The rationale for an investment protocol in the AfCFTA: How will it contribute to Africa’s sustainable development?
This confidential project is authored by Alex Etkin, Ece Melisa Celebican, and Wil Longard (University of Ottawa, Faculty of Law). At the request of Phil Rourke and Rosemina Nathoo from the Centre for Trade Policy and Law, the authors prepared this project to (1) develop a rationale for an investment protocol in the Africa Continental Free Trade Area (AfCFTA); (2) discuss its possible scope and coverage; (3) provide recommendations to ensure effective implementation; and (4) analyze its potential to achieve the goals of Agenda 2063.
The African Continental Free Trade Area (AfCFTA) is an initiative of the African Union which aims to enhance prosperity through continental economic integration and to unify Africa under a single market for goods and services. The investment protocol will contribute to the increased transparency, efficiency, and improved investment governance throughout Africa by creating a uniform set of treaty rules across the continent.
Students making a presentation on the project (above).
1. The Rationale for an Investment Protocol
Africa’s emerging markets offer great opportunities for economic growth and prosperity. With roughly 1.2 billion people, it is the world’s second largest and second most populous continent, and boasts natural and human resources which have the potential to power economic development across the continent. By 2050, Africa’s population is projected to reach 2 billion, with a majority being of working age. About 70 percent of Africans are under 30 years of age and over half are female. Notwithstanding challenges such as high unemployment, Africa is home to ten of the world’s fifteen fastest-growing economies. This growth rate is expected to boost consumer spending from US$860 billion in 2008 to more than US$1.3 trillion by 2020, with 128 million households possessing discretionary income.
The unification of the African market has been a work in progress for some time. Initial efforts in this direction occurred in January 2012 at the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union. The AU adopted a decision to fast-track the AfCFTA’s establishment by an indicative date of December 2017. On March 21, 2018, 44 of the 55 African countries signed the AfCFTA in Kigali, Rwanda. The signing of the AfCFTA stands to exert a transformative effect on the continent’s economic development. Upon ratification, the AfCFTA will bring together the economies of 55 African states under a pan-African free trade area with a combined GDP of $3.4 trillion. Once implemented, this agreement will represent the first time for AU member nations to be integrated under a single stable framework for trade and investment. The AfCFTA is envisaged to double intra-African trade from 12 percent (in 2012) to 25 percent (by 2022). Indeed, the AU has seized upon considerable domestic growth optimism at a time when African nations and businesses increasingly acknowledge that the continent is in need of greater intra-African trade and investment flows.
By liberalizing investment and trade regimes, the AfCFTA could unleash this growth potential, allowing African investors to access greater opportunities across the continent. The successful implementation of the reforms for the AfCFTA—including harmonizing regulations among regions, improving infrastructure, and tackling governance and political issues—is likely to attract foreign investment.
While the establishment of Regional Economic Communities (RECs) was a step toward integration the lack of implementation strategies and the non-binding nature of multiple and overlapping instruments hindered progress. The AfCFTA aims to improve upon the RECs which have thus far been the building blocks for free trade, customs unions, and common market initiatives.
Phase 1 of the AfCFTA Negotiations for trade in goods and services was launched in June 2015, and significant progress has also been achieved in the Protocol on Trade in Services and Goods as of April 2018. However, schedules of commitments are yet to appear. Phase II Negotiations involving investment, intellectual property, and competition policy will begin later in 2018.
2. Agenda 2063
Apart from objectives traditionally associated with a free trade agreement, the AfCFTA also aims to advance Agenda 2063, which is a strategic framework for Africa’s socio-economic transformation over a period of 50 years as proposed by the African Union. It has a guiding vision to achieve an integrated, prosperous and peaceful Africa, driven by its own citizens and representing an influential force internationally. The AU envisions that the integration of the continental economy will enlarge markets for goods and services, enhance customs cooperation, and harmonize and coordinate trade policies. In doing so, it seeks to address the disconnect between multiple and overlapping regional memberships in the RECs.
Agenda 2063 is different from past continental initiatives in several ways. First and foremost, it was created through a non-bureaucratic, bottom-up approach driven by African people. In this way, it advocates ownership of the processes and outcomes which it embodies. Second, it sets aspirational targets at national, regional, and continental levels to ensure accountability, and it advocates a monitoring and evaluation component. Third, in the name of making policies coherent across the continent, it is the first initiative to have brought continental and regional initiatives under one umbrella. Fourth and finally, financing strategies and instruments have been identified through a “Resource Mobilization Strategy”, which includes expanding and maximizing country to country partnerships within the African continent.
The AU’s plan, as articulated in Agenda 2063, is to first develop a continent-wide FTA. Over time, the FTA will be converted into a customs union and, ultimately, a continental economic union (with a common currency and an African Central Bank). Investment is part of most regional economic integration agreements; for example, the free movement of capital and the right of establishment within the European Union (EU) is integral to its success as a customs union. In the same way, the inclusion of an investment chapter in the AfCFTA is expected to promote the goals of the African Union as stated in Agenda 2063.
3. The Project
The project for the Centre for Trade Policy and Law provides recommendations regarding the provisions of an investment protocol in the AfCFTA as part of a comprehensive framework to pursue a developmental regionalism strategy, The analysis is based on the approaches in existing regional and pan-African investment agreements, as well as two existing tools: Assessing Regional Integration in Africa VIII and Action Plan on Boosting Intra-African Trade. The project’s ultimate goal is to act as a reference tool for AU negotiators by providing both a historical context on how the AU arrived at the current juncture, as well as an analysis of prior regional efforts to standardize African investment rules. Agenda 2063 is another document to which the authors refer throughout the project, particularly as a guide for some of their specific recommendations about what an investment agreement may include.