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The AfCFTA and Its potential impact on the continent
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Published on
22 January 2021
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Africa is blessed with several key natural resources, from precious metals, diamonds, gold and silver, agricultural products like cocoa and phosphorus, to the large deposits of essential minerals;  iron, cobalt, uranium, copper and bauxite. 

You would expect the world's second largest continent, enriched with an abundance of resources, to be a major contributor in global trade. However, Africa contributes just 3% to global GDP, despite being home to 17% of the world population.

The African continental free trade agreement looks to address key issues that contribute to poor domestic and international trade. Let's take a closer look at this historic and potentially transformative agreement. 

African resources are sent around the world in their raw forms, processed in factories before returning as finished products to be sold. Rather than the trade in raw materials, what if production happened on African shores before trading to the world as finished goods?  

In the last 30 years, China has seen a 41 fold increase in its GDP. A huge contributor to this growth has been from investment in its manufacturing sector.  “Made in China” labels are found on everything from iPhones, to your favourite clothing brands. A huge provider of employment in the country, manufacturing contributes 28% of China’s overall GDP. 

In comparison, GDP from manufacturing averages just 10% across the continent. To create jobs for the growing population, the continent needs to focus on policies that create manufacturing jobs and make the most out of extracting G.D.P out of the value chain. 

The free trade agreement is designed to help solve this.

In 1963, The Organisation of African Unity was established by the Independent nations of Africa, with the purpose to facilitate cooperation between nations, promote trade and reduce reliance on the western nations. This created several regional trade arrangements that were established and operated in different regions of Africa. 

These Regional trade agreements proved largely ineffective in promoting trade and foreign direct investment. Plagued with high external trade barriers, small market sizes, poor transport facilities and high trading costs, African countries were ill equipped to reap the potential benefits.

The new African Continental Free Trade Agreement, looks to go deeper than its regional predecessors, by increasing trade and investment, while promoting broader based liberalisation of rules supported by improvements in infrastructure and trade facilitation.

In 2021, trading under The African Continental Free Trade Agreement started, becoming the world's largest free trade area by member states. The trade area is designed to unlock a 3 trillion US dollar opportunity, by resolving the issues that impact trade growth. Focusing on industrialization, infrastructure development, and creating the opportunity for businesses to expand, by exporting their services and products across the continent, this agreement looks to connect 55 countries and its 1.3 billion inhabitants. The UN Economic Commission for Africa, suggests this landmark agreement, has the potential to increase intra-African trade by 52.3% creating a huge opportunity for the young growing workforce. 

In 1991, the Abuja treaty built on the organisation of african unity previous successes, by creating the African Economic Community, an organisation designed to promote the development of; 

  • free trade areas,
  • customs unions, 
  • An African Central Bank, and 
  • an African common currency union.

The Organisation of African Unity was replaced by the African Union in 2002. with one of its main goals, to accelerate the economic integration in the African continent, and to bring harmony to agreements between the present, and future Regional Economic Communities. 

This led to the signing of three agreements by african states in 2018:

  • The first was The Kigali Declaration. Designed to reaffirm the member states commitment to further negotiation and the implementation of the free trade area.
  • Then it was the foundation of the free trade zone, The African Continental Free Trade Agreement. Signatory countries agreed to reduce trade barriers between the different pillars of the African Economic Communities, and use these regional organisations as building blocks, for the goal of an Africa-wide customs union.
  • Lastly, The Protocol on Free Movement of Persons, its aim, to establish a visa-free zone within the free trade countries and support the creation of the African Union Passport. A key step in establishing a successful free trade zone. 

After the agreement, institutions were formed to carry out the objectives. 

  • The African Continental Free trade area Secretariat was formed as an autonomous body within the African Union to implement the agreement.
  • And The Council of Ministers, to provide strategic trade policy oversight to ensure effective implementation, and enforcement of the Agreement. Several committees for were created to govern;
  • goods,
  • services, 
  • Rules of origin,
  • trade remedies,
  • non-tariff barriers,
  • technical barriers to trade,
  • sanitary and phytosanitary measures.

With Senior Trade Officials tasked to implement the Council's decisions and develop programs to action the plans in phases. Phase 1 covers goods and services liberalisation, with all nations removing 90% of trade tariff on goods, with each being permitted to exclude up to 3% of goods from the agreement to protect their local businesses.

The free trade area will be governed by five operational instruments.

  • the rules of origin.
  • the online negotiating forum.
  • the monitoring and elimination of non-tariff barriers.
  • a digital payment system, 
  • and the African Trade Observatory.

These systems will help regulate the free trade area.

In an interview with CNN,  free trade area’s secretary general, Wamkele Mene said negotiating a single set of rules of 55 countries was the easy part, with implementation, a significant challenge, due to the different economic levels between African nations. 

It will take time and investment to build out the customs authorities with bigger corporations, and institutional investors having the resources to immediately benefit, while small-to-medium enterprises, taking two to three years to capitalise.

To fully recognise the benefits of free trade and guarantee its success, private sector empowerment and investment on the continent must take centre stage. The African Development Bank is pledging to support trade valued at $7 billion through lending over the next five years in a bid to spur growth.

More than the obvious economic benefit, the free trade area is expected to have a huge impact on the welfare of millions of people, with

While there is undoubted uplift for African countries, the rest of the world are seeing the potential opportunity too. Africa still has significant room to grow, and countries are looking for ways to invest and be part of the journey. Africa's largest trading partner, China, has been investing in infrastructure projects, and securing access to  raw resources in Africa over the last decade. They are looking to gain significantly by providing the finance, the machinery, and equipment to unlock its potential.

The UK, looking for new trading partners following Brexit, had committed to dialogue, and launched a trade summit in January 2022 to explore opportunities, resulting in millions in investment. The US followed suit in December 2022 hosting a sumit to make up for lost time, to accelerate trade and investment in Africa, after losing substantial ground to traditional and emerging partners like China.

InAfrika view is that, this is a huge opportunity to allow local organisations to expand across the continent, using their local expertise and resources, in a larger market. It should also lead to increases in manufacturing capabilities that will create jobs, allowing African countries to produce and export to the world. Significant work needs to be done to standardise infrastructure and procedures to be able to capitalise on the opportunity. Investment will be key, and also a possible hurdle, with access to finance in Africa difficult to obtain at the best of times. It opens the door for international countries and organisations to benefit, via loans, funding and bridging gaps in markets not yet available on the continent.

It will still provide benefits in terms of employment but many Africans would like to see people of the continent and their countries see the ultimate benefit from the increases the free trade agreement may bring.What do you think about the historic free trade agreement? How do you think it will help Africa? Let us know in the comments

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