Continental Free Trade Area (CFTA)

Project description

Title: Support for the AU Commission (AUC) in steering and coordinating the CFTA process, as well as improving the framework conditions for the negotiations on trade facilitation and customs cooperation
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ)
Country: Member States of the African Union
Lead executing agency: African Union Commission (AUC)
Overall term: 2017 to 2019

CFTA NEW Logo_rdax_350x350

Context

Africa is the poorest and least developed of the continents, with a gross domestic product that accounts for just 2.4 per cent of the global economy. After a decade of continuous expansion, in 2015 the economic growth fell for the first time, from five per cent to 3.6 per cent. Africa continues to play an imbalanced role in global trade, being an exporter of raw materials and agricultural exports, and an importer of capital goods.

Another problem is the small size of many African countries. With populations of below 20 million and GDP rates lower than USD 10 billion, the national markets are often too small to attract large investments. Moreover, trade between African countries falls short of its potential, accounting for about 10 per cent of the total trade volume. In contrast, trade within the continent of North America accounts for 40 per cent of those countries’ total trade, while for western European countries this number even rises to 63 per cent.

Although some regional economic communities have managed to improve their trade integration through tariff reductions, the African market remains fragmented. Overlapping memberships in different economic communities have led to institutional competition, high transaction costs and the inhibition of regional and continental integration. Accordingly, non-tariff barriers raise the costs of trade on the continent, with the result that Africa has integrated with the rest of the world faster than with itself.

Objective

The framework conditions have improved for the pan-African negotiation of trade facilitation and customs cooperation in the Continental Free Trade Area.

giz-foto-077-et-gender-frauenarbeit-handwerk-kleinindustrie_rdax_782x524

Approach

With the Treaty of Abuja in 1991, the Member States of the Organization for African Unity (OAU) – the predecessor to the African Union (AU) – agreed for the first time on a road map for the creation of a common African market. To accelerate the implementation of the Abuja Treaty and strengthen regional integration, in 2012 the AU trade ministers agreed to create a Continental Free Trade Area (CFTA) by 2017.

On behalf of German Federal Ministry for Economic Cooperation and Development (BMZ), GIZ is supporting the AU Commission in steering and coordinating the CFTA process, and in improving the framework conditions for the negotiations on trade facilitation and customs cooperation. The cooperation focuses on efforts to strengthen the Commission’s Department of Trade and Industry (DTI) and on the preparation of the negotiations. For example, the project advises the trade commissioner on strategic issues and supports the DTI by, amongst other things, deploying trade facilitation experts for the negotiation process.

Besides the population as a whole, the target group of the project comprises owners and employees of companies in the AU Member States that engage in foreign trade, in particular from the small and medium-sized sector. The population benefits from cost savings for trading transactions, which are passed on to the final consumer in the form of cheaper prices for goods and services.

The strategic advice given to DTI on the design of the CFTA process has enabled it to sustain the dynamics and the priorities of the negotiations. DTI has also recruited additional project personnel with technical specialisations to move the process forward and provide the services requested by Member States during the negotiation sessions, such as studies, professional support and training for the negotiators.

With the aim of reducing customs tariffs by 90 per cent, the Member States have set themselves a surprisingly ambitious course of trade liberalisation. By removing trade barriers, such as complicated handling procedures at the borders, the high intra-regional trade costs can be reduced. For regional companies and products, this will improve their access to markets and their competitiveness. Countries with small domestic markets can thus make better use of existing trading potentials and tap into the new markets across the continent. In the long term, the CFTA agreement aims to increase intra-African trade from 10.2 per cent in 2010 to 15.5 per cent in 2022. Overall, the agreement will also have a positive impact on poverty reduction, as the resulting economic growth will create jobs and new income opportunities.

shutterstock_81414991