Over-reliance on Foreign Direct Investment undermines AfCFTA’s rules of origin – Trade Expert

While Africa embarks on a journey to bring prosperity to its citizens and make the continent economically strong through the African Continental Free Trade Area (AfCFTA) agreement, one major challenge that may derail this goal and work to the advantage of foreigners is non-enforcement for rules of origin, as it will create unfair competition for member-states, international trade law consultant Maame Awinador-Kanyirige has said.

The rules of origin in a trade agreement are the criteria which seek to determine the national source of a product so as to know how duties, tariffs and restrictions should be applied.

But with most economies on the continent heavily reliant on Foreign Direct Investment (FDI), it will mean most products that will move across the continent will not be indigenously-owned, thereby, undermining the intent behind that law.

When this happens, the very purpose of instituting the AfCFTA agreement – i.e., to strengthen African industries to drive economic growth on the continent – will be defeated, as the foreign firms will always repatriate profits back to their countries.

However, the AfCFTA is aimed at creating a large market where goods and services produced on the continent can move across member-states with an agreed cheaper or free tariff system.

In an interview with the B&FT, the international trade consultant at Blackbridge Consulting Group Ltd. underscored this point: saying the African economy’s structure whereby most large businesses are foreign-owned will indirectly create a market for investors outside the continent to ship their goods freely across it under the guise of producing in Africa; a move that will stifle the growth of local industries on the continent.

“The biggest threat, when it comes to the agreement on its own, is the rules of origin. The rules of origin are to prove the product or service you have is wholly or substantially produced in a specific country that is part of the agreement. The problem here is that a lot of African countries rely on foreign direct investment.

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“And what that means is there are a lot of companies operating within African countries which are registered as Ghanaian or Nigerian but are owned by foreigners. For example, most of the common biscuit producers in Ghana are registered here but are not Ghanaian-owned, and the profits go back to the countries of the owners.

“The idea of the AfCFTA is to help build local industries, but then, how do you regulate that when you rely heavily on foreign direct investments? So, that is one of the key things African countries have to look at in terms of the rules of origin.

“Also, the idea of substantially or wholly-produced items is that a manufacturer can buy all raw materials from, say, China and assemble them here in Ghana. Can we say those goods were produced from Ghana? So, these are the key things we really need to discuss in terms of rules of origin,” she said.

To address this problem, Ms. Awinador-Kanyirige urges African leaders to ensure the rules of origin agreement are respected to an appreciable degree – even though they cannot be fully enforced considering the structure of economies across the continent.

Read also AfCFTA to bring trade, socio-economic advantages in Africa – Expert

“Even though we know we can’t make the rules of origin too strict, knowing that most African countries rely on manufactured products from outside the continent to be able to produce what they have here, we still need to be thorough.

“Thorough means being able to cross-check fully to ensure the goods that are coming in respect the rules of origin – which say the product must be wholly or substantially produced in a member-state so foreign companies do not benefit at the expense of local ones,” she said.

She further advises that leaders must put in place policies which provide the environment for companies across Africa to harmonise and collaborate to produce for the continent, rather than see themselves as competitors.

“While we are enforcing the rules of origin, let us come together to harmonise our production industries, so that we don’t have to wait for foreign direct investment but member-countries can rather come together and harmonise their skills.

“So, for example, Ivory Coast and Ghana can come together to produce chocolate for Africa rather than competing on producing cocoa. If we collaborate more among ourselves, the rules of origin can be better applied,” she said.

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