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# The COVID-19 Pandemic and African Continental Free Trade Area (AfCFTA): Exploring Potential Impacts and Developmental Implications

By Edward Asiedu

Submitted: October 28th 2020Reviewed: March 24th 2021Published: August 12th 2021

DOI: 10.5772/intechopen.97394

## Abstract

The COVID-19 pandemic has caused nontrivial disruptions to global value chains and affected the lives of many people, particularly the poor across the world. The outbreak of the COVID-19 pandemic in the early part of 2020 in Africa, happened during a time that African countries had just signed one of the world’s largest trade agreements and therefore began introducing continental-level structures to strengthen free trade among member states. This chapter examines the potential effect of the COVID-19 pandemic on the agenda for free trade in Africa, both in the short and in the long-term. Specifically, the chapter explores the trading environment of firms in Africa and highlights generally the challenges faced when implementing a trade agreement in the middle of a pandemic. It also, on the other hand, highlights how trade agreement in a middle of a pandemic can be a good thing to minimize the effect of the pandemic on poor and vulnerable households in Africa. The chapter ends by highlighting the need for managing the COVID-19 pandemic to grow and sustain intra-African trade.

### Keywords

• Africa
• African Continental Free Trade Area
• COVID-19
• SDGs

## 1. Introduction

Africa’s most ambitious trade initiative, the African Continental Free Trade Area (AfCFTA) agreement, was signed and launched at the African Union (AU) Assembly on 21 March, 2018 in Kigali, with the agreement fully coming into force on 30 May, 2019. Out of the 55 member states, 34 countries have both signed and deposited their instruments of AfCFTA ratification. However, due to the political situation in Eritrea, the country has yet to join the agreement.

The AfCFTA agenda is to boost intra-African trade by around 60% by 2022. The agreement was necessitated by the low level of intra-African trade before the signing of the agreement. Data from the African Development Bank (AfDB) showed for example that trade among African countries was about 10% in 2000. Fourteen (14) years afterward, in 2014, and prior to the signing of the AfCFTA agreement, even though intra-African trade had increased, the continent recorded barely a 6% increase in intra-Africa trade, over the 2000 base level [1]. Thus, despite the intensification of bilateral intra-African trade agreements over the past two decades, still, only 16% of international trade by African countries took place within Africa in 2014.

A number of empirical and anecdotal evidence have shown the importance of intra-regional trade on poverty reduction. For example, regional organizations’ are better positioned to link regional trade to region-wide health, education, social protection, and other public goods policies, and therefore provide a platform to strengthen global, regional, and national actions on poverty reduction [2]. A number of researchers have emphasized the intra-regional trade, employment/income linkages [3, 4, 5], whereas others emphasized the intra-regional trade and investment linkages [6, 7, 8], and how these linkages do impact poverty at national and regional levels. Das [9] argues that the linkages need to be analytically understood and empirically examined to make regional cooperation initiatives development-oriented.

Nudging free trade by eliminating bottlenecks associated with intra-regional trade can be pivotal towards addressing poverty and food insecurity in many parts of Africa (see [10]). Others argue that the advantage of intra-African trade is not solely in the production and trade of raw food products and thereby reducing food insecurity, but also countries with more advanced manufacturing sectors hold potential for Africa’s growth, and a reduction in imports if such countries in Africa can access the larger African market (see [1]). However, despite the need for stronger economic cooperation in developing countries, Das [9] intimate that there are very few regional economic integrations in the developing world, with many successful economic groupings found in the developed world.

The African continent is made up of 55 countries and if all countries would negotiate a bilateral trade agreement with all other African countries, there would be 1,485 bilateral FTAs (55 x 54 divided by 2) [15]. A number of authors have argued that the multiple memberships of numerous regional economic communities (RECs) have seemingly contributed to the slow progress of inter-regional integration on the African continent [16, 17]. Thus, even though there are benefits to sub-regional bloc integration i.e., ECOWAS, EAC, SADC, and AMU, a universal trade bloc that encompasses all the sub-regional blocs would have a much better potential to increase trade, and as such stand a chance of making a significant push towards reducing the severity of poverty in Africa. It is in this spirit, that the African Continental Free Trade Area (AfCFTA) was mooted and signed by many African countries across the various traditional economic blocs.

This chapter discusses the short and long-run effects of the COVID-19 related shocks on the success or otherwise of the African Continental Free Trade Area (AfCFTA) agreement, and how such outcomes can impact the welfare of the poor. The discussion also explores the channels through which the COVID-19 shocks are transmitted, namely through consumption, production, and market-based labor activities.

## 2. Background and structure of the AfCFTA agreement

After decades of emphasis on sub-regional trade blocs in Africa, the African Continental Free Trade Area (AfCFTA) agreement was finally signed and launched in 2018. The key objective of this agreement is to create a single African continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Customs Union. As an auxiliary but important objective, the agreement also hopes to boost Africa’s trading position in the global market by strengthening Africa’s common voice and policy space in global trade negotiations. The specific objectives of the AfCFTA are:

1. progressively eliminate tariffs and non-tariff barriers to trade in goods;

2. progressively liberalize trade in services;

3. cooperate on investment, intellectual property rights and competition policy;

4. cooperate on all trade-related areas;

5. cooperate on customs matters and the implementation of trade facilitation measures;

6. establish a mechanism for the settlement of disputes concerning their rights and obligations; and

7. establish and maintain an institutional framework for the implementation and administration of the AfCFTA.

The AfCFTA is governed by five (5) operational instruments, namely, rules of origin; the online negotiating forum; the monitoring and elimination of non-tariff barriers; a digital payments system, and the African Trade Observatory. Challenges in the implementation of any of the instruments can affect the utilization of the tariff and general trade provisions under the AfCFTA. For example, complex criteria used to determine the national source of a product and how the source of intermediate products used in production are treated have impacted the extent to which firms on the continent will pursue and will be involved in the AfCFTA agenda. Therefore, procedures for the issuance of certificates of origin must follow smooth and efficient processes, at the same time minimize the risk of re-exports. Improved ICT infrastructure on the continent is imperative therefore for the effective functioning of the online negotiation forum, obtaining online certificates of origin, the digital payments system, and the African Trade Observatory.

The broader institutional framework for the implementation, administration, facilitation, monitoring, and evaluation of the AfCFTA consists of the Assembly, the Council of Ministers, the Committee of Senior Trade Officials; and the Secretariat. For the latter, Ghana was selected to host the AfCFTA Secretariat and the Secretariat’s key role as stated in the agreement, is to provide administrative support for the implementation of the AfCFTA Agreement, such as convening meetings, monitoring and evaluating the implementation process, and other duties assigned to it by the Committee of Senior Officials, Council of Ministers, and the AU Assembly.

The AfCFTA is also accompanied by other continental initiatives such as the protocol on Free Movement of Persons, Right to Residence and Right to Establishment, and the Single African Air Transport Market (SAATM) [18]. In a nutshell, the AfCFTA arrangement is expected to create the biggest free trade area in the world, based on the number of nations that have signed and ratified the agreement. The settlement therefore will join 1.3 billion individuals across 55 nations, with a consolidated Gross Domestic Product (GDP) esteemed at US$3.4 trillion. The expectation for this agreement is quite huge. It is expected that approximately 30 million individuals will be lifted out of poverty. Accordingly, it is expected that over-all from the agreement, the agreement will bring about$16.1 billion in welfare gains [19]. It is also argued that the full accomplishment of AfCFTA would reshape markets and economies across the region and increase services, manufacturing, and natural resources sectors, and subsequently increase the real income gains by 7 percent or approximately US\$450 billion.1

Putting the effect of the COVID-19 pandemic on the AfCFTA and trade volumes into perspective, it is important to first highlight the state of trade within Africa prior to the coming into effect of the AfCFTA. In 2016, prior to the signing of the AfCFTA, the total intra-African exports amounted to USD 62.2 billion. Earlier data from 2000 to 2010 shows relatively very low values of intra-African trade (see Figure 1). Over the period, intra-African imports represented an average of 14.2 percent of total African imports, while intra-African exports represent 10.4 percent of total African exports. Altogether, over the period 2000 to 2010, intra-African imports amounted to USD 29 billion whereas, intra-African exports amounted to USD 30 billion [20].

Overall, intra-African trade data have shown low levels of regional trade on the African continent prior to AfCFTA and the pandemic (see Figure 2). Total exports, for example from the Northern African region to other countries in the northern region, amounted to 5% in 2011, whereas exports from the Northern African region to the other individual regions on the continent amounted to 1% or less of total exports [16, 21]. Total export within a region is highest for exports within the Eastern bloc (EAC), where total exports from the Eastern Africa African region to other countries in the east amounted to 15% in 2011. For the other regions, exports within a bloc are less than 10%. For example, total exports from the Southern African region to other countries in the south, and that from Western Africa to other countries in the west accounted for 8% of the bloc’s exports. As shown by Figure 2, prominent inter-bloc trade took place between the east and south (EAC-SADC), and west and south (ECOWAS-SADC), which accounted for 4% of total exports in both cases.

Table 1 below highlights some major bilateral intra-African exports on the continent prior to the signing of the AfCFTA agreement in 2017.

ExporterImporterValue (USD ‘000)% of total intra-African exports
NigeriaSouth Africa1,892,2853.0%
GhanaSouth Africa1,362,9062.2%
AngolaSouth Africa982,4011.6%
South AfricaDem Rep. of the Congo782,5021.3%
South AfricaAngola562,9330.9%
South AfricaKenya556,6100.9%
AlgeriaMorocco499,0560.8%
MaliSouth Africa474,2390.8%
NigeriaCameroon467,0790.8%
EgyptAlgeria464,4060.7%

### Table 1.

Major bilateral export relationships.

Source: TWN, [15].

Table 1 indicates that the largest single value of bilateral trade took place between Nigeria and South Africa, followed by Ghana and South Africa. Overall, the share of intra-African exports as a percentage of the continent’s total exports stood at 16.6% in 2017 [22]. From the data, the top five (5) intra-African exporters are South Africa, Nigeria, Ghana, Angola, and Algeria. The expected benefits from the AfCFTA will to a large extent depend on the country’s pre- AfCFTA bilateral intra-African trade volumes. Countries with a lower share of pre- AfCFTA intra-African trade will benefit significantly from this agreement.

Data from West Africa is quite interesting in terms of highlighting the composition of intra-African trade. Von Uexkull [5] noted that for some countries the share of manufactured good is substantially higher among other ECOWAS countries than exports to global markets. For example, Benin exports manufactured food, beverages and Tobacco and some construction materials (steel and cement) to the ECOWAS countries while for the rest of the world their main export is cotton. Cote d’Ivoire exports mainly refined petroleum products to ECOWAS and cocoa/cocoa butter to the rest of the world. For Ghana, the country exports manufactured wood, plastic and textiles to ECOWAS, semi-processed gold to South Africa and mainly cocoa to the rest of the world. Togo, the country with the highest share of intra-ECOWAS trade (59%) exports steel, cement, packaging materials and food products (margarine, flour, mineral water) to ECOWAS and cocoa/mining phosphates to the rest of the world (see [5] for a detailed breakdown of intra-ECOWAS trade).

Trends in the share of total merchandised export of the top five (5) countries in Africa’s export (see Figure 3) prior to the pandemic provides evidence on the potential of AfCFTA in improving total trade volumes for countries with traditionally small levels of export. The data as presented in Figure 2 shows that, from the 1980s, except Angola and Morocco that has experienced marginal increases in their African export shares, large countries such as South Africa, Nigeria, and Algeria has seen a decline in their share of Africa’s export. One would expect that the structures instituted under the AfCFTA will empower not only the traditionally large export countries in Africa but also help empower small countries with low trade potentials and limited pre- AfCFTA export volumes to expand export.

In addition, data collected prior to the agreement and outbreak of the COVID-19 pandemic showed that the majority of enterprises in Africa considered customs and trade regulations as a major constraint to trade. Precisely, Stuart [24] found that the percentage of African enterprises identifying customs and trade regulations as a major constraint is almost 40% higher in Africa than in the rest of the world. The AfCFTA aims to eliminate import duties and reduce non-tariff barriers significantly. Thus, improving trade procedures through enhanced trade facilitation should reduce bottlenecks associated with intra-African trade.

We argue that despite the enormous potential in using intra-regional trade to help reduce poverty and food insecurity in some part of Africa, the strength of these linkages both in the short and long-term will depend on the direct effect of the COVID-19 pandemic on the implementation of the trade agreement, and on the institutional structures that are in nascent stages.

## 4. COVID-19 impacts

Mold and Mveyange [25] found a large increment in the volume of Kenya’s total export in the first quarter of 2020 (prior to the outbreak of the pandemic in Africa), attributed partly to intra-African trade that was beginning to intensify due to the enhanced effort under the AfCFTA framework. There is however now increasing fear and hesitation around the world due to the Covid-19 pandemic, which has led to a new set of behaviors [26]. For Africa, about 0.5 percent of the population is confirmed to have contracted COVID-19 COVID-19 [27]. The financial interdependency and multilateral regulations that globalization stressed some decades ago, are now facing daunting and unsettling threats. As the pandemic and its impacts continue to extend deep, with both health and economic consequences taking a toll on most developing countries, trade has not been spared. Thus, although the AfCFTA addresses several tariff and non-tariff barriers, the COVID-19 pandemic has the potential to erode the potential benefits of this agreement. We explore the effect of the pandemic on the AfCFTA agreement, consumption, production, and market-based labor activities, with implications for volumes of trade in the middle of a pandemic.

### 4.1 Impact on the AfCFTA agreement

The Covid-19 pandemic could erode the expected benefits of the AfCFTA agreement.2 The global spread of the pandemic has strong implications for trade and mobility [28]. This is the first direct effect the COVID-19 pandemic have had on the implementation of the AfCFTA agreement itself. The fulfillment of AfCFTA was deferred due to the pandemic, hence the AfCFTA agreement which was planned to start on 1st of July, 2020 was postponed to 1st January, 2021 [29]. COVID-19 management systems instituted by countries at a time the AfCFTA was in its critical phase of implementation have directly impacted intra-African trade. These measures have included travel bans, border closures, mandatory quarantine, partial lockdowns, and total local lockdowns. Negotiation of key aspects of the agreements such as Rule of Origin and Schedules of Tariff Concession stalled due to the outbreak of COVID-19, as some of these aspects of the agreement require physical contacts to achieve full operationalization of the agreement. In all, the pandemic caused a six-month delay of the AfCFTA agreement.

At the administrative level, the pandemic has affected the organization of the second biennial Intra African Trade Fair (IATF) which was slated for 2020 but delayed until somewhere in 2021. The fair was to provide a platform for stakeholders to share trade, investment, and market information aimed at supporting intra-African trade and African economic integration [29].

### 4.2 Impact on consumption, production, and market-based labor activities

The COVID-19 pandemic has led to instabilities in Africa’s supply chains, notwithstanding tumbling oil costs and a lessened worldwide interest for African non-oil products. Thus, despite the fall in oil prices, weak African and global demand precipitated by the COVID-19 pandemic has affected production on the continent. A decrease in intra-African and global exports from Africa have affected revenues and growth across countries in Africa. It is projected that Africa may lose half of its GDP with growth falling from 3.2 percent to about 2 percent due to the disruption of global supply chains (Africa [30]). As observed by Sachs and Malaney [31] large-scale viral diseases can have a significant long-term impact on GDP and per-capita income.

The fall in oil price has also directly placed excessive economic and monetary risk on countries like Angola, the Democratic Republic of the Congo (DRC), Nigeria, and other importing African countries. In addition, China where the virus was first discovered, is the biggest trading investor of many countries in Africa prior to the spread of the virus [32]. The U.S Energy Information Administration also projects that the United States will likely take years to return to 2019 levels of energy consumption.3 All these developments will affect the GDP and employment in many of the oil-producing countries in Africa.

The United Nations Development Programme (UNDP) suggested that the COVID-19 crises could result in huge unemployment in Africa, where unemployment was already a major problem prior to the pandemic [33]. The pandemic also affected the nature of work, with many workers working fewer hours post lockdown, to minimize exposure to the virus. The closing down of mines and factories, changes in nature of work, and shortages of imported inputs due to the lockdown measures imposed by many African countries, have affected production, export, earnings, and wellbeing in Africa in the next couple of years.

Aside from production, at the micro-level, Durizzo et al. [34] have shown that the pandemic negatively affected household consumption and welfare in Ghana and South Africa. Similar evidence of reduced consumption is also found for many of the major countries that Africa trades with. For example, Chen et al. [35] have found long-term impacts of the COVID-19 pandemic on consumption using high-frequency transaction data.

Data from the European Union shows a 17.3% year-on-year decline in household final consumption expenditure.4 Lower levels of consumption within Africa on one hand, and in the other trading partners on the other have all affected demand for African goods. All these changes in consumption have led to reduced demand for African products, and as such led to a significant reduction in production and employment. Data from the International Labour Organization (ILO) suggests that approximately 1.6 billion informal economy workers and 436 million enterprises were significantly impacted by the pandemic and the lockdown measures, with many of the affected being women-owned and managed firms, and firms managed by persons with disabilities (PWDs).5 It is therefore important to put in policies to limit income loss for both formal and informal sector employees, in order to minimize poverty and vulnerability on the African continent.

Industrial production in Africa is not spared. The pandemic has slowed demand for Africa’s agricultural export products, and therefore putting the jobs and livelihoods of many households at risk. It has also disrupted the supply chain for agricultural inputs such as improved seeds, fertilizers, crop protection products, equipment, etc., from neighboring countries. Poor infrastructure and the high cost of doing business were already challenging intra-African trade prior to the pandemic. The pandemic has exacerbated the problem and has created challenges on both the supply and demand-side. Overall, industrial production in Africa is estimated to have decreased by 1.2% due to COVID-19 induced factory shutdowns. Similar reductions in production are recorded for Africa’s trading partners. Production losses in Africa will continue to increase if infection rates continue to increase and factory shutdowns are reinstated to curb the spread of the pandemic.

Remittances, an important income source of household income for household production and consumption have been affected significantly by the pandemic. Thus, the pandemic has led to reduced mobility, increased restrictions, affecting FDI flows, tightening the domestic financial market, and leading to heightened unemployment.

In a nutshell, disruption in supply chains for production inputs, falling demand for Africa’s production, near collapse of tourism and hospitality sectors, reduced remittances, high fiscal deficits, and the observed depreciation of local currencies have heightened existing household vulnerabilities. The region remains vulnerable to health shocks due to the undeveloped health systems in many African countries. Vaccine rollout as of February 2021 had been very slow across the continent, even though infection and death rates are rising. Failure to address these long and short-term challenges can affect production and slow trade for many African countries.

### 4.3 COVID-19, gender and trade

Examining the effect of the pandemic through a gender lens will help to tailor trade support for women involved in the intra-African trade. Experience from the Ebola virus showed that quarantines significantly reduce livelihood activities, and exacerbating poverty rates among women. Women are predominantly involved in the small cross-border trading in Africa. Many of the measures instituted by African countries to curb the spread of the pandemic, such as the mandatory quarantines at the borders, national-level lockdowns, and limitation on mobility have all impacted the trade activities of women involved in cross border trading. The COVID-19 impacts are felt especially by women who generally outnumber men in the informal trade sector, and across many countries are earning less. Thus, women traders, compared to men, who have low savings and capital will be disproportionately impacted by the pandemic and the associated mitigation measures.

It is crucial for policymakers in Africa to consider cross-border traders as essential staff requiring priority in any pandemic vaccination rollout. Continued engagement with informal trade associations along the land borders of Africa is imperative to sustain intra-African trade in the middle of a pandemic. Training of women involved in cross-border trading on the digital tools needed for the key aspects of the agreements such as the rule of origin, schedules of tariff concession, and digital payments system are critical to limited exposure to the COVID-19 virus.

In a nutshell, females’ involvement in intra-African trade is crucial for the overall AfCFTA agenda, and therefore there is the need for targeted support for women involved the cross-border trading with the African continents. Support can take the form of stimulus packages, early vaccination, free COVID-19 tests, and education on the virus to curb the spread of the virus among this group and at the same time sustain intra-African trade.

### 4.4 Opportunities in the middle of a pandemic

The pandemic does not only present negative effects but also provides the African continent and the AfCFTA agreement the chance to explore new ways of engagements, new markets, new products, and the opportunity and time to devise ways to mitigate the effect of the pandemic on trade and welfare. Thus, despite the short-term poor outlook, the pandemic has presented some opportunities that could translate into long-term increased opportunities for industry growth and employment.

The pandemic and the associated restriction on mobility has also presented an opportunity for African countries to reinforce local production and intensify import substitution of many products and the heightened need to the intra-African supply chains in order to better deal with any future pandemics. For example, in terms of pharmaceuticals, Africa spends quite a lot to import drugs from Europe and Asia, regions that have experienced huge disruptions in their supply chains. African countries with the capacity for the production of pharmaceuticals can be supported under the umbrella of AfCFTA to increase inter-regional trade of pharmaceuticals, for mutual intra-African economic benefits. With Africa plagued with many diseases, local production of all forms of pharmaceuticals will help to create sustainable long-term jobs and improve wellbeing.

Intra-African trade can be leveraged to deal with persistent and COVID-19 induced food insecurity. With a number of African countries being net exporters of food and with many others importing food from Europe and Asia, the pandemic provides the opportunity for strengthening food value chains and infrastructure under the AfCFTA. Thus, food can easily be moved from countries that have food surpluses to those that have food deficits if under AfCFTA transportation networks in Africa are improved.

In addition, despite the disruption of the international supply chain and delays in export/import channels, some companies particularly in the telecommunication sector have reported positive growth in revenues. AfCFTA can also leverage the improved internet connectivity on the African continent to enhance trade negotiation and drive-up volumes of trade transactions within Africa. Thus, as the world struggles to deal with both the health and economic effects of the COVID-19 pandemic and forestall trade, it can be said that the AfCFTA agreement is coming in at the right time.

## 5. Conclusion

The COVID-19 pandemic has imposed nontrivial cost on all economic agents, with implications expected to last for a while. While the pandemic has had consequences for trade and mobility, it has highlighted the need for strengthening value chains in general, and intra-African trade structures to be specific, in order to position Africa to better deal with any unforeseen future pandemic. This chapter explored the current and potential impacts of the COVID-19 pandemic on the African Continental Free Trade Area (AfCFTA) agreement, highlighting the effects on the trade agreement itself, trade volumes – driven by the pandemic induced-changes in consumption, production and labour markets –, and women on the intra-African trade corridors. The chapter also highlights the opportunities that African countries can take advantage of even in the middle of the pandemic. Thus, the chapter ends on the not that while Africa deals with the crisis, it must use the opportunity to strengthen African institutions, to improve trade far beyond the COVID-19 pandemic.

## Abbreviation

 AfDB African Development Bank AfCFTA African Continental Free Trade Area AMU Arab Maghreb Union AU African Union AUC African Union Commission CEN-SAD Community of Sahel-Saharan States COVID Coronavirus Disease COMESA Common Market for Eastern Southern Africa DRC Democratic Republic of the Congo EAC East African Community ECCAS Economic Community of Central African States ECOWAS Economic Community of West African States FDI Foreign Direct Investment GDP Gross domestic product IATF Intra African Trade Fair IGAD Intergovernmental Authority on Development ILO International Labour Organization PWDs Persons with disabilities REC’s Regional Economic Communities SAATM Single African Air Transport Market SADC Southern African Development Community SARS. Severe Acute Respiratory Syndrome TFTA Tripartite Free Trade Area UMA Arab Maghreb Union UNDP United Nations Development Programme WHO World Health Organization

## Notes

• https://theindependentghana.com/2020/07/world-bank-forecasts-afcfta-to-boost-africas-income-by-us450bn/
• The Coronavirus Virus (COVID-19), first discovered in Wuhan City of China in December 2019. It has now spread over the globe.
• https://www.eia.gov/todayinenergy/detail.php?id=46636
• https://ec.europa.eu/eurostat/web/products-eurostat-news/-/DDN-20201110-2
• https://www.ilo.org/wcmsp5/groups/public/---dgreports/---dcomm/documents/briefingnote/wcms_743146.pdf

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Edward Asiedu (August 12th 2021). The COVID-19 Pandemic and African Continental Free Trade Area (AfCFTA): Exploring Potential Impacts and Developmental Implications [Online First], IntechOpen, DOI: 10.5772/intechopen.97394. Available from: