INSIGHTS

African Continental Free Trade Area: Creating A "United States of Africa"




The African Continental Free Trade Agreement (AfCFTA) was first brought into the limelight in 2015 when the African Union (AU) started negotiations with 55 African countries to implement free trade within Africa.


Now known as the world's largest free-trade bloc, AfCFTA went into its operational stage in July 2019 and was scheduled to commence on 1st July 2020. However, due to the Covid-19 pandemic, Wamkele Mene (Secretary-General of the AfCFTA Secretariat) revealed that the commencement date had been postponed to a date yet to be confirmed by the African Union Commission.


What is AfCFTA?


AfCFTA is a free trade zone comprising 30 African countries (as of May 2020), making it the largest free trade area in terms of the number of participating countries.


Simply put, the agreement requires its member countries to remove tariffs from 90% of goods, in a bid to foster the free movement and trade of commodities, goods, and services across the continent.


The main objectives of AfCFTA are to:

  • Create a single market, deepening the economic integration of the continent

  • Establish a liberalized market through multiple rounds of negotiations

  • Move towards the establishment of a future continental customs union

  • Achieve sustainable and inclusive socio-economic development, gender equality and structural transformations within member states


What does the AfCFTA mean for Africa?


The AfCFTA is a long overdue unification of the African continent set to bring together all 55 member states of the African Union with a market of more than 1.2 billion people, a growing middle class, and combined GDP of over US3.4 trillion. The United Nations Economic Commission for Africa estimates that the agreement will boost intra-African trade by 52 percent by 2022. So, we are looking at one big market for the whole of Africa.


Furthermore, the free trade agreement also aims to accelerate the establishment of the Customs Union, which will lead to better coordination of trade liberalization and facilitation across the African continent. A free trade zone will better foster industry and enterprise competitiveness, with various opportunities for continental market access, reallocation of resources, and opportunities to scale production.


Last Man Standing


Source: Tralac- Trade Law Centre


Today, 54 of the 55 African nations have signed the agreement, with Eritrea being the only nation yet to sign, possibly due to the on-going state of war in 2018. Fortunately, the 2018 peace agreement between Eritrea and Ethiopia removed the barrier that prevented Eritrea from signing the agreement. Eritrea has now asked to join the agreement.


Out of the 54 countries that have signed, 30 have ratified the agreement, with other African countries still in the process of ratification.


Source: Tralac- Trade Law Centre


What this means is that these 30 countries have given consent to be bound by the agreement and implement the obligations agreed upon. Although signing the agreement does not create a binding legal obligation, the 54 signatories must refrain from any acts that would undermine the objectives of the AfCFTA.


Pre-AfCFTA and Post-AfCFTA


The free trade area will not only have a significant impact on the African economy as a whole but on how trade is conducted within Africa.


As of 2020, only 15 percent of African exports go to other African countries, compared to intra-trade levels of 58 percent in Asia and 67 percent in Europe. This goes to show how African countries are accustomed to trading with non-African countries and barely with each other.


According to a report by the IMF, intraregional trade in Africa is relatively low, but rising, and dominated by food and manufactured goods.


While intra-African trade agreements have gradually facilitated a considerable reduction in tariffs on goods, NTBs remain high for most African countries, the IMF report stated.


Source: IMF



Source: IMF


The African Continental Free Trade Area can be seen as a much-needed and timely integration amongst African nations. With Africa being the most resource-rich continent, Europe and the United States have been the largest extractors of Africa's precious raw materials for centuries.


Currently, more than 75 percent of Africa’s external exports are extractives, namely oil and minerals. Intra-African trade is still miniscule so the commencement of free trading is expected to ensure sustainable economic growth by boosting Intra-African trade by over 50% by 2022.


Challenges? Definitely


While the AfCFTA has numerous benefits for Africa as a whole, certain challenges must be mitigated in order to make it successful.


One of the major challenges the AfCFTA will face is managing the different political frameworks within Africa without compromising the continent's economic benefits. The concerns of each African nation must be addressed, and the agreement's political economy needs to be well handled.


African countries will also need to address the possibility of making the AfCFTA an obstacle to trade with other non-African countries. The agreement does not aim to wipe off trade with other countries outside of Africa. Rather, its main objective is to promote intra-African trade, which has been minuscule for centuries. This way, Africa will have an opportunity to negotiate better trade agreements with other countries outside of Africa.


Lastly, the importance of a proper functioning Secretariat for the AfCFTA cannot be overemphasized. This will ensure adequate oversight, monitoring, and guidance for the member countries of the AfCFTA.


In conclusion


Despite the looming effects of the pandemic and the challenges posed by a single African trade market, AfCFTA's potential impact cannot be overemphasized. This is one way Africa can attain more sustainable wealth, better infrastructural development and profitable investment opportunities.

© 2020 by AfriKnowledgeBank

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