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Realising Africa's Business Growth Potential through the African Continental Free Trade Area (AFCFTA)

  Oct 23, 2020

As economies globally struggle to recover from the economic shocks caused by the COVID-19 pandemic, the successful implementation of the African Continental Free Trade Area (AfCFTA) offers African economies an opportunity to bounce back post-pandemic.

The AfCFTA is a regional trade agreement among African countries that aims at pushing for improved economic collaboration between neighboring countries to bring about better transportation, infrastructure, and ideally better trade. Furthermore, the agreement will establish a single market for goods, services, facilitated by the movement of persons to deepen the economic integration of the African continent.

According to the World Development Report – 2020 by the World Bank, global value chain trade is more than four times larger between countries sharing a deep trade agreement than between countries with no trade agreements. “Movement between countries in the continent has been an immense challenge essentially brought about by erroneous visa processes, tedious custom clearance, excessive border controls, and expensive air tickets among others,” reads the report in part.

As a region, Africa has a potential investment opportunity of up to 1.2 billion USD, very attractive for any investor, for sure. It is also important to note that the agreement can increase intracontinental trade, today, less than a fifth of all exports are currently from one African country to another African. Kenya, for instance, exports 1 billion USD worth of products yearly to Europe and up to 500 million US dollars to the United States of America. In contrast, in 2017, Kenya exported only 69 million USD worth of products to Ethiopia due to high trade taxes.

On successful implementation of the AfCFTA agreement, Africa will become the world’s largest free trade area with a market of 1.27 billion consumers and is projected to have grown to 1.7 billion consumers by 2030. According to the International Monetary Fund (IMF), once fully implemented, the AfCFTA is expected to cover all 55 African countries, with a combined GDP of about US$2.2 trillion.

The main goal of this trade agreement is to create a single market for goods and services, facilitated by the movement of persons. In addition to increased trade flows both in existing and new products, this agreement has the potential to generate substantial economic benefits for member countries such as higher incomes arising from increased efficiency, improved resource allocation, higher cross-border investment flows, and technology transfers.

The AfCFTA agreement offers an opportunity to actualize inclusive industrialization and with it, productive transformation, export diversification, improvement of quality infrastructure as well as the adoption of the Made in Africa standard, among others.

While the AfCFTA offers immense opportunities, some challenges may arise, such as non-tariff barriers, and may slow down this effort if not addressed. Additionally, Inclusive integration is imperative for the success of this agreement. Further, it is important to ensure the readiness of the various countries; in terms of understanding their contextual priorities and a good understanding of capacity needs for the effective implementation of the agreement.

The African Continental Free Trade Area offers the continent an opportunity to accelerate business growth together both within the continent and beyond the borders. The successful implementation of AfCFTA is important now more than ever, with many countries reeling from the economic shocks caused by the pandemic; this trade agreement is what African countries need to enhance economic recovery from the effects of the COVID-19 pandemic.

About the Africa CEO Dialogue Forum

The Africa CEO Dialogue is a series aimed at driving conversations and engaging executives and business leaders across the continent to develop insights on the various issues affecting the continent. This series is jointly hosted by Strathmore University Business School and Shared Value Africa Initiative.

The fourth session of the Africa CEO Dialogue Forum will take place on Thursday, 19th November 2020 for in-depth conversations on how Africa can leverage on the AfCFTA agreement to bolster its growth globally.

Register here


Article by Juliet Hinga 


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