The success of the African continental free trade area: potentials and constraints

Source: African Statistica Yearbook (2021)

Agenda 2063 aims to increase youth employment and decrease unemployment by 50% in 2025 and 90% in 2050 (Shabu, 2020). To benefit from the AfCFTA, the continent must overcome various challenges, including improving education systems to make them more productive and providing training opportunities for young people in industries. Additionally, access to finance and information about markets should be made easier to support youth entrepreneurship and the establishment of their projects.

3. The constraints of the AfCFTA success. Previously, we discussed the goals and strategies of African countries to achieve progress and prosperity for the continent. However, Africa faces several challenges, including economic, structural, social, political, and security concerns.

3.1. Commercial constraintsrefer to the economic interests and risks of international trade. Some of the most crucial are:

3.1.1. Non-tariff barriersrefer to various measures that hinder trade, such as regulations related to health and safety, government procurement rules, infrastructure and technical obstacles, and pre-shipment inspections. These barriers challenge trade between African countries and are often more significant than tariff barriers when protecting domestic industries (NEPAD, 2020). Figure 3 visually represents the key non-tariff barriers encountered in African intra-trade.

Removing trade barriers is a lengthy process that can take anywhere from 46 to 2082 days. Issues such as high road taxes and inadequate trade infrastructure, public policies, and regulations can take 741 and 660 days to resolve. Research indicates that Africa's limited infrastructure, particularly its lack of paved roads, is a significant factor in its low levels of regional trade (IMF, 2019). When represented as a percentage of the value of commerce per 10,000 km between African nations, transport expenses are substantially greater than those outside of Africa, accounting for 29% of intra-African trade compared to just 7% of trade outside of Africa

(UNCTAD, 2021). Despite many attempts to eliminate non-tariff barriers, procedural requirements and excessive bureaucracy in trade transactions remain significant obstacles, resulting in longer-than-usual delays in importing and exporting goods between neighbouring nations (Mballa, 2019). Developing countries can face trade costs of up to 219% for a specific product (UNCTAD, 2019). The average protection rate in Africa is 8.7%, but other barriers result in a 283% increase in trade costs on the continent. African countries have some of the highest non-tariff costs globally.

Figure 3. Most frequently reported non-tariff barriers and time required for their removal, from January 2009 to January 2021

Source: UNCTAD (2021).

The impact of infrastructure extends beyond trade, as demonstrated by (NKemgha & Nchofoung, 2023) in their analysis of 33 African nations. Their research highlights a strong link between comprehensive infrastructure and industrialisation, with financial and human capital development being key components at specific process stages. These findings have significant implications for promoting structural transformation within African countries and fostering more significant levels of intra-African trade. From the obtained results, it is recommended that African policymakers invest in infrastructures to achieve their goal of industrialisation. However, it is essential to proceed with caution. Developing the financial sector and human capital to fill industrial jobs is necessary.

3.1.2. Informal cross-border trade accounts for approximately 70% of the economy in numerous African countries, excluding those in North Africa. These traders exchange various goods and services, such as agricultural products and manufactured materials. While the majority of them primarily deal with legal items, some participate in illicit activities like smuggling, corruption, violating sanitary and phytosanitary (SPS) regulations, and engaging in illegal arms trade (Economic Commission for Africa, United Nations, 2017) Several African governments

3.1.3. overlook informal cross-border trade. However, a few countries like Uganda, Kenya, and Rwanda have started gathering information on this type of trade. Rwanda has successfully incorporated informal cross-border trade into its development, international trade, and poverty reduction initiatives (Economic Commission for Africa, United Nations, 2017). Corruption permeates various facets of African society, including informal trade, and poses a significant obstacle to successfully establishing the African Continental Free Trade Area. Notably, the prevalence of low wages among civil servants, including customs agents, contributes to corruption by fostering smuggling and informal trade activities. (Odusote & Aduak, 2022).

3.1.3. The volume and structure of intraregional trade are both weak. Despite significant growth in intra-regional trade over a long period, as it constituted about 12% of total African imports in 2017, compared to 5% in 1990, it is considered weak in comparison to other free trade zones in the world, as intra-trade (average imports and exports) was 47.4% in America, 61.1% in Asia, and 67.1% in Europe between 2015 and 2017, while 80% to 90% of African countries' exports went outside Africa between 2000 and 2017 (UNCTAD, 2019). Many factors contribute to the limited extent of intra-continental trade, including low productive capacity and economic diversification, as well as the small economic size of many African nations (Fontagne et al., 2022).

Figure 4. The top ten intra-African exporters and importers in 2020

Source: Trade Law Centre (2020).

South Africa is considered the most involved African country in intra-trade because of its diverse economy, particularly industrial products. It accounts for 40% of industrial exports in the region (Figure 4). Other countries such as Nigeria, the Democratic Republic of the Congo, Egypt, Botswana, Namibia, and Zimbabwe also participate heavily in African trade. However, despite the establishment of the AfCFTA, much of African trade will still be directed outside the continent due to

historical trade associations with certain countries and new treaties and agreements, particularly with the European Union and the United States under the Africa Growth and Opportunity Act (AGOA) of 2000 (Jacquemot, 2019). African countries may struggle to implement the AfCFTA agenda, as these agreements are permanent and irreversible.

A significant portion of African trade involves exporting fuels and raw materials to countries outside the continent (Figure 5), making up approximately 62% of total exports (UNCTAD, 2021). However, trade within Africa is more varied, with industrial products comprising 45% of intra-African exports and only 20% of exports to the rest of the world.

Figure 5. African trade composition from 1990 to 2017, %

Source: Moubarack & Amaye (2022).

This structure's rationale is that most raw material and mineral processing operations occur outside of the continent. Although agricultural and processed goods are essential for the regional market since 35% of these goods are exported inside the continent. Intra-regional trade of industrial products can lead to economic growth and transformation by allowing countries to diversify their exports and meet the demand of the regional market.

3.1.4. The abundance of regional agreements. While the AfCFTA recognises that regional agreements contribute to the growth of intra-trade by leveraging their respective experiences and achievements, the limited trade activity among African nations might stem from their widespread participation in diverse regional economic blocs (Figure 6), each adhering to distinct trade regulations. Consequently, the effective implementation of the AfCFTA will be complex (FAO, 2020).

Trade will continue between regional economic communities based on their existing trade systems. Tariff liberalisation under the AfCFTA will only apply to member states that do not have any existing agreements. Additionally, the level of tariff liberalisation varies among the different regional economic communities (FAO and African Union Commission, 2021).

Source: Economic Commission for Africa, United Nations (2017)

3.1.5. Rules of origin. They are essential for promoting trade and economic growth in Africa. However, there are challenges in implementing them due to differences between regional agreements and difficulties in determining the origin of a product based on its value-added. African countries are motivated to adopt and enforce rules of origin that promote regional inputs, especially when they have a diverse range of products and competitive production costs compared to foreign competitors (UNCTAD, 2019). Typically, building productive and competitive capacities takes much time, so the rules of origin must be straightforward when implementing the agreement to create the AfCFTA. Otherwise, they may discourage regional trade or result in trade divergence (UNCTAD, 2019). The agreement should consider the varying productivity levels and structural imbalances in countries, especially the least developed ones, who struggle to take advantage of preferential tariffs. Additionally, it is essential to ensure that the conditions of origin are strictly enforced.

3.2. Structural constraints. They are mostly tied to African nations' production capacity and ability to diversify their traded products. As a result, the AfCFTA's performance is tied to member nations' improved productive and industrial capacities.

3.2.1. Weak production and manufacturing capabilities. Focusing alone on lowering tariff and non-tariff obstacles would not help the AfCFTA achieve its goals unless it is complemented by increased productive capacity and accelerated structural change. The amount of intra-regional commerce varies according to the level of industrial and economic development and the degree of integration of production structures in each regional economic group (Mballa, 2019). African countries rely heavily on raw materials for production and trade, creating disadvantageous relationships with foreign partners. This reliance also leads to competition among African countries to gain more benefits from foreign partners, mainly because they are consumer economies dependent on imported goods from wealthier nations. Figure 7 displays how African countries are linked to the exportation of raw materials.

Figure 7. Level of dependence on commodity exports between 2018 and 2019

Source: PNUD (2021)

Africa continues to struggle with industrialisation due to its reliance on raw materials, which poses a significant economic vulnerability as the exports of these materials remain a critical factor. Additionally, it is crucial to relocate production factors from low-productivity regions to resource-efficient and high-productivity areas to revolutionise industrial structures. This can be achieved by proficiently coordinating and distributing these factors across diverse sectors. It is worth highlighting that relying solely on natural resources may constrain the development of cutting-edge manufacturing and tertiary industries (Nwani et al., 2023).

Mensah et al. (2023) emphasised that structural change drives technological catch-up, increasing productivity in African countries. African industrialisation initiatives have been unsuccessful, as the industrial sector's contribution to the economy's GDP was less than 10% in 2017. Africa's share of global industrial value added was only 1.6% in 2015. When an economy relies heavily on extracting minerals, resources, infrastructure, and labour are usually focused on these sectors. It leaves little incentive and investment for the development of advanced manufacturing (Nwani et al., 2023).

Agriculture is highly significant for African countries, but it generates limited added value and only processes a few primary agricultural products. Additionally, small businesses, which make up 80% of the industry, face challenges in competing with global companies (Economic Commission for Africa, United Nations, 2017).

Figure 8. Agricultural value added in African regions 1998-2018, % of GDP

Source: FAO and African Union Commission (2021)

The graph illustrates the decrease in agricultural value in all regions of Africa from 1998 to 2018, although trading agricultural products within the continent plays a significant role in the continent's economic transformation and shift towards a more diversified economy. Structural transformation can be observed through the expansion of production and exports, higher efficiency in labour, equalisation of productivity levels across different sectors, growth in individual income, and a noticeable reduction in poverty rates (UNCTAD, 2020).

3.2.2. Poor level of education and skills. Structural transformation and industrialisation necessitate the development of productive resources, which allows for the preservation, renewal, expansion, and modernisation of productive institutions, and resource accumulation corresponds to investment in education, training, and capacity building of human capital (UNCTAD, 2020).

Africa is falling behind in education and skills development compared to other developing countries. This lack of education limits the potential for economic growth and prevents the state from taking advantage of its strengths. It also hinders the development of industries and services that rely on knowledge.

The Newly Industrialised Economies in Asia have successfully embraced the knowledge economy and utilised their human resources to drive economic growth. This has enabled them to outpace Africa in economic development, as Africa heavily relies on commodity exports, which are often negatively impacted by external factors (Nchofoung & Asongu, 2022). Though, the promotion of trade openness in Africa not only stimulates economic growth but also plays a crucial role in facilitating the development of human capital, yielding positive overall outcomes (Wirajing & Nchofoung, 2023).

The labour market in Africa does not effectively utilise the skills of its workforce, with many young workers feeling that their skills do not match their jobs. This mismatch between skills and education is more common in Africa than in other continents (African Development Bank Group, 2020).

According to Figure 9, Africa has the largest proportion of low-skilled occupations (57%), the third-highest percentage of medium-skilled jobs (33%), and the lowest percentage of high-skilled jobs (10%) in the world.

Figure 9. Distribution of employment according to work skills by regions 2010-2018, %

Source: African Development Bank Group (2020).

3.2.3. African countries' specialisations are poorly integrated. The specialisation of African countries is not well integrated. Most countries rely on producing primary products and exporting them without converting them into other forms. This lack of diversity in exchanged commodities makes African countries weakly integrated, as shown by a regional integration index (Figure 10).

Figure 10. Africa Regional Integration Index (ARII)

Source: FAO and African Union Commission (2021)

Some African countries without significant oil or mineral revenues, like Mauritius, Ethiopia, Kenya, Tanzania, Ivory Coast, Senegal, Lesotho, and Rwanda, have managed to develop their production machinery and expand their industries to meet domestic needs. However, it is challenging for African nations to move away from relying on raw materials and transition to industrialisation. This is because raw materials have become a valuable resource for international partners, providing a strategic reserve of hydrocarbons, minerals, and land and a means to diversify risks (Fontagne et al., 2022). In contrast, 27 nations south of the Sahara are resource-richу and account for more than 80% of global GDP. Despite the expected growth in the economic size of African countries and the process of regional integration, the most important foreign markets want to maintain access to the most critical raw material suppliers, especially China and Europe.

3.2.4. High debt levels and poor financial standing. In 2018, the continent's overall foreign debt load was around USD 500 billion, and in 2017, the ratio of external debt to exports varied from roughly 5% in Algeria to more than 400% in Ethiopia to even more than 600% in Sudan (African Development Bank Group, 2020). Most African countries have been unable to fulfil their financial obligations towards African integration institutions. In 2018, the African Union had an approximately USD 800 million budget, with over 75% of the funding coming from foreign donations. However, the collection rate for contributions was only 30%. Egypt, Nigeria, South Africa, Algeria, and Morocco were the primary funding sources, while around forty countries had outstanding debts and unpaid bills (Mballa,

2019) Debt overload hinders industrial development and the process of structural transformation that requires substantial investments, preventing most African countries from participating effectively in AfCFTA and benefiting from it.

3.3. Social constraints. African countries face several social problems that will impede their economic integration, including.

3.3.1. High poverty level: Whenever an economy becomes overly reliant on mineral extractive industries, significant resources, infrastructure, and labour are often dedicated to these sectors. As a result, incentives and investment in high-tech manufacturing and tertiary sectors may be constrained (Nwani et al., 2023). Despite several African nations' relatively economically solid performances, there was no increase in living standards or decrease in poverty.

The African integration programme sought to elevate the AfCFTA into a magnificent tool to promote sustainable development and reduce poverty for a startling 100 million Africans by 2030. The considerable prevalence of poverty in Africa poses a formidable obstacle to both economic progress and the enhancement of living conditions for many nations, particularly in the context of 33 leastdeveloped countries in Sub-Saharan Africa (African Development Bank Group,

2020) .

3.3.2. Food Insecurity. Compared to any other part of the globe, Africa has been dealing with food shortages for longer. Out of the 55 African nations, 33 are categorised as less developed, meaning they are deeply underdeveloped and have difficulty supplying food to their population. Between 2015 and 2018, there were 256 million people who were undernourished, up from 249 million in 2017 and 212 million in 2014. It shows that severe undernourishment is still a problem in Africa. (FAO and African Union Commission, 2021). The prestigious Food and Agriculture Organisation claims that there are three leading causes of extreme food insecurity. These include the erratic changes in climate, the prevalence of harsh weather, especially drought, and the slowly improving state of the economy.

Nevertheless, it is essential to note that wars are the leading cause of the alarmingly high rate of acute food insecurity (AfCFTA Secretariat & PNUD, 2020).

The Covid-19 crisis exposed the vulnerability of African countries in achieving food security. The closure of countries to prevent the spread of the virus disrupted global supply chains for agricultural products and inputs, leading to a shortage of food in Africa. Unemployment increased, and income levels decreased, making it difficult for people to afford food, exacerbating the problem of food insecurity in these countries (Rogito & Rogito, 2022).

3.4. Political and security constraints. Africa has disproportionate armed conflicts and ranks high in the Fragile States Index (Adamson, 2019). Furthermore, no local or regional project can succeed without political stability and security. Even though the objective of Agenda 2063 was to put an end to all wars and civil conflicts by 2020, political and security instability may be found throughout Africa (Africa Union Commission, 2015). Studies on armed conflicts indicate that they often cause significant humanitarian crises, destroy infrastructure, and lead to political instability. Various factors, including economic self-interest and societal inequalities, often influence these outcomes (Babajide et al, 2021). Conflict is a pathway through which natural resources can affect socioeconomic development, hindering progress toward sustainability. The profits from these resources can incentivise and enable powerful groups to exploit and oppress marginalised communities, resulting in internal conflicts such as the oil conflicts in Angola and the Niger Delta (Chisadza et al., 2023). Multinational corporations often contribute to intensifying political tensions and security conflicts in Africa as they vie for control over the region's natural resources. According to (Oyeniyi, 2022), most African countries harbour resentment towards some MNCs, as their mere mention triggers tension among host communities. International Oil Companies (IOCs) are seen as unable to serve the interests of these communities.

Conclusions. Despite being in effect for a relatively short period, the African Continental Free Trade Area initiative holds great promise for the continent's nations to realise their aspirations. By placing their faith in various factors, such as the overall economic development across Africa, the vastness of the continental market, enhanced regional trade, abundant natural resources, and a burgeoning youth population, African countries have laid a solid foundation for achieving their objectives. When the objectives of the AfCFTA were created, African countries failed to consider the extent and importance of the constraints that African countries have been experiencing and suffering from for decades, which, according to our study, are as follows: Non-tariff obstacles, informal cross-border trade, the fragility of intraregional trade, the existence of various regional agreements, and the complexities of rules of origin are all trade factors. Furthermore, structural difficulties include insufficient production and manufacturing facilities, insufficient education and skills, limited integration of nations' specialisations, high debt levels, and unstable financial capabilities. Furthermore, social, political, and security challenges include widespread poverty, food shortages, and the current context of political and security instability.

The presence of several hurdles and constraints that the African continent now faces will negatively influence the achievement of the AfCFTA's aims and aspirations. This trading zone was designed with ambitious goals, considering the hard reality that African nations face. However, if the continent continues to struggle to provide a fair standard of living for its people, it raises the issue of how it can accomplish its lofty goals for total continental growth.

Africa still has a significant distance to cover in its development. As Moussa Faki Mahamat, Chairman of the African Union Commission, aptly points out, there remains a discrepancy between statements made on paper and actual implementation. Furthermore, Wamkele Minni, Secretary-General of the Free Trade Area Secretariat, acknowledges the challenges in realising the AfCFTA. Therefore, attention must be redirected towards effectively harnessing the transformative capabilities of this trade initiative on the African continent (Songwe et al., 2021).

This paper does not evaluate the AfCFTA's efficacy, as it has only been operational since January 2021. Instead, it offers a projection and anticipation of the region's potential for success, considering the inherent strengths and weaknesses of the continent's countries. On a practical level, the initiative faces long-standing issues and obstacles that have persisted in the region for many years, as evidenced by historical data, regional and global reports, and scholarly research. However, this study paves the way for further research, particularly with the current AfCFTA:

- examining the potential advantages for individual countries within the region, considering the distinct characteristics of each nation on the continent, entails analysing the opportunities that the region can offer to Algeria and other oil - producing countries in terms of enhancing their export capacities beyond the hydrocarbon industry;

- the degree of compatibility or discord that will arise between the current African regional agreements and the enforcement of the AfCFTA;

- explore the countries that would benefit from the expansive trade area.

Additionally, it is feasible to assess the outcomes of the continental area five years later, such as the extent of progress in intra-regional trade and investment.

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