Unlocking Africa’s Economic Potential: A Critical Examination Of The African Continental Free Trade Area’s Protocol On Competition Policy

By: Shaurya Shrestha Awasthi & Sneha Sharma

Abstract

With the promise of a single market to spur growth and competitiveness, the African Continental Free Trade Area (AfCFTA) represents an important turning point in African economic integration. It aims to boost intra-African trade, accelerate the development of African countries and increase the competitiveness of African industrial products. In the effective realization of such a goal, Member states have adopted the Competition Policy Protocol which seeks to eliminate potential anti-competitive risks, foster innovation, and maintain fair competition in the market. However, given the difficulties facing Africa, questions remain about how the Competition Protocol will be implemented.

This article thoroughly analyzes the protocol, examining its strengths and weaknesses. It also proposes solutions to overcome obstacles, enabling African countries to fully realize the transformative potential of the AfCFTA. By addressing these challenges, the agreement can promote sustained economic growth and foster shared development within and across the continent.

Introduction

The African Continental Free Trade Area (AfCFTA) is a one-of-a-kind initiative to create a single, integrated African market. The AfCFTA aims to boost intra-African trade through economic integration, accelerate the development of African countries, increase the competitiveness of African industrial products, and enhance the participation of the continent in global trade.

However, such efforts of trade relaxations and inclusive growth can be nullified by companies operating in AfCFTA resorting to anti-competitive behaviours or strategies. Therefore, enacting competition policy or provisions in AfCFTA is a sine qua non to fulfilling the objectives of economic integration and trade liberalisation. The adoption of the Protocol on Competition Policy by AfCFTA member states provides a solid foundation for fulfilling the objectives and aspirations of AfCFTA. 

The Protocol on Competition Policy aims to promote and enhance competition, foster innovation, and eliminate anti-competitive practices, which ultimately facilitate the economic integration of the African continent. Despite the immense benefits of the Competition Protocol, its implementation seems dubious, considering the various issues encompassing the Protocol and the practical challenges surrounding the African Continent.

This article critically analyses the Protocol on Competition Policy in a comprehensive manner with probable areas of concern. It provides recommendations to overcome challenges in implementing the Protocol to foster economic growth in Africa. By addressing these issues head-on and devising pragmatic solutions, African nations can unlock the transformative potential of AfCFTA, paving the way for sustained economic growth, prosperity, and shared development across the globe as well as within the continent.

Unfolding The Key Dimensions Of Competition Policy Protocol

The Protocol aims to establish a unified pan-African competition regulation regime that supports economic integration. It seeks to ensure that trade liberalization gains are not undermined by anti-competitive behaviour. Additionally, it oversees the interaction between sectoral regulatory laws and competition regimes at national and regional levels.

The scope of the Protocol applies to any undertaking having a continental dimension and significant impact on the competition in the African continent.[1] It excludes its application to employment matters and conditions, including collective bargaining.[2] The Protocol addresses anti-competitive behaviours in the market, including practices that restrict or distort competition, abuse of dominant position, and abuse of economic dependence.

Notable Highlights and Innovations of the Protocol:

Prohibition of Anti-Competitive Business Practices

The Protocol prohibits both horizontal and vertical anti-competitive conduct unless there is clear evidence that technological or efficiency gains outweigh its negative effects. The prohibitory conduct within horizontal agreements includes bid-rigging, price-fixing and restraint upon production quotas in the AfCFTA market.[3] Under vertical agreements, minimum resale price maintenance and passive sale restrictions are prohibited unless the recommendation is non-mandatory.[4]

Inclusion of Abuse of Economic Dependence

The inclusion of the abuse of economic dependence by platforms in the Protocol is a major innovation in the competitive regime of AfCFTA.[5] This regulation aims to prevent platforms from exploiting their superior bargaining positions, which leads to supply chain inefficiencies and negatively impacts trade and regional integration. Additionally, the Protocol allows certain platforms to be designated as ‘gatekeepers’-entities that control access to markets or essential services. As gatekeepers, these platforms are prohibited from engaging in self-preferencing, where they favour their products or services over those of competitors. They are also restricted from using consumer or business data collected through their platform to gain an unfair competitive advantage.

Check Upon Mergers and Acquisitions

The Protocol ensures that the mergers must be notified upon the occurrence of a permanent change of control. Specifically, the transactions must showcase a continental dimension, affecting competition in at least two state parties outside the same regional economic community. They must also meet specific financial thresholds and consider public interest and competitiveness.[6]

Provision of Technical Support, Cooperation and Capacity Building

The Protocol provides for technical support, collaboration and capacity building, which not only helps in generating awareness among member states but also helps in creating a solid national competitive regime. As per the Protocol, the AfCFTA Secretariat will work with State Parties, Regional Economic Communities, and development partners to strengthen institutional capabilities and provide technical assistance in enacting competition legislation and establishing enforcement bodies.[7]

These are a few of the most important aspects addressed in the protocol to prohibit and eliminate the distortion of competition. This, in turn, supports the free flow of goods and services and spurs economic growth across the Continent.

Navigating The Complexities Of Afcfta’s Protocol On Competition Policy

The AfCFTA brings significant economic prosperity to African countries through integration among African Union member states.[8] The formulation of the Competition Protocol is a positive step towards this objective. However, there are significant challenges that need to be addressed to ensure the effective implementation of the AfCTA competition protocol, which is determined to lead global trade. It ensures effective use of the vast resources unevenly distributed[9] across the countries of Africa.

Exploring Real-World Hurdles in Aligning RECs with Protocol on Competition Policy

The AfCFTA integrates and harmonizes the existing Regional Economic Communities (RECs) to enhance competition in African economies.[10] To address market uncertainty caused by differences between RECs and the Competition Protocol, Article 3 states that the Protocol will prevail in case of conflict with regional competition agreements.[11] However, the protocol contains no suitable mechanism which guides consistent intranational management and harmonization of competition regimes at regional and continental levels.

The AfCFTA aims to integrate African countries into the world’s largest free trade area. This integration is expected to enhance competition, which could lead to the efficient use of resources in promoting trade. However, the RECs have a higher level of integration among themselves in comparison to the residual areas of Africa such as North Africa (outside COMESA), parts of Central Africa not fully integrated into ECCAS, and certain West African nations that are not ECOWAS members. It would be a significant challenge to divert their integration under a new framework with a different set of regulations. In case of disregard by the prominent Regional Economic Communities, it would be highly challenging for the AfCFTA Secretariat and national governments to deal with the anti-competitive effects. Thus, it would be more difficult to address the competition concerns at the REC level than at the continental level.[12]

Impediment of Overlapping Membership in Implementation of Competition Protocol 

National and regional competitive frameworks with specific jurisdictional reach can adversely impact the implementation of the Protocol on Competition Policy. The lack of uniformity in the competition regimes among the countries does pose great challenges to economic integration. The overlapping membership of countries in Regional Economic Communities (RECs) like the East African Community (EAC) and Southern African Development Community (SADC), along with AfCFTA, would complicate the implementation of supranational competition enforcement.[13] 

Overlapping memberships across multiple regional agreements make it challenging to fulfil the compliance requirements of a member state. This is because these agreements encompass varying rules and regulations with unique sets of arrangements. Such a problem of overlapping membership can impede the realisation of the trade potential of AfCFTA and pose significant challenges in the harmonisation of standards across Africa.[14]

Non-Inclusion of Public Interest Consideration in Abuse of Economic Dependence

Another major area of concern in the protocol is the absence of the consideration of public interest under Article 11.[15] Article 11(3)[16] of the Protocol prohibits the abuse of economic dependence over a supplier or a customer if the conduct substantially impacts the competition in the market.[17] Assessment of abuse of economic dependence under such a framework follows a traditional approach, e.g. considering consumer welfare or the impact on competition in the market. Normally, a dominant buyer who extracts gains from the supplier because of its strong bargaining position passes those benefits to end consumers. As a result, such conduct is not found to be abusive when weighed against a consumer welfare standard.[18]

However, this conceptual framework ignores AfCFTA’s public interest objective. It does not consider the adverse impact upon suppliers, particularly SMEs, who are exploited by dominant buyers with unfair conditions of business such as excessive cheap pricing, shifting unnecessary risk to them or straining their margins and earnings. It overlooks the exploitative treatment of SMEs by dominant buyers while maintaining consumer welfare standards. Such a supplier-oriented approach is required for public interest, specifically for the growth of SMEs and the sustainable economic development of the African continent. Specifically, considering Africa’s socio-economic situation, where SMEs make up more than 90% of total businesses[19], public interest considerations are crucial for their growth. Otherwise, dominant buyer power would continue to exploit SMEs, defeating the goal of economic prosperity.

Examining Other Significant Gaps In the Implementation Of the Afcfta Competition Protocol

Apart from the potential limitations of the Protocol, there are other factors which impact its implementation. The first and foremost is the size[20] of the African continent. Its geographical variation would pose difficulties in implementing a centralized Competition Policy across different regions. There would be a requirement of immense capital to raise production and facilitate fair trade in response to the  Competition Protocol. Further, the lack of investment in infrastructure would impede the advancement of trade.[21] As a result, most AfCFTA member states lack strong institutional capacity, suffer from low levels of competitiveness, and have limited capabilities to participate in regional value chains. Effective implementation of the Competition Protocol requires robust production capabilities; without them, member states cannot fully capitalize on its benefits. [22]

A significant portion of Africa’s vast natural resources is unevenly distributed across the continent. These resources have not been developed due to a lack of information, adequate capital and excessive foreign dependence.[23] Moreover, political instability in African countries should be addressed to ensure successful implementation. The increased political differences, such as lack of political will, issues of sovereignty, territorial integrity, fear of dumping goods, and competing hegemonic interests have had a negative impact on trade in the continent.[24]

Another significant challenge is the huge variation in economic development among the member states. It is well established that countries still in the early stages of economic growth are less likely to prioritize competition law.[25] The AfCFTA’s focus on centralizing competition laws would face substantial difficulties due to varying levels of response and cooperation from national authorities.

There is a threat to effective coordination in enforcing competition laws at the national, regional, and continental levels. This increases the risk of the protocol failing to function effectively. It could also undermine existing national and regional competition enforcement frameworks, potentially leading to further economic decline in African countries.[26]

Proposing The Way Forward: The Pathway To Effective Implementation Of The Competition Protocol

The foundation of the AfCFTA was meant to accelerate the economic development of the countries of Africa. However, it is necessary to have effective implementation of the Competition Protocol to ensure that all AfCFTA member states are adequately benefitted. The aforementioned gaps need to be addressed to boost trade opportunities in Africa.

Harnessing the Role of RECs in economic integration and harmonization

The African Continental Free Trade Area (AfCFTA) acknowledges the role of RECs in the intra-regional trade agreement. The RECs exhibit a higher degree of integration and are well-positioned to coordinate among member states. They can help mediate disagreements arising from inconsistencies between regional frameworks and the AfCFTA Competition Protocol. The RECs can play a crucial role in ensuring that AfCFTA regulations are accepted by member states. This, in turn, would lead to more effective implementation.[27] 

For instance, one of the RECs, namely the Economic Community of West African States (ECOWAS), has played a crucial role in tariff negotiations between the member states. It provided a mechanism to represent the interest of the private sector as a means to advance the “regional positions” on the AfCFTA.[28] Furthermore, ECOWAS initiatives, such as infrastructure projects and customs reforms, can significantly enhance free trade by advancing intra-African trade frameworks. This would be conducive to the effective implementation of AfCFTA.

Maximizing Member State Engagement

The AfCFTA has been envisioned to stimulate socio-economic prosperity among the AfCFTA member states. Stakeholders of the AfCFTA Competition Protocol must cooperate with central authorities to promote fair competition and advance intra-African trade. Member countries can play a pivotal role in effectively implementing the AfCFTA through various measures. Synchronising domestic trade policies with the regulations under the AfCFTA would address inconsistencies in competition policies at the regional, national and continental levels.

The member states can undertake positive steps to advance trade through the creation of better treaty networks in Africa, which would reduce immigration hurdles and result in the enactment of trade and industrial policies with a prime focus on the value addition.[29] Member countries should actively publicize the latest updates on the AfCFTA, including its benefits and progress. They should also ensure that AfCFTA documents are easily accessible to promote awareness. This would encourage greater acceptability, coordination, and integration among stakeholders in the Competition Protocol regime. Member states can use AfCFTA regulations to guide key stakeholders in aligning their operations with the protocol.[30]

Empowering SMEs: Addressing Abuse of Economic Dependence for Public Good

As previously mentioned, Article 11 of the Protocol on Competition Policy[31] does overlook the concerns of suppliers, specifically SMEs. A supplier-oriented approach should be sought while formulating the framework of abuse of economic dependence. Such an approach is required in the public interest, specifically for the growth of SMEs and the sustainable economic development of the African continent. It not only ensures the welfare of consumers but also upholds the interests of other economic actors, namely SMEs, in the public interest, leading to equitable access to the African market.

It is imperative to empower Small and Medium Enterprises (SMEs) to promote social welfare, innovation, and economic progress. SMEs must be provided with a level playing field to counter the abuse of high bargaining power by large corporations. Therefore, the Protocol must include appropriate provisions in the public interest to support SME empowerment.

Conclusion

The Protocol on Competition Policy broadens the competition law framework to promote fair trade across the continent. The Protocol aims to promote economic growth and prosperity in African markets as a means of fostering global trade. It eliminates anti-competitive practices and aspires to create innovative and competitive markets. However, significant gaps hinder the effective implementation of the Competition Protocol and must be addressed. This initiative has great potential to harmonise the different regional and national competitive frameworks. The RECs and the member states can significantly contribute to the fullest realization of AfCTA’s objectives and its implementation with utmost diligence.

[1] ibid.

[2] ibid.

[3] ibid.

[4] ibid.

[5] ibid.

[6] ibid.

[7] ibid.

[8] Mesut Saygili et al, African Continental Free Trade Area: Challenges and Opportunities of Tariff Reductions, Unctad Research Paper No. 15 (2017).

[9] De Melo Jaime et al, Regional Integration in Africa: Challenges and Prospects, Unu-Wider (2014).

[10] Protocol To The Agreement Establishing The African Continental Free Trade Area on Competition Policy art. 2, Feb. 18-19, 2023.

[11] Supra note 2.

[12] Willard Mwemba, The African Continental Free Trade Area Competition Protocol: a necessity or an overzealous endeavour? 19 Compet. Law J (2023).

[13] Ibid.

[14] United Nations. Economic Commission for Africa, Harmonization of standards across Africa is vital to the realization of trade and industrialization potential of the AfCFTA (2020). 

[15] Supra note 6.

[16] Protocol To The Agreement Establishing The African Continental Free Trade Area on Competition Policy art. 11(3), Feb. 18-19, 2023.

[17]ibid.

[18] Zoe van der Hoven et al, An economic perspective on the new South African buyer power provision and enforcement guidelines, 16 Compet. Law Int. 139, 140-141 (2020).

[19] The African Union Annual Small and Medium Enterprises Forum, African Union ( Mar. 18, 2023, 6:20 PM), https://au.int/en/newsevents/20220627/african-union-annual-small-and-medium-enterprises-forum.

[20] ‘Jeff Desjardins, Mapped: Visualising the True Size of Africa’ (Visual Capitalist), Misc (Mar.18, 2023, 8:25 PM), https://www.visualcapitalist.com/map-true-size-of-africa/.

[21] Supra note at 12.

[22] Kasirim Nwuke, I Confess, I am an AfCFTA Sceptic, The Africa Report (Mar. 17, 2023, 8:50 PM), https://www.theafricareport.com/176253/i-confess-i-am-an-afcfta-sceptic/.

[23] Victor H. Mlambo, The African Continental Free Trade Area: Challenges and Possible Successes 12 Lajtp  (2022).

[24] Ibid.

[25] Supra note 13.

[26] Supra note at 18.

[27]Amanda Bisong, ECOWAS And The Role Of The Recs In Afcfta Implementation, Ecdpm (Mar. 18, 2023, 9:00 PM), https://ecdpm.org/work/the-african-continental-free-trade-area-from-agreement-to-impact-volume-9-issue-1-2020/ecowas-and-the-role-of-the-recs-in-afcfta implementation#:~:text=RECs%20are%20important%20for%20the,mediate%20disagreements%20between%20member%20states.

[28]ibid.

[29] AfCFTA’s potential solutions to Africa’s trade obstacles, Pwc (Mar.19, 2023, 8:30 PM), https://www.pwc.com/ng/en/assets/pdf/afcfta-potential-solutions.pdf.

[30]ibid.

[31] Supra note at 6.