“Without continual growth and progress, such words as improvement, achievement, and success have no meaning” – Benjamin Franklin
Already, it’s been over six months or half a year since the coming into force of the AfCFTA, and in this newsletter, we will be examining the current status of the AfCFTA and the progress that has been made so far since its commencement.
As you most likely know, the AfCFTA started operations on the 1st of January, 2021 and only 35 countries have complied with the requirement of depositing their instrument of ratification of the agreement with the AfCFTA Secretariat. Over the last six months, the number of countries that have deposited their instrument of ratification has increased to 37, while Burundi is in the process of depositing hers, and two other countries, Somalia and Seychelles are already in the process of ratifying the AfCFTA.
While operations of the AfCFTA commenced over 6 months ago, active trading under the agreement is yet to commence. This is due to the fact that the all of the legal instruments required for the commencement of trade are not yet in place. Also, a centralized payment processing platform being developed for the AfCFTA is still undergoing testing and is yet to be ready to fully support the commencement of the intra-Africa trade.
While the Phase I protocols that cover trade in goods and trade in services have already been adopted since 2018, negotiations on the tariff schedules and rules of origin are still yet to be finalized. Nevertheless, the implementation of the AfCFTA has currently entered Phase II which involves the negotiations and adoption of the Protocols on Intellectual Property rights, Investment, and Competition policy.
Negotiations on Rules of Origin
Rules of origin refer to the criteria used to determine the nationality of a product and what product qualifies for the benefits available under the AfCFTA. It is the regulatory regime governing the conditions under which a product or service can be traded duty-free across Africa.
How rules of origin work is that goods to be traded under the AfCFTA must meet certain defined criteria for it to be considered as having its origin in an exporting member-country within the AfCFTA. It is only after these goods meet the defined criteria that it qualifies for the preferential treatment of zero import tariff which AfCFTA avails. Hence, goods that do not qualify would not be granted zero import duty, even if it is being exported from a member-state of the AfCFTA.
It goes without saying, that rules of origin are very important because they determine what goods enjoy the benefits of the AfCFTA. For individuals, businesses, and governments to be able to tap into the opportunities presented by the AfCFTA, they must comply with the rules of origin under the AfCFTA.
Currently, negotiations on the rules of origin are over 90% completed, while the remainder are expected to be completed before the end of the month.
Pan-African Payment and Settlement System (PAPSS)
To facilitate the implementation of the agreement, the AfCFTA is working on a harmonized electronic payment system known as PAPSS (Pan-African Payment and Settlement System) which will provide a way to centralize payment infrastructure based on the existing national payment system for the purpose of processing, clearing, and settling of intra-African trade and commerce payments. PAPSS is being developed by the African Import and Export (Afrexim) bank, which is the correspondent facility.
PAPSS is being designed to harmonize the various national currencies of the different member-states, process high-volume transactions, and reduce the cost of payment for intra-African trade transactions. It is estimated that PAPSS will contribute significantly to the success of the AfCFTA and reduce the cost of transactions and amount being spent on currency conversion by up to $5 billion dollars annually.
To simplify how the PAPSS will work, it will involve the sender’s bank sending the payment to PAPSS in the local currency of the sender, then PAPSS processes the payment and sends it to the recipient bank in the local currency of the recipient, all of which is done at a very fast rate that payment is received immediately.
Currently, the PAPSS is at a pilot (testing) phase which is ongoing in six West African countries, including Nigeria. It is calculated that by the end of the year 2021, the platform would be fully ready for implementation and use across Africa.
To learn more about the AfCFTA and how it benefits you, kindly subscribe to our bi-weekly Newsletter below
The government has been cautioned to critically assess the adverse impact the African Continental Free Trade Area (AfCFTA) may have on revenues, particularly Value Added Tax (VAT), Import Duty, and Income Tax. Read more HERE
Egypt would benefit from setting up a monitoring and evaluation system to track the progress of implementing the African Continental Free Trade Area (AfCFTA) in relation to its Vision 2030 and the National Structural Reform Programme (NSRP 2021-24), and from continued efforts to facilitate trade and improve infrastructure for continental integration. Read more HERE
Renowned diplomat and Director-General of National Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Ambassador Ayo Olukanni, said significant trading under the AfCFTA can’t take off anything less than 15 years from now. Read more HERE
The Secretary-General of the Africa Continental Free Trade Area, Mr Wamkele Mene has revealed that the Pan-African Payment and Settlement System (PAPSS) would save the continent the sum of $5 billion annually when operational. Read more HERE
Mr Issoufou, an African Union Champion of the AfCFTA Secretariat is to be recognised for ensuring that the Secretariat was activated in January 2021 in Accra. Read more HERE