AfCFTA: shot in the arm for trade

To date 53 of Africa’s 54 nations have joined the African Continental Free Trade Area (AfCFTA) agreement which aims to establish the world’s largest free trade area by lowering or eliminating crossborder tariffs on the majority of goods produced in Africa.

AfCFTA aims to standardise rules and regulations across the continent to encourage intracontinental trade which has traditionally been low in Africa. The agreement also aims to address Africa’s industrial deficit and reduce its reliance on primary goods exports.

At a high level, says Wildu du Plessis, head of Africa at Baker McKenzie in Johannesburg, AfCFTA is focused on stimulating growth, creating employment and diversifying economies through the creation of a single African market for goods and services.

The agreement’s ratification, he adds, means there are now unprecedented opportunities for the continent to reap economic and social benefits on the back of possible future improvements in transport infrastructure, the reduction of red tape for cross-border dealings, renewed funding and improved liquidity.

The African Export-Import Bank (Afrexibank) predicts it could grow intra-African trade by as much as 52% once it is operational later this year.

SA stands to benefit from AfCFTA, as do countries such as

Ghana and Ivory Coast due to their open economies, good infrastructure and supportive business environments, says Du Plessis. But he cautions that although AfCFTA represents exciting potential for inbound investment, it will be some time before the continent sees the full benefits of the agreement.

For Africa to reap the benefits, it will require that governments across Africa relook regulations relating to trade tariffs, cross-border initiatives and capital flows. They will need to invest in infrastructure development to improve roads and utilities. Geopolitical and economic uncertainty as well as corruption also threaten the success of the agreement.

The three factors crucial to the implementation of AfCFTA, says Du Plessis, include aligning and ensuring the rule of law among all member countries, getting collaboration right and solving the problem of reliable infrastructure and energy.

Critically, countries will need to diversify their production of goods to better match the import needs of African countries, says Du Plessis.

“One of the reasons why African countries don’t trade more with each other is due to a misalignment between what various African countries need and what is produced. More than 75% of African exports to the rest of the world are focused on natural resources, primarily raw materials.”