African Continental Free Trade Agreement and India

At the summit of the African Union (AU) held at Niamey, the capital of the Niger Republic 54 of 55 of its member states signed the African Continental Free Trade Agreement (AfCFTA) for goods and services and 27 countries have already ratified it.

The AfCFTA would create an African Common Market of 1.2 billion people and a GDP of over $3.4 billion. This cross-border free trade is expected to start by July 2020 with the elimination of customs duties up to 90% of the tariff-lines.

Why there is pessimism about the Agreement?

• The earlier grand plans of AU including the Africa Unity project didn’t yield the desired result. Hence critics see AfCFTA, the AU’s most ambitious project so far leading to a similar fate.
• The African Union has been largely ineffective in dealing with Africa’s myriad problems such as decolonisation, underdevelopment, Islamic terrorism and the Arab Spring.
• The economy of African nations is weak with a low manufacturing base. They also lack competitiveness and mutual complementarily which is vital for the success of the free trade agreement.
• Further, only about sixth of Africa’s total trade is within the continent.
• AfCFTA seems to be countercyclical to the ongoing global protectionist trends as seen in the U.S.-China trade conflict, Brexit and the stalemates at the World Trade Organisation and the United Nations Conference on Trade and Development. Hence the ability of the African continent the global trend is in question.

Why hopes are upbeat?

• The AfCFTA aims build upon the experience of the continent’s five regional economic blocks.
• The AU Commission has prepared an extensive road map towards the AfCFTA with preliminary work on steps such as incremental tariff reduction, elimination of non-tariff barriers, supply chains and dispute settlement.
• Existence of breed of African transnational corporations such as Dangote, MTN, Ecobank and Jumia which have continental ambitions.
• Even though the logistical and financial networks across the continent are poor and customs formalities are foreboding, they are expected to be overcome with stronger political will.
• There is a vigorous “informal” trade across porous national borders.

AfCFTA and India

India-Africa Trade

• Africa’s total annual merchandise trade with India at estimated at $70 billion is nearly tenth of India’s global trade.
• India is Africa’s third-largest trading partner.
• While India’s global exports have been largely stagnant, those to Africa have surged.
• Africa has large unfulfilled demand for Indian commodities, especially foodstuff, finished products (automobiles, pharmaceuticals, consumer goods) and services such as IT/IT-Enabled Service, health care and education, skilling, expertise in management and banking, financial services and insurance.

How India can engage?

• India needs to anticipate likely impact due to AfCFTA and must use its influence and leverage to enhance India-African economic ties. While local manufactured items and services may ultimately compete with Indian exports, Indian firms can explore co-producing them in Africa.
• AfCFTA can also open new opportunities for Indian stakeholders in fast-moving consumer goods manufacturing, connectivity projects and the creation of a financial backbone.
• India can also identify various African transnational corporations which are destined to play a greater role in a future continental common market and engage with them strategically.
• The presence of three million-strong Indian diaspora spread across Africa can also be very valuable.

Once the AfCFTA stabilises, an extension through India-African FTA could be explored to strengthen the relations.