What you need to know about the African Continental Free Trade Area
The new year kicked off trading under the continent- wide free trade area, the AfCFTA. But what does the new trade zone mean for existing red tape, poor infrastructure, tariffs and free- movement across the region?
What is the AfCFTA?
The African Continental Free Trade Area is an ambitious trade pact to form the world’s largest free trade area by connecting almost 1.3bn people across 54 African countries.
The agreement aims to create a single market for goods and services in order to deepen the economic integration of Africa. The trade area could have a combined gross domestic product of around $ 3.4 trillion, but achieving its full potential depends on significant policy reforms and trade facilitation measures across African signatory nations. The AfCFTA aims to reduce tariffs among members and covers policy areas such as trade facilitation and services, as well as regulatory measures such as sanitary standards and technical barriers to trade.
The agreement was brokered by the African Union ( AU) and was signed by 44 of its 55 member states in Kigali, Rwanda on March 21, 2018. Trading under the agreement commenced
on 1 January 2021, after a sixth month delay as a result of the impact of Covid- 19. As of 27 August 2021, 38 of 54 signatories ( 70percent) have deposited their instruments of ratification with the chair of the African Union Commission, according to the Tralac Trade Law Centre. The only country not to sign the agreement was Eritrea, which has a largely closed economy.
The AfCFTA Secretariat, an autonomous body within the African Union based in Accra, Ghana, and led by secretary general Wamkele Mene, is responsible for coordinating the implementation of the agreement.
Why does Africa need the AfCFTA?
Trade integration across the African continent has long been limited by outdated border and transport infrastructure and a patchwork of differing regulations across dozens of markets.
Governments have often erected trade barriers to defend their markets from regional competition, making it more expensive for countries to trade with near neighbours than countries much further afield.
Intra- African exports were 16.6percent of total exports in 2017, compared with 68.1percent in Europe, 59.4percent in Asia, 55percent in America and 7percent in Oceania, according to UNCTAD. Intra- African trade, defined as the average of intra- African exports and imports, was around 2percent during the period 2015– 17. The share of exports from Africa to the rest of the world ranged from 80percent to 90percent in 200017 – only Oceania had a higher export dependence
on the rest of the world in that period.
What are the predicted economic benefits of the AfCFTA?
The World Bank estimates that by 2035, real income gains from full implementation of the agreement could increase by 7percent, or nearly $ 450bn. By 2035, the volume of total exports would increase by almost 29percent relative to business as usual. Intra- continental exports would increase by more than 81percent, while exports to non- African countries would rise by 19percent.
The Bank predicts that the agreement could contribute to lifting an additional 30m people from extreme poverty and 68m people from moderate poverty.
Yet the impact across countries will not be uniform. The World Bank says that at the very high end, countries like Côte d’Ivoire and Zimbabwe could see income gains of 14percent each. At the low end, some – such as Madagascar, Malawi, and Mozambique – would see real income gains of only around 2percent.
What does the AfCFTA mean for trade tariffs?
Starting in 2020, signatories to the agreement began to eliminate 90percent of tariff lines over a fiveyear period ( 10 years for least developed countries, or LDCs). Starting in 2025, tariffs on an additional 7percent of tariff lines will be eliminated over a fiveyear period ( eight years for LDCs).
Countries within the trade area were given until July to complete their tariff reduction schedules and finalise essential rules of origin, the AfCFTA Secretariat said in January.
How will the AfCFTA work with existing regional trade areas?
According to an analysis by the World Bank, in the policy areas already covered by subregional preferential trade areas, such as the Common Market for East and South Africa ( COMESA), the East African Community ( EAC), the Economic Community of West African States ( ECOWAS), and the South African Development Community ( SADC), the AfCFTA will offer a common regulatory framework, reducing market fragmentation created by different sets of rules.
Secondly, the AfCFTA will be an opportunity to regulate policy areas important for economic integration that are often regulated in trade agreements but that so far have not been covered in most of Africa’s PTAs, which the Bank says “tend to be shallow”.
What does the AfCFTA say about the free movement of people?
Policymakers say that the free movement of labour will be a key contributor to the successful functioning of the free trade area, but not all African countries are committed to the concept.
Alongside the signing of the establishment of the AfCFTA and the supporting Kigali Declaration, 30 African nations signed the Protocol on Free Movement of Persons which seeks to establish a visa- free zone within the AfCFTA countries. Yet major AfCFTA signatories Nigeria and South Africa have not signed the Protocol and the political will to do so is lacking.