The agreement founding the Africa Continental Free Trade Area Agreement (AfCFTA)was brokered by the African Union (AU) and signed by 44 of its 55 member states in Kigali, Rwanda on 21 March 2018. To date, 54 countries have signed the agreement with 44 having deposited their instrument of ratification and four have ratified the Protocol on the movement of people.
As of 1st January 2021, the world’s largest free-trade area began trading, creating a market of 1.2 billion people and the eighth economic bloc in the world with a $3-trillion combined Gross Domestic Product (GDP), which is expected to more than double by 2050.
Historically, intra-African trade has been relatively low in comparison to other trading blocs/ regions in the world. For instance, in 2019, intra-African exports amounted to around $132 billion, which accounted for about 16 per cent of the continent’s total exports while Africa’s exports to the rest of the world exceeded $800 billion. When it comes to trading partners, most African countries majorly trade with Europe, Asia, and the Americas.
The AfCFTA agreement is expected to significantly boost trade among African countries. It is projected that AfCFTA could boost intra-African trade by over 50 per cent by 2030, unlocking the untapped potential of the African market and promoting economic integration across the continent.
How will AfCFTA Power Intra-Continental Trade?
Intra-African trade has been seen to be minimal in the past and the AfCFTA agreement seeks to provide the boost that African countries need in order to trade with each other. This article highlights seven key ways in which the agreement will boost the African economy.
| Elimination and Reduction of Tariffs | AfCFTA aims to progressively eliminate tariffs on 90 percent of the goods traded within the continent; this will facilitate increased trade flows between African countries. Lower tariffs will make African products more competitive in regional markets and eventually lead to expanded trade volumes. |
| Reduction of Non-Tariff Barriers | The agreement will address non-tariff barriers (NTBs) to trade, including but not limited to: cumbersome customs procedures, excessive regulations, and bureaucratic delays. This will in turn lead to the streamlining of custom processes, making it easier for businesses to engage in cross-border trade. |
| The Rules of Origin | The Rules of Origin are clearly established in the agreement. These rules define the criteria for determining the national origin of goods.
This helps prevent circumvention of trade rules and ensures that only goods originating within the AfCFTA member states receive preferential treatment. Transparent rules of origin facilitate trade by providing certainty to businesses and preventing unnecessary trade disputes. |
| Trade Facilitation | AfCFTA promotes trade facilitation measures such as the simplification and harmonization of customs procedures, the implementation of trade facilitation instruments, and the use of digital technologies for customs clearance. These are measures that have been put in place to reduce administrative burdens and enhance efficiency in cross-border trade, making it easier for businesses to engage in intra-African trade. |
| Liberalization of Services Trade | By opening up services trade, the agreement allows for greater cross-border investment and market access in these sectors, stimulating trade in services between African countries. |
| Investment Promotion | AfCFTA includes provisions to promote investment within Africa. It establishes a framework for the liberalization and protection of investments, creating a more favorable environment for businesses to invest and expand across African markets. Increased investments contribute to the growth of industries, infrastructure development, and job creation, further enhancing intra-African trade. |
| The Dispute Settlement Mechanism | The Dispute Settlement Mechanism was put in place to address trade disputes among member states. A transparent and predictable mechanism ensures that trade disagreements are resolved amicably and provides confidence to traders engaging in cross-border transactions. Further, a well-functioning dispute settlement system reduces uncertainties and risks associated with intra-African trade. |
AfCFTA aims to create a more integrated and conducive environment for intra-African trade. Increased trade volumes within the continent stimulate economic growth, foster industrialization, create employment opportunities, and contribute to overall development in Africa.
Article by Juliet Hinga
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