is Already Happening?

A free trade area must always be viewed from both a multilateral and a national perspective, and Germany can provide support in both respects, although the majority of the personnel and financial expenditure must come from the AU member states. At multilateral level, it is a matter of continuing to support the African Union and its institutions and to pursue strategies with them that reinforce their capacity to act. A European approach should be adopted here. This would open up channels for future negotiations between the two institutions, which is in Europe’s interest. At a time when multilateral bodies and thus also trade institutions such as the World Trade Organization are fragmenting globally, the will of the African Union and its member states to promote continental integration, at least at trade policy level, is a development that should be supported. In this way, Europe, and Germany in particular, could play a leading role in the long term and find potential new partners to diversify their own trade relations.

What is more, the African continent plays a key role in global systemic competition. From a geopolitical and trade policy perspective, Africa is currently a continent in search of itself and has many options. In addition to Europe, it is the Arab Gulf states, China and Russia that are looking for sales markets, strategic partnerships and influence. In terms of security policy, Europe will play a subordinate role for the foreseeable future. In terms of trade policy, however, it is Germany above all that continues to be highly regarded in many countries and also by the African Union. It should further be noted that the AfCFTA project, even if it is a purely African one, has many parallels with the European Union’s internal market and that Europe and Germany are thus natural partners. Therefore, stronger European commitment should also engender an even closer link between the AU as an institution and Europe, and – in contrast to the bilateral relations of African states with France in particular – a stronger positioning of the AU itself as a partner and friend of the European Union.

Neither Germany nor the European Union and its companies will play a role in Africa’s major infrastructure projects in the future. European companies can rarely compete with prices from the Middle East, Turkey or China and complicated procurement procedures paralyse projects that need to be implemented quickly. It is therefore logical to enter into partnerships with players that are dominant on the African continent at an early stage. These include the United Arab Emirates, which has been one of the most important infrastructure partners of African countries in recent years with a dense network of ports on the east coast of Africa, and Turkey, which now plays an important role – thanks to the well-developed route network of Turkish Airlines and Turkish Airlines Cargo as well as offers that are more in line with markets on the continent regarding price and performance than those of competitors from Central Europe. Clever commercial diplomacy is called for in order to benefit from the structures established by competitors and partners.

It should be clear that building a single market takes time. Member States and their private sectors that joined the EU internal market at a later date can and should also share their experiences with AU Member States and develop forums to advise them on market entry. This would enable EU states without a colonial past to play a more active role in the process and the accusation of “neo-colonialism through the back door” would no longer apply.

At bilateral level, Germany can contribute to advising national AfCFTA committees and preparing member states for the gradual dismantling of their customs duties. Since Germany is already providing intensive institutional support for the implementation of the AfCFTA through the German development organisation GIZ and is the largest donor worldwide, other players, especially think tanks and associations, but also companies, should support the African partners with advice and discussion platforms.

Expecting active support from German SMEs in the form of investment seems unrealistic at present. As the German private sector is generally considered to be risk-averse, all of the above-cited problems would probably have to be resolved before large-scale investments could be made. Nevertheless, SMEs in particular can serve as an advisory player and, if necessary, build the economic bridge between Africa and Germany with joint ventures within a protected framework.

What We Can Hope for

The AfCFTA is and will remain a flagship project of the African Union and will largely determine the success or failure of Agenda 2063. Decision-makers in Addis Ababa and the member states are aware of this scope. The project is currently still in the embryonic stages and has been set back by the COVID-19 pandemic in particular, although the Guided Trade Initiative has shown initial success. With the idea of reducing customs duties in selected countries and sectors, the AU has certainly proven that it is capable of taking action despite its occasional sluggishness. A recently published study by the Konrad-Adenauer-Stiftung in Ethiopia shows that, despite a bumpy start, the initiative is increasingly developing into a successful project. After eight countries – Cameroon, Ghana, Egypt, Mauritius, Kenya, Rwanda, Tunisia and Tanzania – initially reduced customs duties on 96 products such as ceramic utensils, tea, coffee and dried fruit, a total of 31 countries are expected to have joined the Guided Trade Initiative by the end of 2024.

In addition, national committees help to prepare individual economies and companies for a free market and thus for tougher competition, while new sales markets are also opening up. Together with the AfCFTA Secretariat in Accra, the AU Commission in Addis Ababa and global donors, strategies are being developed, progress analyses carried out and data is being collected in order to adequately prepare for future challenges.

With the start of implementation of the first steps in 2021, we are still at the beginning of a long road towards liberalisation. Nonetheless, important issues such as arbitration, regulations on origin labelling for most products and 45 tariff reductions have already been decided. Most of the rules are to be implemented by 2034 and, according to Brookings, a noticeable effect will not be observed until then.

The road to a successful free trade area involving all AU member states currently seems rocky with a number of conflicts, the inability of some RECs to act, weak regional integration and other issues that seem to be more important than free trade dominating reporting on the African continent and the African Union. However, the success of the Guided Trade Initiative, the willingness of the member states to participate in the process of shaping the free trade area and the need to break through the isolationist barriers of many African states give hope for success. For this reason, we would do well to continue to support this project, which could be a global success in terms of both regulatory and trade policy, with prudence and patience.

– translated from German –

Lukas Kupfernagel is Head of the Konrad-Adenauer-Stiftung’s Office for Ethiopia and the African Union, based in Addis Ababa.