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Africa’s New Free Trade Deal Has Enough Signatories to Go Into Force

It is now official: Africa’s free trade agreement has drawn enough signatures to go into operation.

On Tuesday (Apr. 2), The Gambia’s parliament was the 22nd nation to ratify the agreement, the minimum threshold expected to approve the deal among the 55 member states of the African Union. The move posits a major step forward for the African Continental Free Trade Area (AfCFTA), which was created last March in Rwanda. The trade agreement is set to become operational within a month after the required number of endorsements are deposited with the AU chairperson’s office.

Once in place, the AfCFTA will cover a market of 1.2 billion people and a combined gross domestic product of $2.5 trillion—making it the world’s largest free trade area since the formation of the World Trade Organization seven decades ago. African leaders hope the agreement will eliminate current high tariffs, generate employment opportunities for a rapidly growing young workforce, and harmonize the work of already-existing regional economic communities. It could also enhance intra-African trade by 52.3% annually, according to the United Nations Economic Commission for Africa (UNECA).

“Posterity will recall this day,” the ex-president of the African Development Bank Donald Kaberuka wrote on Twitter. His sentiments were shared by the former executive secretary of UNECA Carlos Lopes who wrote, “Africa made it.” Lopes noted that it took the continent a year to operationalize the trade deal, “an absolute record for these type of agreements.”

Trade deals have a reputation for being slow and drawn-out affairs, with the European Union-Canada deal, for instance, taking seven years to negotiate after being 22 years in the making.

Yet not all is rosy with the historic free trade agreement. Africa’s largest economy Nigeria—along with Benin and Eritrea—is yet to sign the agreement, presumably due to pressure from trade and labor unions. Only 15 out of the 22 nations that have ratified the agreement have also submitted their ratification documents at the AU headquarters in Addis Ababa.

Private sector leaders have also expressed their concern about how the deal will be executed and if governments will be bold enough to move the deal forward. “The challenges are going to be in the implementation,” Naguib Sawiris, the executive chairman of the Egyptian investment holding Orascom said at the Africa CEO Forum in Kigali, Rwanda last week.

In a speech at the same conference, Rwandan president Paul Kagame said making sure AfCFTA succeeds represents “the very highest consequence for Africa’s future.” He acknowledged the role of politics and policy in driving countries and the continent forward, stating that he reached out to Nigerian president Muhammadu Buhari to sign the deal.

“Whatever we try to do, even in terms of economic development, the result comes back to the politics surrounding it,” he said. “If the politics is bad, everything else is bad. That is why open, responsive, and accountable governance is so critical.”

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

African Union Summit Concludes with Pledge to Work for Welfare of African People

Egyptian President Abdel-Fattah al-Sisi on Monday wrapped up the 32nd African Union (AU) summit of heads of state and government at the AU headquarters in Ethiopia’s capital, Addis Ababa, with a pledge to work for the welfare of African people.

Al-Sisi, who took over the rotating one-year-term AU chairmanship from Rwandan President Paul Kagame, said that over the next one year he would energetically work toward achieving the goals set by the AU during the summit. These include putting into force the Africa Continental Free Trade Area (AfCFTA), efforts to reform the UN Security Council, rehabilitation of refugees and Internally Displaced Persons (IDPs) and providing employment to the continent’s large young population.

The AU revealed on Friday that various conflicts across the African continent have left 20.8 million people displaced.

“The 32nd AU summit theme on refugees and IDPs showed how the displacement of people can create social, security, political and economic challenges in the continent, hence this will be my focus in the next one year,” said al-Sisi.

The Egyptian president outlined a vision of economic integration in Africa that he said can be a solution to the multifaceted problems facing the continent.

On top of his list of African economic integration schemes is the AfCFTA, which is expected to formally start operations during the next AU summit in Niamey, capital of Niger, in July.

“Many African countries are already grouped under Regional Economic Communities (RECs), my chairmanship will focus on how RECs can be a vehicle to achieve wider continental economic integration,” said al-Sisi.

“The start of operation of AfCFTA will not just ease movement of goods across African borders, but also facilitate the movement of African brainpower across the borders of African countries, adding social importance on top of political and economic benefits,” he added.

Al-Sisi said he will also focus on relatively new challenges the continent is grappling with including climate change and terrorism.

“We need to have plans that match with the scope of challenges terrorism and climate change pose to the continent. As such, during my period I will focus on mechanisms to fight climate change and ways to achieve AU’s silencing the guns by 2020 initiative,” said the Egyptian president.

“I will in particular vigorously fight the terrorism threat in the continent, that have left large areas of Africa suffering from political, social, economic and security problems,” he further said.

Al-Sisi also said the 32nd AU summit had established an agency for medicine, a center for women’s and girls’ education and other instruments intended to achieve a holistic approach to Africa’s numerous challenges.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

Africa in 2019 Outlook Conference Highlights: Part 2

This is a continuation of the highlights from Deloitte’s Africa in 2019 Outlook Conference that recently took place in Johannesburg, South Africa. To read our first article on the conference, click here.

Free trade in Africa – How will the AfCFTA play out?

As one of the flagship projects of the African Union’s Agenda 2063, the African Continental Free Trade Area (AfCFTA) aims to create a single market economy to enable the free movement of goods, which may see over one billion people benefit from a combined GDP of almost US$3.3trn. Yet, with 49 countries having signed the consolidated AfCFTA agreement and only 18 out of the required 22 countries having ratified the agreement, Africa’s development impasse may be the result of a number of factors.

Political will

Political will is fundamental to achieving free trade across the African continent, as there needs to be a concerted effort from governments and politicians to drive regional free trade. If AfCFTA follows through with its mandate, it could have the potential to unlock value for companies such as the Mr Price Group, whose operations in 13 African countries may benefit from the logistical and manufacturing capabilities that a unified region would expose the South African-based retailer to. However, engagements between corporates and government are largely characterised by bureaucratic inertia, making it difficult to enable integration. In order to drive substantive outcomes, AfCFTA will require stakeholders to facilitate and stabilise economic growth across the continent.

Infrastructure and logistics

Africa’s infrastructure deficit remains a primary constraint to growth, and so too the resultant high costs of logistics. Although logistics is paramount to AfCFTA, its scale requires significant infrastructure investment and development across the continent, in order to drive structural reform. Infrastructure upgrades will facilitate more efficient trade between countries and across regions. The improvements will also provide an opportunity for countries to leapfrog to new efficient technologies, for investors to expand and diversify their customer base. Engagements with policy-makers and stakeholders will thus be fundamental to ensure infrastructure development across these markets.

Cost of doing business

The cost of doing business across African markets can be as high as 25% to 60% for certain products or services, as the costs associated with logistics, duties and permits tend to be much higher than those in developed economies. Investments in commodity dependent countries such as Nigeria are often characterised by high costs such as logistics, duties, electricity and dollar-funded property developments, which continue to stunt development prospects. With the grander political project of AfCFTA being the African monetary project, achieving regional financial integration and a regional monetary union will strengthen the continent’s bargaining power with global investors.

China in Africa

The presence of Chinese investment in Africa has driven infrastructure development, paving the way for new investments across the continent. Initiatives such as the Belt and Road Initiative (BRI) – a global infrastructure development and integration project spearheaded by China – has had notable influence on the role of trade and development finance across the continent. The Chinese currency, the renminbi, has the potential to challenge the US dollar when it comes to the terms of payments for projects or business across the continent. The People’s Bank of China, is expected to facilitate further engagements with African central banks in this regard; but whether the Chinese currency will supplement the US dollar on the continent any time soon, remains to be seen.

Free movement of labour

Trading talent and skills is the low hanging fruit of the broader AfCFTA project, and companies will need to be ambitious in order to drive this growth forward. The skills-export economy will remain fundamental to gearing African economies for growth, as migration will have a significant bearing on boosting the economic integration of Africa. AfCFTA has the potential to unlock value on the continent, contributing to the broader African economy. However, gauging the appetite from African governments, more so those in the economic nodes of the continent, including Nigeria, South Africa, Kenya and Ethiopia, will determine the success of the project in the long term.

A view on Africa’s economic and fiscal outlook in 2019

Political tensions continue to plague African economies in 2019, fuelling further speculation their economic prospects. According to the AfDB, GDP growth on the continent is projected to be 4% in 2019 and 4.1% by 2020. Key elements affecting Africa’s economic and fiscal outlook include the following:

Global economic growth

Global economic growth will underpin the development prospects of countries in Africa, however, the slowdown in China, which was supported by the announcement of a fiscal stimulus, is expected to have undue repercussions on the global economy. Moreover, the consequences of political uncertainty in the US will filter through to emerging markets. Similarly, the impact of Brexit as well as the European sovereign debt crisis are expected to underpin the demand and supply prospects from global markets in Africa.

Banking and financial inclusion

Over the past few years, banks have built up their capital buffers to maintain a solid funding base. In East Africa, this has deepened financial inclusion. However, banks in the region will have to align with international best practises and adopt provisions to support the rise of mobile banking. The increase of remittances has had a significant impact on financial stability within SSA banking systems, and in 2019 remittance growth is expected to continue. However, given that the region is affected by contrasting dynamics such as geopolitical risks and trade tensions, these will need to be addressed to determine the financial conditions of these states. Together with rising government debt, these factors will continue to put pressure on banking systems. Banking penetration in the rest of Africa remains low. As it stands, the ratio of banking assets to GDP is under 70%, while in South Africa it is 117%. Although the potential exists to grow this base, there are a number of constraints.

Size: The SSA banking sector is dominated by smaller banks, but in order to achieve scale and drive financial investments, larger banks will need to participate in stimulating financial inclusion. The influx of global players investing in micro enterprises will scale up inclusion in the banking sector.

Access to funding: When it comes to banks, size matters; and the bigger the bank, the more capacity they have to support consumers that do not have access to formal markets. PanAfrican banks have the capacity and strategies to tap into these markets and create new opportunities to promote inclusive growth. Private equity funds will continue to back financial inclusion initiatives across the continent.

Fiscal consolidation

Government finances have been affected by low commodity prices, and for commodity-dependent economies, this has seen the escalation of government debt. However, government guarantees to ailing state-owned enterprises need to be stabilised in order to close fiscal deficits.

South African elections

As South Africans approach the general elections in May, investors will be looking to the president to affirm the South African Reserve Bank’s (SARB) mandate. While investors have regained confidence in the South African economy, the consolidation of cabinet to reduce the expense of civil service and government finances is being scrutinised by credit rating agencies. However, a 2019 Investec GDP growth forecast of 1.9% anticipates that better governance will continue to pull through to aid domestic policies. While 2019 is expected to be a better year for South Africa, with minimal concerns of a further ratings downgrade, there needs to be an improvement on the country’s fiscal outlook to mitigate risks such as unforeseen increases in expenditure to fund infrastructure projects, rising government debt and political uncertainties.

To read the conference report, click here.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

Africa in 2019 Outlook Conference Highlights: Part 1

Deloitte recently hosted the 2019 Africa in 2019 Outlook Conference in Johannesburg, South Africa. A focus area was how Africa can improve on its ability to execute economic growth. Our Director, Rene Stegmann, attended on behalf of Relocation Africa. Below are some highlights from the conference.

US-Africa strategy countering China

At the end of 2018, United States (US) National Security Advisor John Bolton unveiled the Trump administration’s new Africa strategy. Known as the Better Utilization of Investment Leading to Development (BUILD) Act, the policy move aims to ensure US competitiveness on the continent where extensive engagement has already been made by China. How this geostrategic competition between two great powers plays out for the continent is a key question.

Growing debt in Africa

African economies have witnessed rising debt levels as the continent continues to make use of borrowed funds to finance infrastructural development. With a significant sum of financing flowing from China, the average debt-to-GDP ratio on the African continent has risen to 57%. What is important, however, is not the amount, but the serviceability of the debt in question. African economies need to ensure that acquired infrastructure is used productively to create returns that can service the debt from which such infrastructure originated.

The year of politics

In 2019, 24 countries across the continent will hold a major election (presidential, general, legislative), which is significant given that the economies of frontier markets tend to be influenced by domestic politics. The outcomes of these elections will shape the future for many economies on the continent.

Nigeria and South Africa – will 2019 be a year of structural reform?

Nigeria and South Africa, two of Africa’s largest economies currently experiencing “structural limbo”, are in need of renewed growth drivers. It remains to be seen whether or not the requisite political will exists to reinvigorate growth in both economies.

Ethiopia

Referred to as the “African miracle” Ethiopia’s leadership has undergone significant restructuring to ensure that the economic changes currently taking place are supported by new political thought and leadership. Growth in Ethiopia has been driven by investment in fixed capital, giving rise to powerful domestic industries responsible for job creation. The future development of Ethiopia poses an interesting case study for the continent. Looking forward, 2019 is set to be the year of uncertain sentiment, most notably due to global trade tensions and protectionist strategies and their potential effect on the global economy. However, not all global crises are felt equally across geographic regions, as was the case with the 2008 global financial crisis.

Private capital as a force for development in Africa

Productive infrastructure is vital for development to take place in Africa, however, access to funding continues to be a significant issue facing multiple economies across the continent. According to figures published by the African Development Bank (AfDB), infrastructure needs across the continent amount to US$130bnUS$170bn a year, with a corresponding funding gap in the region of US$67.6bn-US$107.5bn. Furthermore, tightening fiscal conditions across the continent mean that the existing funding gaps will not be covered by government expenditure, placing infrastructure investment under stress. The introduction of private players in the infrastructure funding space, however, has been a significant development, particularly where infrastructure is concerned in countries in need of growth.

Intra-African trade – trade between African countries – currently accounts for 18% of overall trade on the continent, indicating the high degree of opportunity that still exists for the further integration of African economies. To this end, it is paramount that the necessary funding is available to develop African economies as well as support their ability to trade with each other. While private capital can be key enablers of such development, countries hoping to attract more private capital need to focus on developing growth incentives and an industrial base to drive investment.

To view the conference report, click here.

 

For information as to how Relocation Africa can help you with your Mobility, Immigration, Research, Remuneration, and Expat Tax needs, email marketing@relocationafrica.com, or call us on +27 21 763 4240.

Sources: [1], [2]. Image sources: [1], [2].

South Africa: SA ‘Working On Scrapping Visa for All African Citizens’

South Africa is working towards allowing all African citizens to enter the country without visas – but at first “trusted travellers” like diplomats, officials, academics, business people and students will be the only ones to benefit.

The Department of Home Affairs outlines the steps that will be taken towards scrapping visa requirements in its latest White Paper on International Migration, which was adopted by cabinet six weeks ago but not made public yet.

The African Union’s Agenda 2063, championed by former AU Commission chairperson Nkosazana Dlamini-Zuma, calls for the scrapping of visa requirements for all African citizens travelling on the continent by 2018 based on the views of the African Rennaissance.

The African passport was launched with great ceremony by Dlamini-Zuma and Rwandan President Paul Kagame at last year’s AU summit in Kigali.

According to the White Paper, South Africa “fully supports the vision of an Africa where its citizens can move more freely across national borders, where intra-Africa trade is encouraged and there is greater integration and development of the African continent”.

It said the current status was untenable. “For instance, on average Africans need visas to travel to 55% of other African countries. They can get visas on arrival in only 25% of other countries. Finally, they do not need a visa to travel to just 20% of other countries on the continent.”

Security-based approach

But the White Paper, which moves South Africa’s approach to immigration from a purely administrative one to a security-based approach, warns that the scrapping of visas needs to happen with caution.

South Africa’s risk-based approach “advocates for an incremental removal of migration formalities for frequent and trusted travellers including diplomats, officials, academics, business persons, students, etc.”

The policy is envisaged as follows: African citizens can enter South Africa visa-free where there are reciprocal agreements.

Visas will only be needed when there are risks of foreign nationals overstaying, security risks like organised crime, terrorism and political instability, civil registration risks, i.e. fraud by foreign governments in issuing documents or an unable or unwillingness to identfy their nationals when requested, and for countries “with a high number of nationals who abuse the asylum system”.

One of the countries identified elsewhere in the document as doing such is Zimbabwe.

 Key elements of the visa-free regime would be visa-free entry for visits up to 90 days, recognition of visas for third parties, for example regional visas, agreed standards on immigration and border management, agreed standards on civil registration and “sophisticated, real-time risk management, information and intelligence sharing”.
Where visas are required “South Africa should make it as easy as possible for bona fide travellers to enter South Africa”, by standardising and expanding the use of long-term, multiple-entry visas for frequent travellers, business people and academics, according to the White Paper.

A list will be developed of countries whose visa adjucation systems are trusted and recognised by South Africa, and technology will be used to establish trusted traveller schemes.

Free movement of African citizens

At regional level, South Africa “should continue to advocate for a free movement of African citizens,” the paper states.

It also says, however, that there has been a large influx of semi-skilled an unskilled economic migrants who couldn’t get visas and permits through the “mainstream immigration regime”.

These had some negative consequences, such as the asylum seeker management system being “abused and overwhelmed by economic migrants”, and then these migrants, and by extension also South African workers, being abused by “some unscrupulous South African employers”.

 There has also been “increased trade in false documentation and petty corruption by police and immigration enforcement officials”, and social cohesion has suffered, “as all citizens assume that all migrants from the rest of Africa are irregular and undesirable”.

There has also been a “revolving door” of migrants returning, and deportations to neighbouring countries increasing significantly.

The White Paper, which has a strong focus on attracting more skilled migrants to counter the brain drain, also announces a special dispensation for migrants from the Southern African Development Community, with the focus on giving visas to skilled migrants, traders and small and medium sized business owners.

Visas for lower skilled migrants will be “quota-based”, but details on this still have to be decided.

Home Affairs minister Hlengiwe Mkhize is expected to announce details on the new immigration dispensation in her budget speech in Parliament on Wednesday.

It is expected that the new policy will find its way into legislation by next year.

The original article can be viewed here.