Last week witnessed the signing of what is probably the most important international agreement of the last few years. Leaders of 44 African countries gathered in Kigali (Rwanda) to establish the African Continental Free Trade Area (AfCFTA), the largest trade agreement since the creation of the World Trade Organization in 1995. In addition, 27 countries committed to creating a free movement protocol (similar to the Schengen Area in the EU) whereby citizens will be able to move freely across countries without the need for special permits.
The potential benefits are enormous. The United Nations has estimated that the reduction in tariffs could result in welfare gains amounting to $3.6 billion, which would be achieved by increasing productivity and economic growth. Furthermore, intra-African trade will skyrocket since consumers and companies will have access to cheaper products within the continental free trade area, taking advantage of lower import costs
This agreement doesn’t come without challenges. Nigeria, the largest African economy, has refused to participate in the conference. President Buhari has claimed that Nigeria will never sign an agreement that harms the local economy. Similarly, Nigerian trade unions have opposed the initiative calling it “an extremely dangerous and radioactive neo-liberal policy.” Yet the massive continental support for this agreement will end up pushing Nigeria to endorse it sooner than later.
The implementation of free trade policies in Africa, the continent that has benefited the least from the globalization process, will be decisive in the development of the continent in the following decades. However, much remains to be done. In the last few months, we have seen a revival of protectionism, especially on the west side of the Atlantic. Nationalistic policies could end up triggering trade wars between countries that would hinder economic growth on a global scale, including Africa.
The consequences of Europe’s hypocrisy when it comes to free trade is another challenge for African countries. The EU has been outspokenly pro-free trade since its creation in 1957. However, in agricultural matters, it maintains a protectionist agenda (the so-called Common Agricultural Policy or CAP) that hampers the entrance of foreign competitors into the European Single Market.
The EU dedicates €59 billion to programs aimed at subsidizing farmers, intervening the agricultural markets and developing rural areas. Nonetheless, the cost to European taxpayers does not limit to that amount. There is an extra cost stemming from the higher prices European consumers must pay for agricultural products due to the artificial reduction of competition.
The damage to African countries is even more blatant. Subsidies and tariffs act as price floors for European farmers to the detriment of farmers from developing countries, who are not allowed to compete on equal terms. Although some developing countries enjoy reduced or no tariffs when exporting their products, the CAP still implies a burden to most exporters in Africa intending to sell their products in the EU.
The AfCFTA represents a step in the right direction. Despite the protectionist wave in which the world is immersed, African countries are wagering on free trade, which is a safe bet if the aim is achieving long-term economic and human progress. Now the ball lies in the court of developed countries, which must abandon protectionism once and for all, not only for their own benefit but also for the sake of economically disadvantaged nations.
In his classical work Protection or Free Trade, Henry George describes trade as “the extinguisher of war, the eradicator of prejudice, the diffuser of knowledge.” Let us fulfill these old longings of humankind by getting rid of trade barriers all over the globe.
Picture: Pexels
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