International Trade LawTHE AFRICAN CONTINENTAL FREE TRADE AGREEMENT: THE BIRTH OF A NEW ERA BY Bobby Banson Esq. FCIArb and Enyimnyam Paintsil LLB.

*Formerly titled The African Continental Free Trade Agreement: Much Ado about Nothing?
1. INTRODUCTION
In recent times, the economies of African States have shown promise and growth particularly in Sub-Saharan Africa. For the economies in Sub-Saharan Africa, the World Bank predicts a growth of 3.1% for the year 2018 from the 2.6% growth experienced in 2017. This is largely attributable to an increment in investment, both foreign and domestic. The relationship between the two is thus important to the economic development of the continent as a whole. Attempts to increase investments in the region is now complemented by the creation of the African Continental Free Trade Agreement (ACFTA); an Agreement with the objective of boosting intra-African trade development across the continent and regional integration.
The objective of this paper among others is to discuss the experience of African States in respect of foreign investments, measures taken to increase said investment and the implications of the African Continental Free Trade Agreement on the economy of the continent.
1. INCREASING FOREIGN INVESTMENT IN AFRICA, EXPERIENCES AND MEASURES TAKEN
1.1. What is Foreign Investment
1 The Author is a Lead Consultant of Robert Smith &Adelaide Law, which is a boutique law firm based in Accra-Ghana
2 http://www.worldbank.org/en/publication/global-economic-prospects last visited on 26Th June 2018
The term “Foreign Investment” most often loosely refers to Foreign Direct Investment (FDI). The Organisation for Economic Co-operation and Development (OECD) defines FDI as the category of international investment that reflects the objective of a resident entity in one economy to obtain a lasting interest in an enterprise resident in another economy. The term FDI is also defined in the fourth edition of the Balance of Payments Manual (BPM5) by the International Monetary Fund (IMF) as a category of international investment made by a resident entity in one economy (direct investor) with the objective of establishing a lasting interest in an enterprise resident in an economy other than that of the investor (direct investment enterprise). To establish a direct investment link between the investor and the enterprise, the investor must own at least 10% of the ordinary shares or voting power of the enterprise.
1.2. History of Foreign Investments in Africa
Understandably Africa has had quite the history with FDI. Much skepticism has been displayed by foreign investors in regards to Africa. This skepticism is rooted in the history, ideology, and the politics of the post-independence period of Africa.
As history has it, the arrival of Europeans in Africa in the 15th century for the purposes of trade is considered a pre-cursor to slavery and colonialism. Due to this, the immediate post-colonial era showed
3 Benchmark Definition of Foreign Direct Investment 2008 (BD 4), pg 234, Fourth Edition – ISBN 978-92-64-04573-6 – © OECD 2008
4 https://www.imf.org/external/np/sta/di/glossary.pdf page 3, visited on 26TH June 2018
5 Benchmark Definition of Foreign Direct Investment 2008 (BD4), pg 234, Fourth Edition – ISBN 978-92-64-04573-6 – © OECD 2008
Foreign Investment” by M. Somarajah, the author notes that the foreign investor’s greatest threat is the expropriation of investments by the host country.
Nationalisation could be a great tool and opportunity for economic growth in Africa. However, policies and laws on nationalisation are often so poorly drafted and implemented that it does more harm than good. One common policy that cuts across is the privatisation of State-owned enterprises. In a research paper conducted by Arijit Mukherjee and Kullapat Suetrong on the correlation between privatisation and FDI, evidence is led to show that developing countries and transition economies are increasingly privatising their public firms and at the same time experiencing rapid growth of inward foreign direct investment. The authors of the paper state in the abstract, “…privatisation increases the incentive for FDI….”. In 1992 the Privatisation Agency (Technical Committee on Privatisation and Commercialisation, TCPC) of Nigeria scheduled the sale of government shares in eight commercial banks and six merchant banks in which the Federal Government had an ownership stake. Similarly in 2008, Ghana privatised the Ghana Telecommunication Company, partnering with Vodafone Group Plc, a global telecommunications company incorporated and first established in the United Kingdom.
6 “The International Law on Foreign Investment” by M. Somarajah page 99, Third Edition Cambridge University Press, New York
7 “Privatisation, Strategic Foreign Direct Investment And The Host Country Welfare” by Arijit Mukherjee and Kullapat Suetrong, University of Nottingham: The Leverhulme Centre for Research in Globalisation and Economic Policy, UK March 2007, Research paper 2007/21
See also https://pdfs.semanticscholar.org/7fb6/0532bf7102de2bcb416400655ddc51c3ed58.pdf visited on 26TH June 2018
8 Beck, Thorsten and Cull, Robert and Jerome, Afeikhena Theo, “Bank Privatization and Performance: Empirical Evidence from Nigeria (February 2005)”. World Bank Policy Research Working Paper No. 3511. Available at SSRN: https://ssrn.com/abstract=664462
9 Reported on https://tech.africa/ghana-telecom-and-onetouch-are-now-vodafone-ghana/ last visited on 26TH June 2018
See also http://www.vodafone.com/content/index/media/vodafone-group-releases/2008/acquisition_of_a_70.html last visited on 26TH June 2018
1.3.2. Investment Treaty Agreements and Double Taxation Agreements
Another measure taken by African countries to attract FDI is the establishment of Double Taxation Treaties (DTTs) as well as Bilateral Treaties (BITs) between the African States and other countries. As at 2014, there were approximately over 854 BITs signed across and within Africa. The record shows that in 2014 over 400 DTTs had been signed by African States. The double taxation agreements aim to attract investors by eliminating the possibility of taxation by both the host country and the country the investor belongs to. An illustration of how this arrangement works may be seen under the Income Revenue Act of Ghana 2015, Act 896 which inter alia allows residents to claim foreign tax credits for income tax paid by that person in another country to the extent which that income tax is paid. The Act also exempts the income of residents employed by foreign companies from tax. Another example is the double taxation treaty between Seychelles and Cyprus which exempts dividends , business profits and
10 Investment Policies and Bilateral Investment Treaties in Africa: Implications for Regional Integration page 4, United Nations, Economic Commission for Africa ISBN: 978-99944-92-26-8, e-ISBN: 978-99944-92-46-6
See also https://www.uneca.org/sites/default/files/PublicationFiles/eng_investment_landscaping_study.pdf last visited on 27TH June 2018
The intra-African BITs were approximately 157 intra-African while BITs with countries beyond Africa were approximately 696
11 Supra.
12 Section 112, Income Tax Act 2015, Act 896 Ghana, Assembly Press
13 Article 10, Agreement between the Government of the Republic of Cyprus and the Government of the Republic of Seychelles for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital entered into force 27TH October 2006
See also http://vivaafricallp.com/wp-content/uploads/2015/09/seychelles-cyprus-dta.pdf last visited on 10TH September 2018
14 Article 7, Agreement between the Government of the Republic of Cyprus and the Government of the Republic of Seychelles for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital
See also http://vivaafricallp.com/wp-content/uploads/2015/09/seychelles-cyprus-dta.pdf last visited on 10TH September 2018
royalties derived from Seychelles by offshore entities from tax in the absence of the existence of a permanent establishment in Seychelles.
1.3.3. Arbitration Regimes for Settlement of Investment Disputes
Most foreign investors have little or no confidence in the African system of Justice. This is largely attributable to the high levels of bribery and corruption across Africa and also due to the slow pace at which matters brought before African courts take. In the Ghanaian case of AGYEMANG (SUBSTITUTED BY) BANAHENE & OTHERS V. ANANE [2013-2014] 1 SGCLR 241, it took forty years for judgment to be delivered in the case prompting the Chief Justice of Ghana at that time to remark that “Regrettably, it has taken forty long years, a whole generation, for this case to finally find its way into this court; the court of last appeal. We hope court business shall always be managed in ways that will not occasion a repeat of this parody of justice…”
Due to this lack of confidence in the African Judicial system, most foreign investors prefer a more stable and neutral forum for the resolution of disputes, a forum guaranteed under the ICSID and other international forums. African States have also resorted to the adoption of international arbitration rules established by the United Nations Commission on International Trade (UNCITRAL) and the International Centre for Settlement of Investment Disputes (ICSID) as part of taking measures to encourage foreign investments in the region.
15 Article 12, Agreement between the Government of the Republic of Cyprus and the Government of the Republic of Seychelles for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital.
See also http://vivaafricallp.com/wp-content/uploads/2015/09/seychelles-cyprus-dta.pdf last visited on 10TH September 2018
The Nigerian Investment Promotion Commission (NIPC) Act N0. 16 of 1995, provides inter alia that where a dispute exists unresolved through amicable means between a foreign investor and the State, recourse to arbitration can take place either via the settlement mechanisms of the bilateral or multilateral investment protection agreement of which they are parties, or via other national or international dispute settlement mechanisms, as mutually agreed and in which case the ICSID may be a suitable forum.
In a similar manner, Zambia ratified the ICSID rules under the Investment Disputes Convention Act, 1970 (Act No. 18 of 1970). The Act among others, gives recognition to awards given by the ICSID.
1.3.4. Intellectual Property Protection
Last but not least is the adoption of regulations and policies that guarantee intellectual protection of products. One of the ills of Africa lies in the high presence of counterfeit products on the markets. Intellectual property protection is a necessary concern for most foreign investors. The more lax a country’s intellectual property laws, the less likely the investor’s interest in the host country. The stronger a country’s intellectual property laws on the other hand, the lower presence of imitation products on the market; a highly desirable trait for countries seeking to strengthen FDI.
Intellectual property rights by nature are territorial and thus differ across national boundaries. As such, a foreign investor is more than likely to invest in a country which has a protection regime similar to the regime of his country of origin, in which case, the host country may need to step up its policies on intellectual property rights to attract FDI. Currently over 40 African States are signatories to the Trade-Related Aspects of Intellectual Property Right (TRIPS), by reason of their membership to the World Trade Organisation (WTO) which guarantees a minimum level of protection for all intellectual property and related rights.
Results from a survey conducted by Schneider Electric indicated that the counterfeiting of electrical products occurred in 40% to 80% of African markets. Tracy Garner, the Anti-Counterfeiting Global Manager at Schneider stated that, a bulk of the locally manufactured counterfeits emerged from Tanzania, Nigeria and the Ivory Coast.
According to the “Ownership-Location-Internalisation Theory” (OLI) proposed by John H. Duming, any foreign firm must first consider if there exists a location advantage in setting up camp in the host country.
1. PROBLEMS WITH EXISTING MEASURES TO ATTRACT FOREIGN INVESTMENT
Despite measures taken by African States to increase the influx of FDI in the region, the region is rife with challenges that threaten the success of these measures.
1.1. Bureaucracy
Firstly, foreign investors have to deal with the high levels of bureaucracy that exists in the public sector in order to benefit from the policies aforementioned. Foreign investors have to wade through a sea of red tape to acquire the necessary certification and documentation to set up camp in the host country. At each stage, the process is not only long but tiring, this for many potential investors is a problem which is better avoided by investing in another country with low levels of bureaucracy and effective administration. The processes are further hindered by the dearth in adequate personnel and effective work ethics displayed by Africans in the public sector.
1.2. Bribery & Corruption
Secondly, due to the high levels of corruption and bribery in Africa, some of the aforementioned measures to attract FDI have become almost ineffective. Corruption is defined by Transparency International, an anti-corruption organisation, as “the abuse of entrusted power for private gain”. According to the data recorded by Transparency International, the worst performing region for 2017 was Sub-Saharan Africa with an average score of 32. The phenomenon reduces investor confidence in the host country and is directly linked to low foreign investment levels. As corruption increases, economic development decreases. As noted by the World Bank, corruption has negative impacts on the poor and on economic development. Before the necessary documentation is acquired, money must change hands, and at almost every stage of the process; this affects the pockets of would-be investors and discourages FDI.
16 https://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm last visited on 13Th August 2018
17 http://www.apo-mail.org/150322.pdf last visited on 13Th August 2018
18 OXFORD BULL. ECON. & STAT. 269, 275 (1979) [hereinafter Dunning, Eclectic Theory]; John H. Dunning, Explaining the International Direct Investment Position of Countries: Towards a Dynamic or Developmental Approach, 117 REV. WORLD ECON. 30, 30-33 (1981) [hereinafter Dunning, Developmental Approach].
tape to acquire the necessary certification and documentation to set up camp in the host country. At each stage, the process is not only long but tiring, this for many potential investors is a problem which is better avoided by investing in another country with low levels of bureaucracy and effective administration. The processes are further hindered by the dearth in adequate personnel and effective work ethics displayed by Africans in the public sector.
1.2. Bribery & Corruption
Secondly, due to the high levels of corruption and bribery in Africa, some of the aforementioned measures to attract FDI have become almost ineffective. Corruption is defined by Transparency International, an anti-corruption organisation, as “the abuse of entrusted power for private gain”. According to the data recorded by Transparency International, the worst performing region for 2017 was Sub-Saharan Africa with an average score of 32. The phenomenon reduces investor confidence in the host country and is directly linked to low foreign investment levels. As corruption increases, economic development decreases. As noted by the World Bank, corruption has negative impacts on the poor and on economic development. Before the necessary documentation is acquired, money must change hands, and at almost every stage of the process; this affects the pockets of would-be investors and discourages FDI.
1.3. Inadequate Infrastructure
19 https://www.transparency.org/glossary/term/corruption last visited on 14Th August 2018
20 https://www.transparency.org/news/feature/corruption_perceptions_index_2017 last visited on 16Th August 2018
21 http://www.worldbank.org/en/topic/governance/brief/anti-corruption last visited on 19Th September 2018
Last but not least, the scarcity of adequate infrastructure in the continent. The absence of adequate supporting infrastructure such as transport, round-the-clock power supply and skilled labour, discourage foreign investment because it increases the cost of investment. According to the State of Electricity Access Report (SEAR) 2017, conducted by World Bank over 50% of the world’s electricity deficit is concentrated in Sub-Saharan Africa. Poor infrastructure reduces productivity hence discouraging the influx of FDI into the region. Asiedu (2002) and Morrisset (2000) stipulate that there is a direct relationship between good infrastructure and FDI inflows. They theorise that good infrastructure has a positive impact on the inflow of FDI in the region.
1. THE IMPLEMENTATION OF THE AFRICAN CONTINENTAL FREE TRADE AREA AGREEMENT (ACFTAA); EXISTING MULTILATERAL TREATIES AND DOMESTIC LAWS
On 21st March 2018, an Agreement to establish a free trade area in Africa was signed during the 10th Ordinary Session of African Union Heads of State summit in hopes that not only would intra-African trade increase but also that regional integration would be deepened. According to the Intra-Continental trade statistics provided by the United Nations, in 2010, intra-continental trade between African States
22 Asiedu, E. (2002). Aggressive trade reform and infrastructure development: a solution to Africa’s foreign
direct investment woes. Mimeo, Department of Economics, University of Kansas
23 Morisset, Jacques. 2000. Foreign Direct Investment in Africa : Policies Also Matter. Policy Research Working Paper;No. 2481. World Bank, Washington, DC. © World Bank.
See https://openknowledge.worldbank.org/bitstream/handle/10986/19748/multi_page.pdf?sequence=1&isAllowed=y last visited 19Th September 2018
made up a measly 10.2% of total trade. The figure increased to 18% by 2014, a performance still deemed unsatisfactory especially when contrasted with regional trade in other continents. Trade between European states alone accounted for 69% in 2014. The Agreement titled the African Free Trade Area Agreement (ACFTAA) has been described as the world’s biggest trade agreement since the World Trade Organisation was formed in 1995. The current number of signatories to the Agreement is 49, with South Africa, Sierra Leone, Namibia, Lesotho and Burundi as the latest additions. The UN Economic Commission for Africa (UNECA) has estimated the agreement’s implementation could increase intra-African trade by 52 percent by 2022, compared with the low trade levels in 2010 as reported by Aljazeera. The ACFTAA comes into force after twenty-two countries have ratified the Agreement.
1.1. Framework Of Agreement
24 http://unctad.org/en/PublicationsLibrary/webditc2016d7_en.pdf last visited 14Th August 2018
25 https://www.wto.org/english/res_e/statis_e/world_region_export_14_e.pdf last visited on 10Th September 2018
See also https://www.weforum.org/agenda/2016/04/africa-needs-to-trade-with-itself/ last visited on 10Th September 2018
26 Supra
27 http://www.theeastafrican.co.ke/business/African-free-trade-area-agreement-signing/2560-4644458-nutmsnz/index.html last visited on 10Th September 2018
28 https://www.aljazeera.com/news/2018/03/african-continental-free-trade-area-afcfta-180317191954318.html last visited on 10Th September 2018
29 Article 23, Agreement Establishing the African Continental Free Trade Agreement
The Agreement at present comprises an overall framework agreement, protocols, annexes and appendices inclusive. So far, the areas agreed on under the ACFTAA are in respect of objectives and principles of the Agreement, institutions involved and a work-plan for the completion of the negotiation process which is divided into Phase 1 and Phase 2.
Phase 1 is currently in play, the Framework Agreement presently consists of a protocol on trade in goods, a protocol on trade in services, and a protocol on dispute settlement. Once the Phase 1 negotiations are complete, Phase 2 would begin the negotiations on the protocols on investment, intellectual property rights, and competition policies.
The Protocol on Trade in Goods is divided into 10 parts. Part I deals with definitions, the objectives of the protocol and the scope of the protocol. The specific objectives of the Protocol are as follows:
A. Progressive elimination of tariffs;
B. Progressive elimination of non-tariff barriers;
C. Enhanced efficiency of customs procedures, trade facilitation and transit;
D. Enhanced cooperation in the areas of technical barriers to trade and sanitary and phytosanitary measures;
30 Article 8(2) of the AfCFTA Agreement: “The Protocols on Trade in Goods, Trade in services, Investment, Intellectual Property Rights, Competition Policy, Rules and Procedures on the Settlement of Disputes and their associated Annexes and Appendices shall form part of the single undertaking, subject to entry into force”
31 https://www.tralac.org/news/article/13349-tradescape-the-afcfta-agreement-is-set-to-enter-into-force-by-early-2019.html last visited on 15Th August 2018
32 Article 7, Agreement Establishing the African Continental Free Trade Area
See also https://au.int/sites/default/files/treaties/34248-treaty-consolidated_text_on_cfta_-_en.pdf last visited on 13Th August 2018
E. Development and promotion of regional and continental value chains; and
A. Enhanced socio-economic development, diversification and industrialisation across Africa;
Part II adopts measures against discrimination among African States; under Article 4 of the Protocol, all States must treat their trading partners equally under the Most Favoured Nation principle. Part II also dictates that imported goods be given the same treatment as domestic goods and grants States the authority to make special concessions and arrangements based on the varying levels of development across the continent. Part III deals with Trade liberalisation; Article 9 of the Protocol prohibits Member States from imposing quantitative restrictions on imports from or exports to other State Parties except as otherwise provided for in the Protocol, its Annexes, Article XI of GATT (General Agreement on Tariffs and Trade) 1994 and other relevant WTO Agreements. Member States under the Protocol are also afforded the opportunity to take steps and measures that would protect infant industries, such steps and measures must however be implemented on a non-discriminatory basis. Parts IV, V and VI deal with customs cooperation, trade facilitation and transit; trade remedies and Products standards and regulations. The other areas addressed under the protocol are complementary policies, Exceptions, Technical Assistance, Capacity Building and cooperation and Institutional provisions relating to dispute settlement and implementation of the Agreement.
The key features under the Protocols on Trade in Services are, transparency of service regulations, mutual recognition of standards, licensing and certification of services suppliers, progressive
33 Article 5 & 6, Agreement Establishing the African Continental Free Trade Area
See also https://au.int/sites/default/files/treaties/34248-treaty-consolidated_text_on_cfta_-_en.pdf last visited on 13Th August 2018
liberalisation of services sectors, favourable treatment of service suppliers, and general and security exceptions. The Protocol is divided into 6 Parts, Part I is in respect of definitions, Part II in respect of the scope of the Protocol under the ACFTAA while Part III touches on the objectives of the Protocol. The objectives under the Protocol include:
A. To enhance competitiveness of services through: economies of scale, reduced business costs, enhanced continental market access, and an improved allocation of resources including the development of trade-related infrastructure
B. To foster domestic and foreign investment;
C. To progressively liberalise trade in services across the African continent on the basis of equity, balance and mutual benefit, by eliminating barriers to trade in services; and
D. To ensure consistency and complementarity between liberalisation of trade in services and the various Annexes in specific services sectors.
Part IV of the Protocol sets out the obligations and disciplines of Member States and addresses inter alia transparency, non-discrimination among Member State parties, confidential information, monopolies and anti-competitive policies. Article 6 of the Protocol grants Member States the right to refuse to disclose confidential information and data which could impede law enforcement, be against public interest, or prejudice the legitimate commercial interests of particular enterprises-public and private. Under Part II, Member States may also regulate services and services suppliers within its territory in order to meet national policy objectives, in so far as such regulations do not impair any rights and obligations under
34 https://au.int/sites/default/files/documents/33984-doc-qa_cfta_en_rev15march.pdf last visited on 27Th August 2018
the Protocol. Member States may also subsidise localised services in pursuance of air development policies. Parts V and VI make provisions on progressive liberalisation of services and institutional policies respectively.
The Protocol on Dispute Settlement unlike the first two protocols is not divided into parts, and consists of 31 Articles. The objective of the Protocol as stipulated, is to ensure the dispute settlement process is transparent, accountable, fair, predictable and consistent with the provisions of the ACFTAA. Under the Protocol, where a Member party has already invoked the rules and procedures under it with regards to a specific matter, the said Member State is prohibited from invoking the jurisdiction of another forum for resolution of the matter. The Protocol further stipulates that in the event of a dispute, recourse must first be made to consultations between the disputing parties, alternatively the parties may decide on arbitration as an initial response to resolving the matter. If the parties are unable to reach an amicable resolution, then any party may, after notifying the other parties to the dispute, refer the issue to the Dispute Settlement Board (DSB) and request for the establishment of a Dispute Settlement Panel for purposes of settling the dispute. Where parties are not satisfied with the decision of the panel, they may appeal to an Appellate Body set up by the DSB. The decision of the DSB is final and binding on member parties.
1.2. Objectives of ACFTAA
35 Article 3 , Agreement Establishing the African Continental Free Trade Area
See also https://au.int/sites/default/files/treaties/34248-treaty-consolidated_text_on_cfta_-_en.pdf last visited on 13Th August 2018
Some of the objectives of the ACFTAA as stipulated in the Agreement are:
i. To create a single market for goods, services, facilitated by movement of persons in order to deepen the economic integration of the African continent and in accordance with the Pan African Vision of “An integrated, prosperous and peaceful Africa” enshrined in Agenda 2063;
i. To create a liberalised market for goods and services through successive rounds of negotiations;
ii. To contribute to the movement of capital and natural persons and facilitate investments building on the initiatives and developments in the State Parties and RECs;
iii. And to lay the foundation for the establishment of a Continental Customs Union at a later stage.
1.2. Benefits of ACFTAA
Some of the benefits the ACFTAA Agreement promises to signatories include:
i. Sustainable growth: Under the ACFTA, industrial exports between African States are expected to rise. The Agreement seeks to promote diversification, encouraging a shift from the export of extractive products like gold and oil to industrial products largely since extractive products are exhaustible in nature. An additional reason for this shift lies in the volatility of extractive products leading to a less stable economic and fiscal environment; thus the need for the increase in the industrial market which is guaranteed under the ACFTA.
ii. Creation of employment avenues: If the policies under the ACFTA are realised, the shift to an industrial based economy as mentioned earlier leads to a more labour-intensive regime; hence, the
36 Article 3, Agreement Establishing the African Continental Free Trade Area
See also https://au.int/sites/default/files/treaties/34248-treaty-consolidated_text_on_cfta_-_en.pdf last visited on 13Th August 2018
creation jobs for the unemployed youth of Africa. Furthermore, through liberalisation of services under the ACFTA, service suppliers can look forward to a larger market, as their market would transcend local boundaries. This in turn would lead to the need to employ more workers both from the investors’ country and in the host country, thus creating opportunities for the unemployed populace.
i. Lower Tariffs for intra-African Trade: The average tariffs on intra-African trade are 6.1% presumably due to a preference for inter-regional trade as compared to intra-regional trade. The ACFTA proposes to eliminate tariffs on intra-African trade to boost intra-regional trade in Africa. This would ensure international comity and regional integration among African States. In the words of Jean-Louis Billon , “There (are) too many barriers within the African continent and the only way for us to get to real development in the future is to boost trade and industry relations”. The Economic Commission for Africa (ECA) estimates that ACFTA has the potential to raise intra-African trade by 52.3 per cent by eliminating import duties and reducing non-tariff barriers.
1.3. Expected Difficulties in Implementation
The Agreement is bound to face a fair amount of difficulties in implementation, some of which are discussed below:
37 Vice President of AfroChampions Ltd
38 https://edition.cnn.com/2018/03/22/africa/african-trade-agreement-world/index.html last visited on 27Th August 2018
i. Short term losses: A research undertaken by UNCTAD shows that the elimination of all tariffs between African countries would take an annual $4.1 billion out of the coffers of trading States, but would create an overall annual welfare gain of $16.1 billion in the long run. The short term losses may discourage African States from formulating favourable inter-regional trade policies to make up for the funds and resources lost, particularly in States that have a less diversified and flexible economy. Additionally, due to the short term losses, policies and programs formulated to implement the Agreement may be met with opposition from citizens and even more so if there is a dearth in the education of the masses on the African Free Trade Agreement.
ii. Uneven distribution of wealth: A perception held by some scholars like Sylvester Bagooroo and Mukhisa Kituyi , is that the Agreement places more focus on the elimination and reduction of tariffs without much consideration for the varying production capabilities of countries in the continent. In light of this, it is highly possible that while implementation of the Agreement may cause significant economic growth in countries with a high productive capacity, countries on the other side of the coin may suffer substantial fiscal revenue losses and threats to local industries. In a statement by Muhammed Buhari on why Nigeria declined to sign the Agreement as mentioned earlier, the underlying fear was that the country could be turned into a dumping ground contrary to the purpose and spirit of the Agreement. Advanced African countries have an edge as a result of their more strongly developed manufacturing capabilities; granting them the license to sell their goods and services to the continent’s less developed countries could undercut industrial development in such countries while enriching the former.
iii. Language barriers: The continent is highly linguistically diverse, there are approximately over 2,000 languages in the continent alone, though most nations identify as either Anglophone, Francophone, Lusophone or Arabic for convenience . Northern Africa alone has about 200 recognised languages. Multilingualism has been described by Zeleza as the bane of Africa. The phenomena affects the ease of communication to enhance investments and facilitate the implementation of the Agreement. One major feature of the ACFTAA is the fact that Member states have to negotiate on the terms of the Protocols and accompanying Annexes. With this in mind, a communication barrier due to the multilingual nature of the continent could not only lengthen the process but also result in disputes arising due to miscommunication; undermining effective implementation of the Agreement.
1.4. Resistance to Agreement
The Agreement still meets opposition from some African states, the lead of which is Nigeria. Nigeria’s president Muhammadu Buhari justified the country’s refusal to sign the agreement, stating that the agreement would undermine local manufacturers and entrepreneurs. He was quoted as saying, “We will
39 http://unctad.org/en/PublicationsLibrary/ser-rp-2017d15_en.pdf last visited on 27Th August 2018
40 Sylvester Bagooro is a programme officer at Third World Network Africa
41 UNCTAD Secretary-General
services to the continent’s less developed countries could undercut industrial development in such countries while enriching the former.
iii. Language barriers: The continent is highly linguistically diverse, there are approximately over 2,000 languages in the continent alone, though most nations identify as either Anglophone, Francophone, Lusophone or Arabic for convenience . Northern Africa alone has about 200 recognised languages. Multilingualism has been described by Zeleza as the bane of Africa. The phenomena affects the ease of communication to enhance investments and facilitate the implementation of the Agreement. One major feature of the ACFTAA is the fact that Member states have to negotiate on the terms of the Protocols and accompanying Annexes. With this in mind, a communication barrier due to the multilingual nature of the continent could not only lengthen the process but also result in disputes arising due to miscommunication; undermining effective implementation of the Agreement.
1.4. Resistance to Agreement
The Agreement still meets opposition from some African states, the lead of which is Nigeria. Nigeria’s president Muhammadu Buhari justified the country’s refusal to sign the agreement, stating that the agreement would undermine local manufacturers and entrepreneurs. He was quoted as saying, “We will not agree to anything that will undermine local manufacturers and entrepreneurs, or that may lead to
42 https://www.nationsonline.org/oneworld/african_languages.htm last visited on 22Nd August 2018
43 Zeleza, P.T. 2006. The inventions of African Identities and Languages: The Discursive and Developmental Implications. Selected Proceedings of the 36th Conference on African Linguistics, pp. 14–26. Somerville, MA: Cascadilla Proceedings Project.
See also http://www.lingref.com/cpp/acal/36/paper1402.pdflast visited on 19Th September 2018
Nigeria becoming a dumping ground for finished goods”. This decision was reached as Nigeria conducted various consultations with local trade associations, think tanks and trade expert groups.
5. RELATIONSHIP BETWEEN ACFTAA AND OTHER INVESTMENT REGIMES
The ACFTAA is meant to be complimentary to existing bilateral or multilateral treaties and the domestic laws of Member States on Investments. According to the preamble to the ACFTAA, the Agreement recognises the existing rights of Member States under other agreements to which they belong. These rights and duties, including those signed under the World Trade Organisation (WTO) under Article 19 remain protected, although they may be at variance with the provisions of ACFTAA.
However, the general rule is that where there are conflicts between the ACFTAA and other existing agreements, the provisions of the ACFTAA shall prevail. As the protocols and annexes to the ACFTAA are based on negotiations between Member States, the provisions of said protocols and annexes are more complementary in nature and often mirrors provisions in existing treaties, international law and domestic investment codes. For instance, both the Protocol on trade in goods and the Protocol on trade in services, enshrine the Most Favoured Nation Principle and the National Treatment Principle; principles developed in international trade law and ratified by most African States belonging to the WTO. Another instance of the complementary nature of the ACFTAA is seen in Article 27 of the Protocol on Rules and Procedures on the Settlement of Disputes which allows parties to resort to any form of arbitration of their pleasure outside the Dispute Settlement Body (DSB) as established under the ACFTAA. Where the parties resort to this form of dispute settlement, the matter must remain in the forum under which it was initiated, and parties cannot thereafter simultaneously bring the same matter before the DSB. Parties are further bound by the award of that arbitration which would be enforced by the DSB.
1. IMPLEMENTATION OF THE ACFTAA: IMPLICATIONS FOR THE PROTECTION OF LOCAL BUSINESSES
The role of local business in an economy cannot be undermined. One major concern about the ACFTAA is its impact on local businesses. In justifying Nigeria’s delay in signing the Agreement as mentioned earlier, President Muhammadu Buhari stated that consultations with the local stakeholders had to be made prior to the signing of the agreement following concerns that the ACFTAA would undermine local businesses. The Multi-Stakeholder Consultation held by the Third World Network (TWN)-Africa, has
44 https://twitter.com/NGRPresident/status/976519030726103040 last visited on 24Th August 2018
45 https://theconversation.com/why-nigeria-had-good-reasons-to-delay-signing-africas-free-trade-deal-100203 last visited on 24Th August 2018
46 Article 19, Agreement Establishing the African Continental Free Trade Agreement, “In the event of any conflict and inconsistency between this Agreement and any regional agreement, this Agreement shall prevail to the extent of the specific inconsistency, except as otherwise provided in this Agreement…Notwithstanding the provisions of Paragraph 1 of this Article, State Parties that are members of other regional economic communities, regional trading arrangements and custom unions, which have attained among themselves higher levels of regional integration than under this Agreement, shall maintain such higher levels among themselves.”
See also https://au.int/sites/default/files/treaties/34248-treaty-consolidated_text_on_cfta_-_en.pdf last visited on 13Th August 2018
complementary in nature and often mirrors provisions in existing treaties, international law and domestic investment codes. For instance, both the Protocol on trade in goods and the Protocol on trade in services, enshrine the Most Favoured Nation Principle and the National Treatment Principle; principles developed in international trade law and ratified by most African States belonging to the WTO. Another instance of the complementary nature of the ACFTAA is seen in Article 27 of the Protocol on Rules and Procedures on the Settlement of Disputes which allows parties to resort to any form of arbitration of their pleasure outside the Dispute Settlement Body (DSB) as established under the ACFTAA. Where the parties resort to this form of dispute settlement, the matter must remain in the forum under which it was initiated, and parties cannot thereafter simultaneously bring the same matter before the DSB. Parties are further bound by the award of that arbitration which would be enforced by the DSB.
1. IMPLEMENTATION OF THE ACFTAA: IMPLICATIONS FOR THE PROTECTION OF LOCAL BUSINESSES
The role of local business in an economy cannot be undermined. One major concern about the ACFTAA is its impact on local businesses. In justifying Nigeria’s delay in signing the Agreement as mentioned earlier, President Muhammadu Buhari stated that consultations with the local stakeholders had to be made prior to the signing of the agreement following concerns that the ACFTAA would undermine local businesses. The Multi-Stakeholder Consultation held by the Third World Network (TWN)-Africa, has mentioned there is a need for inputs from local stakeholders and all parties likely to be affected by the agreement as the Agreement has the potential of silencing local industries, contrary to its objectives to boost trade in Africa.
There are however, some provisions in the ACFTAA that protect local industries, though somewhat inadequate.
Firstly, the Agreement recognises the need for infant industries to be sheltered in order to grow. To this end, Article 24 of the Protocol on Trade in Goods stipulates, “For the purposes of protecting an infant industry having strategic importance at the national level, a State Party may, provided that it has taken reasonable steps to overcome the difficulties related to such infant industry, impose measures for protecting such an industry. Such measures shall be applied on a non-discriminatory basis and for a specified period of time.” The protection however lasts insofar as the industry remains an infant one. Thus local industries remain unprotected as soon as they become established which may have a negative impact on the domestic development of the concerned country’s local trade.
Secondly, under the ACFTAA, Member States may grant subsidies to their local industries in relation to their development programs. Where another party is adversely affected, the said party may request for further consultations on the subsidies granted to the local industries. However, these requests are merely sympathetic in nature, and the host country is not mandated to oblige the requesting party.
Lastly, the ACFTAA allows Member parties to apply policies and regulations aimed at safeguarding local industries where there is a surge in the influx of a product in its territory such that it adversely affects or is likely to cause harm to its domestic producers. This is stipulated in Article 19 of the Protocol on Trade in Goods which reads, “State Parties may apply safeguard measures to situations where there is a sudden surge of a product imported into a State Party, under conditions which cause or threaten to cause serious injury to domestic producers…”
These provisions though commendable, offer little protection to local industries and it is important that all stakeholders local and foreign be consulted in respect of the remaining negotiations to ensure that the Agreement is effective in its implementation across the continent.
2. IS THE ACFTAA THE SOLUTION TO AFRICA’S DEVELOPMENT PROBLEM?
The ACFTAA while commendable cannot be the sole driving force for economic growth across Africa. While intra-African trade would significantly increase economic growth in the regions as stated by the UNECA, there are other factors the continent must focus on in order to ensure that economic growth and independence are not only achievable but sustainable. African integration is important but without a corresponding growth in other sectors like technology and political stability, the growth of the continent would be severely hindered and the ACFTAA greatly undermined.
Firstly, Member States must aim at ensuring political stability. Political instability is a menace that has plagued many African countries. Between 1956 and 1984, Sub-Saharan Africa alone has suffered 56
47 http://www.twnafrica.org/summary%20discussions%20and%20conclusions-Fin.pdf last visited on 27Th August 2018
48 Article 17, Protocol on the Trade in Services
See also https://au.int/sites/default/files/treaties/34248-treaty-consolidated_text_on_cfta_-_en.pdf last visited on 13Th August 2018
Lastly, the ACFTAA allows Member parties to apply policies and regulations aimed at safeguarding local industries where there is a surge in the influx of a product in its territory such that it adversely affects or is likely to cause harm to its domestic producers. This is stipulated in Article 19 of the Protocol on Trade in Goods which reads, “State Parties may apply safeguard measures to situations where there is a sudden surge of a product imported into a State Party, under conditions which cause or threaten to cause serious injury to domestic producers…”
These provisions though commendable, offer little protection to local industries and it is important that all stakeholders local and foreign be consulted in respect of the remaining negotiations to ensure that the Agreement is effective in its implementation across the continent.
2. IS THE ACFTAA THE SOLUTION TO AFRICA’S DEVELOPMENT PROBLEM?
The ACFTAA while commendable cannot be the sole driving force for economic growth across Africa. While intra-African trade would significantly increase economic growth in the regions as stated by the UNECA, there are other factors the continent must focus on in order to ensure that economic growth and independence are not only achievable but sustainable. African integration is important but without a corresponding growth in other sectors like technology and political stability, the growth of the continent would be severely hindered and the ACFTAA greatly undermined.
Firstly, Member States must aim at ensuring political stability. Political instability is a menace that has plagued many African countries. Between 1956 and 1984, Sub-Saharan Africa alone has suffered 56 coup d’etats ; to date some African States are yet to recover from the devastating effects of the political instability. Political instability often results in wars, unrest, uncertainty and destruction. Such an environment leads to a more frequent change in policies, creating volatility which is highly not recommended for effective implementation of policies and measures aimed at economic growth. Political instability raises the government expenditure and increases inflation, both of which inhibit socio-economic growth. In a recent study by Jong-a-Pin, R. (2009) it was shown that, higher degrees of political instability resulted in lower economic growth. After the end of the Sierra Leone Civil War, the State has seen a significant rise in its GDP from 1.25 Billion USD in 2002 reaching a peak of 5.015 Billion USD in 2014 and currently lies at 3.77 Billion USD.
Similarly, Rwanda’s economy has shown tremendous growth from 1993 till date. World Bank statistics show that as at 2015, Libya (currently under political unrest) suffered a reduction in GDP by 10% since the beginning of the Libyan civil war in 2011. Per capita income in Libya since fell to less than US$ 4,500 in 2015 from the US$ 13,000 in 2012. The relationship between political stability and economic development is thus an important one which cannot be overlooked.
Secondly, African States must put measures in place to tackle illiteracy in the region. According to statistics, in 2016, there were approximately 263 million children, adolescents and youth were out of school. Out of this number, 96 million were from Sub-Saharan Africa and 18 million from North Africa and Asia, together, the numbers of out-of-school children in Africa are approximately about 114 million. Education, skills, and acquisition of knowledge are recognised as markers of a person’s and in turn a nation’s productivity. To increase productivity levels, a country must of necessity increase its education and knowledge acquisition levels, to do otherwise spells doom for the concerned country. For every dollar invested in an additional year of schooling, particularly for females, earnings and health benefits of $10 in low-income countries and nearly $4 in lower middle-income countries is to be generated. An increase in education thus translates into an increase in earnings which is a key determinant of the GDP and socio-economic development of any country. In the words of Plato, “If a man neglects education, he walks lame to the end of his life”.
In order to complement the positive impact of the ACFTAA on economic growth, Africa must also ensure that there is adequate infrastructure in the region. Infrastructure is widely recognised as an essential contributor to economic development. A country cannot develop if the very institutions, framework, structures and facilities needed for growth are absent. Unfortunately, most infrastructural facilities cannot be imported, instead, they must be built in the domestic economy. Availability of adequate infrastructure
49 Patrick Mcgowan & Thomas Johnson, “Military Coup d’Etats and Under-development: A Quantitative Historical Analysis” Journal of Modern African Studies Vol 22 (December 1984) 633-666
50 Jong-a-Pin, R. (2009). “On the measurement of political instability and its impact on economic growth.” European Journal of Political Economy 25, 15–29
51 https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=SL last visited on 23Rd August 2018
52 http://www.un.org/en/preventgenocide/rwanda/education/rwandagenocide.shtml last visited on 23Rd August 2018
See also, https://data.worldbank.org/indicator/NY.GDP.MKTP.CD?locations=RW last visited 23Rd August 2018
53 https://www.worldbank.org/en/country/libya/overvi1ew Last visited 24Th August 2018
Secondly, African States must put measures in place to tackle illiteracy in the region. According to statistics, in 2016, there were approximately 263 million children, adolescents and youth were out of school. Out of this number, 96 million were from Sub-Saharan Africa and 18 million from North Africa and Asia, together, the numbers of out-of-school children in Africa are approximately about 114 million. Education, skills, and acquisition of knowledge are recognised as markers of a person’s and in turn a nation’s productivity. To increase productivity levels, a country must of necessity increase its education and knowledge acquisition levels, to do otherwise spells doom for the concerned country. For every dollar invested in an additional year of schooling, particularly for females, earnings and health benefits of $10 in low-income countries and nearly $4 in lower middle-income countries is to be generated. An increase in education thus translates into an increase in earnings which is a key determinant of the GDP and socio-economic development of any country. In the words of Plato, “If a man neglects education, he walks lame to the end of his life”.
In order to complement the positive impact of the ACFTAA on economic growth, Africa must also ensure that there is adequate infrastructure in the region. Infrastructure is widely recognised as an essential contributor to economic development. A country cannot develop if the very institutions, framework, structures and facilities needed for growth are absent. Unfortunately, most infrastructural facilities cannot be imported, instead, they must be built in the domestic economy. Availability of adequate infrastructure raises infrastructure, increases levels of productivity and reduces the long-term costs of
54 http://uis.unesco.org/sites/default/files/documents/fs48-one-five-children-adolescents-youth-out-school-2018-en.pdf last visited on 24Th August 2018
55 http://report.educationcommission.org/report/ last visited 24Th August 2018
the concerned country. Provision of adequate infrastructure in the form of power supply, ports, road highways, railways and buildings also aids in the expansion of trade, foreign and local within a country. Kalilou Traoré, the Economic Community of West African States’ (ECOWAS) Commissioner for Industry and Private Sector Promotion recently stated in an interview that Africa’s biggest challenge was the dearth in adequate infrastructure. According to International Centre for Trade and Sustainable Development (ICTSD), the success of Africa in respect of its development ambition requires that the necessary “hard” and “soft” infrastructure be placed at the very top of African policymakers’ priorities.
Lastly the continent must also adopt environmentally friendly policies in order as a means of furthering development in the region. The natural environment as a factor contributing to economic growth is responsible for the provision of essential, to the provision of resources and services particularly for countries dominated by extractive industries as is the case in Africa. Examples of extractive industries are oil and gas extraction, mining, dredging and quarrying. Africa alone is home to approximately 30% of the world’s mineral reserves, 10% of the world’s oil, and 8% of the world’s natural gas. Economic growth involves the combination of four major types of capital to produce goods and services. These are (a) produced capital, such as machinery, buildings and roads; (b) human capital, such as skills and knowledge; (c) natural capital, such as minerals, oil, carbon sequestration services provided by forests and soils; and (d) social capital, including institutions and ties within communities. Natural capital
56 https://www.ictsd.org/sites/default/files/bridges_africa_march_2017.pdf last visited 24Th August 2018
57 https://www.ictsd.org/bridges-news/bridges-africa/news/is-infrastructure-the-key-to-africas-economic-transformation last visited 24Th August 2018
58 http://www.worldbank.org/en/topic/extractiveindustries/overview last visited on 24Th August 2018
differs from the other types because it is finite, prone to irreversible changes, and has impacts that extend across generations. It goes without saying that, natural capital must be used sustainably and efficiently in order to secure growth and sustainable development. The concept of sustainable development defines sustainable development as “development which meets the needs of the present generation without compromising the ability of future generations to meet their own needs”. Theoretically, it integrates international environmental law, international human rights law and international economic law. It is hence impossible to speak of socio-economic development without taking into consideration environmental law.
3. CONCLUSION
In summary, the ACFTAA is a laudable effort of African States to promote economic development across the continent. The ACFTAA, which is yet to come into force promises great returns on its implementation. Nonetheless, the region must complement the efforts of the ACFTAA with domestic policies aimed at socio-economic growth taking into account the concerns of all stakeholders: local and foreign.
59 http://www.worldbank.org/en/topic/extractiveindustries/overview last visited on 24Th August 2018
Report of the World Commission on Environment and Development (WCED), Our Common Future (the Brundtland Report) of 1987, Brundtland Commission, Oxford University Press