The African Continental Free Trade Area and its benefits
The Agreement establishing the African Continental Free Trade Area (AfCFTA) is considered a potential game changer for African countries. The Agreement has been signed by 54 member States of the African Union (AU), and ratified by 46 member States as of February 2023. The successful implementation of the Agreement is expected to significantly enhance intra-African trade and open up market and investment opportunities for African small, and medium sized enterprises (SMEs) and larger businesses as tariffs and non-tariff barriers to trade among African nations are gradually eliminated. Rules of origin when operational will grant African businesses in African markets preferential access compared to other competitors. The AfCFTA aspires towards deepening the integration of the African continent beyond merely a free trade area. Its objectives include: “to create a liberalized market […] through successive rounds of negotiations,” “lay the ground for the establishment of a Continental Customs Union” and “contribute to the movement of capital and natural persons.” (ECA et al, 20191).
The United Nations Economic Commission for Africa (ECA) estimates that the AfCFTA could have positive effects on Africa’s Global Gross Domestic Product (GDP), output, trade, and welfare driven by increases in intra-African trade of up to 40 per cent in the main economic sectors of agri-foods, services and industry, provided the AfCFTA is implemented by 2045 compared to a baseline scenario of no implementation. However, these gains will not be automatic and rely on two critical elements: that the AfCFTA is implemented across all 55 African Union (AU) state parties, and that the private sector and development partners are fully engaged in its implementation. Additionally, industrialization and economic diversification will have to be accelerated for the expected gains to translate into reality.
To take full advantage of the AfCFTA, countries must bolster its implementation with complementary measures in investment, production, trade facilitation, trade-related infrastructure and import defence (ECA et al., 2019). The AfCFTA can provide incentives for African countries to engage in the broad reforms the continent needs to accelerate economic transformation through industrialization and development of regional value-chains. The AfCFTA, supported by policy and regulatory reforms, a more conducive business environment and improved infrastructure and connectivity, would enable African businesses to exploit economies of scale through larger market access and participation in regional value-chains. This would spur a more effective allocation of resources and attract larger levels of investment with dynamic gains in trade over time.
The successful implementation of AfCFTA, would allow Africa to have a combined consumer and business spending of $6.7 trillion by 2030 and $16.12 trillion by 2050, creating unique opportunities for African entrepreneurs and businesses. This implies that the African continent would offer significant market potential for goods and services of participating countries, and opportunities for SMEs, women and youth to trade on the continent including through participation in regional value-chains.