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AfCFTA is Good News for Africa
Not every first day of a new year is as important and exciting as the first day of January 2021. January 1, 2021, marks a much-anticipated departure from what will go down in history as one of the most unusual and unfortunate years. The COVID-19 pandemic dominated and influenced most of 2020, disrupted lives and livelihoods, shook businesses and the economies of nations. However, for us Africans, something more interesting makes the start of 2021 remarkable. January 1st, 2021 marks the start of free trading in Africa under the African Continental Free Trade Area (AfCFTA). This is good news for a continent in need of economic development.
AfCFTA was established with the goal to create a single continental market for goods and services, with free movement of business persons and investments, paving the way for accelerating the establishment of a future continental customs union. The AfCFTA will bring 55 African nations together, creating the largest free trade area in the world. The World Bank estimates that the agreement will boost Africa’s income by $450 billion by 2035 (a gain of 7 percent) while adding $76 billion to the income of the rest of the world. The AfCFTA agreement will involve two implementation phases. Phase 1 covers trade in goods and services. This involves tariff liberalization, dispute settlement mechanisms, non-tariff barriers, rules of origin, custom cooperation and harmonization of documents, trade remedies, institutional arrangements, banking, insurance, air and maritime transport, tourism, and financial services. Phase II negotiations relate to competition policy, intellectual property rights, and investments.
As the table at the end of this article shows, due to the economic realities of those African countries classified as least developed countries, 32 LDCs have 10 years to achieve 90% trade liberalization under the AfCFTA, in contrast to 5 years for the non-LDCs. The G6 countries – Ethiopia, Madagascar, Malawi, Sudan, Zambia, and Zimbabwe have specific development challenges and have been afforded a 15-year timeline to reach 90% trade liberalization.
I am personally excited about this free trade agreement, not just because of the promises it holds for the continent but also for the institutional frameworks being developed for the agreement to work successfully. At the Africa Business Forum 2020 I attended last year, AfCFTA Secretary-General Wamkele Mene highlighted that traders will be applicable to reimbursements in a situation where signatory states refused their exports. Wamkele Mene has also made commitments to harmonize custom regulations by socializing national custom authorities to understand the obligations of the AfCFTA agreements. This is in addition to other efforts by Wamkele Mene to prepare governments and private sector actors for the trading which officially begins on January 1, 2021. So far, 34 out of 55 countries have deposited their instruments of ratification. Only 22 were needed for the agreement to come into force.
Here is why the AfCFTA is good news for Africa.
Boosts intra-Africa trade
AfCFTA will boost intra-African trade as it commits countries to remove tariffs on 90% of goods and lifting all barriers to trade within the continent. Prior to now, Africa traded more with countries outside Africa more than within Africa. In fact, intra-Africa trade stands at 16%. In Europe, 70% of trade happens within the continent. In Asia, 51% of trade happens within the region. It is evident that boosting intra-Africa trade is necessary for fostering economic growth on the continent. Poor transport infrastructures, a high level of insecurity, and border conflicts between African countries are some of the factors that have contributed to the low level of intra-African trade. However, with a shared commitment to the implementation and success of this free trade agreement, many hope to see improved intra-African trade. AfCFTA is expected to increase intra-Africa trade from an existing level of about 16% to 25% or more through better harmonization and coordination of trade liberalization. This will be driven forward by the complementary Single African Air Transport Market and the Protocol on Free Movement of Persons.
Creates markets for small and medium-sized business
AfCFTA will create a single market for goods and services and movements of persons and investments, bringing together more than 1.3 billion people and an economic partnership worth in excess of $3.6 trillion. This creates a huge opportunity for the growth of small and medium-sized businesses that will be willing to take advantage of this trade agreement. The agreement is also good news for African informal traders. Informal trade makes up about 60% of trade in Africa and this trade is made up of primarily women and young people. Before now, these informal traders have encountered several challenges from border closures to corrupt custom regimes in countries to gross exploitation of these traders who are mostly women. The launch of the AfCFTA is a gain for these traders who will see trade barriers like border closures removed thereby increasing the ease and volume of intra-cross border trade.
Fosters specialization and boosts industrialization
Asia-Pacific countries like China, Japan, Thailand, Singapore, and Vietnam are proof that industrialization is key to driving economic development and reducing poverty and unemployment. For a continent like Africa, industrialization will boost exports and alleviate poverty and unemployment. Despite the poor level of industrialization in Africa, manufactured goods make up a much higher proportion of regional exports than those leaving the continent—41.9% compared to 14.8% in 2014. Landre Singer notes that AfCFTA will provide African leaders with a greater negotiating power to eliminate barriers to exporting (facilitate negotiations with the European Union, the United States, and China) and further enhance technology transfer to less developed countries.
In terms of industrialization, Aliko Dangote, a Nigerian business mogul, and Africa’s richest man has businesses in the manufacturing sector that cover cement manufacturing, real estate, banking, transport, textiles, oil, and gas. Among industrial projects being completed by the Dangote Group are cement factories in 16 African countries, fertilizer plants, and a crude oil refinery in Lagos which is set to be commissioned at the beginning of 2021. More private sector investments are sure to drive industrialization under the AfCFTA and that is why AfCFTA Secretary-General Wamkele Mene plans to establish private sector dialogue.
Other benefits that will come from AfCFTA include increased employment and investment opportunities. Following the start of trading, we will continue to see an influx of foreign direct investments from external trading partners including from private businesses in the United States and Europe, and more investments from Chinese state-owned enterprises.
This does not mean that the AfCFTA will not encounter challenges. As earlier stated, the continent continues to grapple with poor transport infrastructure, a human security crisis, and a lack of industrial policy coordination. However, with political will from African statesmen, the agreement has every incentive to succeed. The AfCFTA is here and hopefully, it is here to succeed.
Chimdi Chukwukere is a first year M.A. candidate for the Diplomacy and International Relations program, specializing in International Organizations and Foreign Policy Analysis with a regional specialization in Africa. Chimdi Chukwukere is currently working as a research assistant and is also on the National Security Fellowship at Seton Hall School of Diplomacy.