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ASIA: China set to cash in on new African free trade agreement.


Added on 28/05/2019

As extracted from china-briefing.com, published on Monday 27th May, 2019.

 

The African Continental Free Trade Agreement (AfCFTA) will boost China’s African continental trade ties.

One of the world’s most valuable and largest free trade agreement will kick in on May 30, yet it is one that has gathered little mention in mainstream media: the African Continental Free Trade Agreement (AfCTFA). The AfCTFA is the single largest FTA realized since the coming together of the World Trade Organization, but the lack of attention paid to it is an indication that despite globalization, trade that matters is perceived as being conducted solely by the United States.

China has been a major broker in the deal, using its diplomatic, political, and trade clout to harness an agreement that includes 52 out of 55 African countries (only Benin, Eritrea, and Nigeria have not joined). The AfCTFA covers an area worth over US$3 trillion in GDP and eliminates tariffs on 90 percent of goods traded across the continent. Over 1.2 billion African consumers will be impacted by the agreement.

Nigeria, which is Africa’s largest country in GDP terms, is currently out of the deal based on concerns raised by the Manufacturing Association of Nigeria, which views the AfCFTA as having a negative impact on its members. Nigeria does have a separate free trade agreement with China, but that has been viewed as less than positive as Chinese manufacturers began dumping cheap and poorly made products on the Nigerian market after its signing in 2010.

On a pan-African scale, the economic impact of AfCFTA will be significant. According to the African Development Bank, removing tariffs on intra-African trade will boost net income at the continental level by US$2.8 billion per annum. Removing the ad valorem tariff equivalents of non-tariff barriers on goods and services would result in a 1.25 percent increase in net real income, or US$37 billion, while implementation of the WTO’s Trade Facilitation Agreement (TFA) would boost benefits even further, with an estimated aggregate real income gain of 3.5 percent, or some US100 billion.

In terms of the impact on trade, the AfCFTA stands to boost intra-regional trade (within regional economic communities) by 14.6 percent, while Intra-African trade would increase by around 107 percent. Further, the implementation of the TFA would grow intra-African trade by an additional further 51 percent. These are significant figures. However, the AfCFTA is not just a deal to benefit the Chinese, although the structuring and timing of the agreement has all the hallmarks of Chinese organizational skills. International businesses from all over the world can benefit by establishing an African subsidiary.

China also has double tax treaties with a number of African nations: Algeria, Botswana, Egypt, Ethiopia, Mauritius, Nigeria, Uganda, Seychelles, South Africa, Sudan, Tunisia, Zambia, and Zimbabwe.

Although Southeast Asia will continue to be a rapidly growing region for trade and commerce, as Africa develops via the new AfCFTA, it will start to become competitive. I predict that within the next five years, we will start to see the beginning of moves made by foreign businesses who originally began their overseas manufacturing expansion for cost reasons to China, continue the journey to Southeast Asia, then head across to Africa. The AfCFTA has just bought that a massive step further into reality.