African Continental Free Trade Area (AfCFTA): Prospects and Challenges

Trading under the African Continental Free Trade Area (AfCFTA) started on 1st January 2021 after being postponed from the July 2020 date due to Covid-19 pandemic. All 55 African Union members except Eritrea signed the agreement and 34 of them have ratified the deal. The AfCFTA, now becomes the largest free single market by number of participating countries since the creation of the World Trade Organization in 1994. According to a World Bank report, the deal bringing together a market of 1.3 billion people with a combined Gross Domestic Product (GDP) of over USD 3 trillion, has the potential to boost intra-African trade, lift over 60 million Africans out of poverty while increasing wages including those of women and the unskilled workers if implemented successfully.

Interestingly, the AfCFTA comes into effect when traditional global  powers that advocated for free trade are taking a back step due to the inequalities and loss of jobs associated with globalization and trade expansion in the last few decades. But intra-African trade has been low.  In 2019, Afreximbank, a Cairo-based pan-African multi-lateral trade finance institution reported that intra-African exports accounted for only 14% of total African exports compared with 52% of intra-Asian and 73% of European trade. As such, it raises no doubt that there is a huge potential in bolstering intra-African trade and produce long-term sustainable gains which was evidenced by the speedy ratification of the deal by member countries. According to the African Centre for Economic Transformation, AfCFTA is not just a free trade agreement but a tool for  economic transformation as its various protocols would enhance the movement of labour, capital and intellectual property.

‘This is not just a trade agreement, this is our hope for Africa to be lifted up from poverty’, opined Wamkele Mene, the AfCFTA Secretariat Secretary-General at the launch event.

While a lot remains to be done before full evaluation of the deal, it seems so far that the AfCFTA  got most of the things right. For instance, the Protocol on Trade Services mandates state parties to promote the export capacity of both formal and informal services suppliers especially small and medium; and women and youth suppliers. With 60% of the African population being below 25 years, 80% of the businesses being small, micro or medium in size, 80% of economic activities being informal of which women supply 70% of the labour, it is easy to understand the emphasis on these segments. It is also promising to note that most of the current intra-African trade is in manufactured goods which could be expanded by AfCFTA thus stimulating industrialization, value addition and creating better jobs that improving livelihoods in the region. This could be a game changer in agri-food processing as agriculture remains the main economic activity in the region. Indeed, the World Bank projects that the deal could boost Africa’s exports by over USD 500 billion with most of it coming from manufacturing sector.

However, implementing AfCFTA is not going to be an easy process and there will be more challenges ahead. Some of these challenges have been addressed such as elimination tariffs on 90% of the goods produced in the continent and agreeing on the rules of origin. For the pact to succeed a lot needs to be done on non-tariff barriers such as quotas and political bottlenecks or what is commonly referred to as red tape imposed by African countries on their counterparts to protect local industries. There have been trade tensions between Kenya and Tanzania despite being in the EAC and between Ghana and Nigeria in ECOWAS trading blocks which could affect the operationalisation of the agreement. In addition, Xenophobic attacks in South Africa could discourage movement of other Africans in search of jobs in the country.

As such, the success of the deal will depend more on what happens within the countries and in particular how countries will reform to remove bottle necks that suppress trade, how they prepare their firms and nationals to take advantage on the opportunities offered by AfCFTA and how they compensate losers resulting from new competition. Other key reforms include the ease of business registration by foreigners and standardisation of processes.

Another key challenge in implementation will be inadequate facilities to support intra-African trade such as infrastructure in roads network. With most African rivers being unnavigable,  road and rail network become the only viable forms of transport. Mr. Mene, agrees on this by emphasising the need for roads and customs equipment to facilitate the efficient transit of goods. Paul Melly, a Consulting Fellow at Chatham House, concurs with Mr. Mene highlighting the poor rail and road network in the Central African region compared with the West,  East and South regions which are relatively integrated.

Despite these challenges, Mr. Mene remains optimistic on the prospects of AfCFTA and is quick to respond to those questioning Africa’s readiness;

‘And I know that in some parts of the world, we get criticism. We are criticised, we are told that we are rushing things, that we’re actually not quite ready. But I want to ask those who hold that view, tell me of a trade agreement where all countries were ready at the same time? I don’t know it.’

In conclusion, the AfCFTA could be a massive game changer not only within Africa but also how the Global North views and deals with the continent. There will be hard decisions to be made by state parties as trade is a complex process that produces winners and losers (both within and between countries) necessitating transformative leadership in governments to seize the opportunities. Your input as an African, investor, student, professional and intellectual is necessary in this journey. Your voice could push your government to make the hard but right decisions to make AfCFTA work. As the continent grapples with a recession caused by Covid-19 pandemic, could we look back years later and say that AfCFTA played a role in the recovery?

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