COMPLEMENTARY INITIATIVES TO THE AfCFTA
7.1. Boosting Intra-African Trade (BIAT) Action Plan
The AfCFTA reforms are necessary but not sufficient on their own to boost the level of intra-Africa trade:
complementary measures will be needed to ensure that the benefits of the AfCFTA are fully harnessed and shared equitably. Cognisant of this fact, the AU Heads of State and Government adopted the Boosting Intra-African Trade (BIAT) Action Plan, at the same 2012 AU Assembly meeting at which it was decided to establish the AfCFTA. The BIAT Action Plan has seven priority clusters that address the common trade constraints in the region such as, inter alia, poor trade-related infrastructure, limitations on productive capacity, differences in trade regimes and restrictive customs procedures (Table 7.1).
Table 7.1: Summary of the seven priority clusters of the Boosting Intra-African Trade (BIAT) Action Plan
CLUSTER TOTAL BITS BY COUNTRY
Trade policy • Mainstream intra-African trade in national strategies
• Enhance participation by the private sector, women and the informal sector
• Boost intra-African trade in food products
• Undertake commitments to liberalize trade-related services
• Commit to harmonize rules of origin and trade regimes
• Promote “Buy in Africa” and “Made in Africa”.
Trade facilitation • Reduce roadblocks
• Harmonize and simplify customs and transit procedures and documentation
• Establish one-stop border posts
• Adopt integrated border-management processes.
Productive capacity
• Implement the programme for the Accelerated Industrial Development of Africa (AIDA), the African Productive Capacity Initiative and the Accelerated Agribusiness and Agro-industry Initiative
• Establish integrated trade information systems
• Encourage investment
• Establish regional centres of excellence.
Trade-related infrastructure
• Implement the Programme for Infrastructure Development in Africa (PIDA)
• Mobilize resources for multi-country projects
• Pursue high-quality multi-country projects
• Ensure an enabling environment for private-sector participation
• Develop innovative mechanisms (legal, financial, etc.) for multi-country projects.
Trade finance • Improve payment systems
• Set up an enabling environment for financial services to provide export credit and guarantees
• Speed up the establishment and strengthening of regional and continental financial institutions.
CREATING A UNIFIED REGIONAL MARKET TOWARDS THE IMPLEMENTATION OF THE AFRICAN CONTINENTAL FREE TRADE AREA IN EAST AFRICA
CLUSTER TOTAL BITS BY COUNTRY
Trade information • Create interconnected centres of trade information exchange.
Factor market
integration • Operationalize existing protocols and policies
• Facilitate movement of businesspeople
• Harmonize rules on cross-border establishment
• Conclude agreements on mutual recognition of qualifications.
Source: Adapted from ECA, AUC and AfDB (2017).
In addressing the need for improved payment systems, the African Export-Import Bank (Afreximbank) has launched the Pan-African Payment and Settlement System (PAPSS). It is a continent-wide digital payment system aimed at facilitating payments in African currencies for goods and services involved in intra-African trade. With this platform, intra-regional payments will be domesticated, effectively saving the region approximately USD 5 billion in payment transaction costs annually. The system is also expected to formalize a considerable fraction of the estimated USD 50 billion of informal intra-African trade (Nelson and Adekoya, 2019).
Laudable as they are, initiatives under the BIAT will all require significant additional finance. Research suggests that African exporters rely on Bank-intermediated finance more than in other regions (German Development Institute, 2015). Yet, unlike in high income countries, banks are relatively more conservative about supporting local exporters; they lack the capacity, knowledge, enabling regulatory environment, international network and/or foreign
currency to supply export-related finance. Equally, traders are largely not aware of the available products, or of how to use them efficiently. The overreliance on bank-intermediated trade finance, against a background of capacity-challenged banks with small balance sheets, represents a significant impediment for intra Africa Trade (Nyakundi, 2017).
That being the case, the AU needs to seek partnerships with the private sector and development partners in order to finance the BIAT action plan. For example, the financing of trade facilitation in the EAC region has been spearheaded by TradeMark East Africa (TMEA), which is an ‘aid for trade’ programme set up by the United Kingdom (UK) Department for International Development (DFID) to help countries in the EAC implement trade facilitation reforms.
TMEA’s programme in the EAC was launched in 2009 and has since invested over USD 800 million from ten donor93 governments to enhance trade facilitation across the region. TMEA programmes have focused on: automation of trade systems and processes; improving infrastructure; upgrading ports and border posts; improving the trading environment through automation of single window systems; customs systems automation; harmonisation of standards; and removal of non-tariff barriers. Interventions have resulted in a significant reduction in trading time and costs across the region. For example, the Rwanda electronic single windows system reduced the days it took to clear goods through customs, from 11 days to 1.5 days. The upgrade of the port facilities in Mombasa Kenya reduced import and export times by an average 50 percent. Investment in the one-stop border posts have reduced time taken to cross
The Pan-African Payment and Settlement System (PAPSS) is a continent-wide digital payment system aimed at facilitating payments in African currencies for goods and services involved in intra-African trade… [projected to save] the region approximately USD 5 billion in payment transaction costs annually.
93 The ten donor governments to TMEA’s programme in the EAC are: United Kingdom, Belgium, Canada, Denmark, European Union, Finland, Netherlands, Norway, Ireland, and the United States
COMPLEMENTARY INITIATIVES TO THE AfCFTA
borders by an average 70 percent. Additionally, the implementation of the simplified trading regime for small scale traders (threshold of USD 2000) at the one-stop border post has led to increased incomes and improved livelihoods for many women and youth. Support to implementing East African product standards has reduced testing costs by 85 percent in Kenya, 71 percent in Uganda, and 50 percent in Rwanda.
Finally, the AfCFTA Adjustment Facility, a USD 1 billion financing instrument instituted by the Afreximbank in July 2019, comes as a timely contribution to the regional trade integration process. The funds will support participating countries with any initial fiscal imbalances that may arise from implementation of the Agreement. The funding will also help with capacity building.
7.2. The Development of the Northern and Central Corridors
Improvements in the quality of the region’s infrastructure (international linkages and internal networks) are thus vital if countries are to capitalize fully on the potential gains from the AfCFTA. Within the region, the Northern and Central Corridors are two distinct multimodal routes connecting the seaports of Mombasa in Kenya and Dar es Salaam in Tanzania, respectively, to the landlocked countries of the Great Lakes Region – including Burundi, D.R. Congo, Rwanda, South Sudan and Uganda (Figure 7.1). They do so by road, rail and inland waterways. Both corridors form the backbone of regional transport in East Africa.
These corridors also include Lakes Victoria and Tanganyika as waterways, as well as their major ports (Kisumu-Kenya, Mwanza-Tanzania, Port Bell-Uganda on Lake Victoria, Bujumbura-Burundi, Kalemie-D.R.
Congo and Kigoma-Tanzania on Lake Tanganyika).
Figure 7.1: The Northern and Central Corridors
Similar import and export shares of cargo are handled by the ports of Mombasa and Dar es Salaam.