KEY POINTS
- The African Continental Free Trade Area is a landmark agreement aiming to create a single market for goods and services across Africa.
- By reducing tariffs and non-tariff barriers, the AfCFTA seeks to increase intra-African trade by over 50 percent, enhancing economic integration and reducing dependence on external markets.
- The agreement promotes the development of regional value chains and manufacturing industries, facilitating economic diversification and reducing reliance on raw material exports.
Africa has long grappled with low levels of intra-continental trade, with intra-African exports constituting only about 17 percent of total African exports as of 2017, compared to 69 percent in Europe and 59 percent in Asia.
The establishment of the African Continental Free Trade Area (AfCFTA) marks a pivotal step toward addressing this disparity, aiming to create a unified market that enhances economic integration and growth across the continent.
The genesis and objectives of AfCFTA
The AfCFTA, operational since January 2021, is one of the world’s largest free trade areas, encompassing 54 African nations with a combined GDP of approximately $3.4 trillion.
Its primary objectives include eliminating tariffs on 97 percent of goods traded within the continent, reducing non-tariff barriers, and fostering the free movement of goods, services, and people.
By doing so, the AfCFTA seeks to boost intra-African trade, stimulate industrialization, and promote sustainable economic development.
Enhancing Intra-African trade
Historically, African countries have traded more with external partners than with each other.
The AfCFTA aims to reverse this trend by creating a single market that facilitates easier and more cost-effective trade among African nations.
However, through reducing tariffs and harmonizing trade policies, the agreement is expected to increase intra-African trade by over 50 percent, thereby reducing the continent’s reliance on external markets.
Stimulating industrialization and economic diversification
The AfCFTA is poised to drive industrialization by encouraging the development of regional value chains and the production of higher-value goods.
Also, by providing access to a larger market, it incentivizes investments in manufacturing and processing industries, leading to economic diversification.
This shift from a reliance on raw material exports to value-added products is crucial for sustainable economic growth and job creation across the continent.
Addressing non-tariff barriers and trade facilitation
Beyond tariff reductions, the AfCFTA focuses on addressing non-tariff barriers such as complex customs procedures, inadequate infrastructure, and regulatory discrepancies that hinder trade.
By streamlining customs processes, improving transport and logistics networks, and harmonizing standards, the agreement aims to create a more conducive environment for cross-border trade.
However, these measures are essential for reducing trade costs and enhancing the competitiveness of African businesses.
Promoting sustainable development and poverty reduction
The AfCFTA has the potential to lift 30 million Africans out of extreme poverty and boost the incomes of nearly 68 million others who live on less than $5.50 a day.
By fostering economic growth, creating employment opportunities, and enhancing access to goods and services, the agreement contributes to broader development goals, including improved health, education, and infrastructure.
Moreover, by promoting regional integration, it strengthens political and economic ties among African nations, contributing to long-term stability and prosperity.
Challenges and the path forward
Despite its promising prospects, the AfCFTA faces challenges such as varying levels of economic development among member states, infrastructural deficits, and the need for effective implementation of agreed protocols.
Addressing these challenges requires concerted efforts from all stakeholders, including governments, the private sector, and international partners.
Furthermore, continued commitment to policy reforms, capacity building, and investment in infrastructure is essential to fully realize the transformative potential of the AfCFTA.
