#Africa101 is an ongoing series of explainer articles for topics that are essential for understanding the current landscape and trends on the continent.
Photo: President Paul Kagame of Rwanda and President Mahamadou Issoufou of Niger participate in a panel discussion at the AfCFTA Business Forum on 20 March 2018. (Paul Kagame/ Flickr)
From the AU to RECs, the African continent is awash in acronyms. But perhaps the one poised to have the greatest transformative effect is "AfCFTA", or the African Continental Free Trade Area. In this article, we explain what it is, why it’s significant, and the impact it could have on the continent in the coming years.
The AfCFTA, explained
The African Continental Free Trade Area (AfCFTA) is a landmark agreement that seeks to create a single market for goods and services across the African continent. The idea of a pan-African free trade area has been in the works for decades, with the African Union Commission first proposing the concept in 2012. The negotiations and implementation of the AfCFTA were driven by the African Union, and the initial agreement was signed by African leaders in March 2018.
As of February 2023 (according to the African Union), the AfCFTA has been ratified by 54 out of 55 African Union member states, making it the world's largest free trade area in terms of participating countries. Tralac, an independent think tank, notes that: “As at February 2023, 46 of the 54 signatories (85%) have deposited their instruments of AfCFTA ratification with the AUC Chairperson.”
In total, the trade area will cover more than 1.2 billion people with a combined GDP of USD 3.4 trillion and will be the world’s largest free trade area since the creation of the World Trade Organization in 1995.
Why is the AfCFTA significant?
As we’ve noted above, the sheer size of the free trade area would make it the largest in the world in terms of countries and population. But the AfCFTA is also significant for three key features:
It seeks to eliminate tariffs on 90% of goods produced on the continent.
It resolves to tackle non-tariff barriers to trade.
It would, when fully implemented, guarantee the free movement of people across the continent. (This article will talk primarily about the trade aspects of AfCFTA; we’ll address free movement in a separate post.)
The AfCFTA is expected to have a significant impact on trade, politics, and the economy of the African continent. By eliminating trade barriers, such as tariffs and non-tariff barriers, the agreement aims to increase intra-African trade, which is currently lower than other regions of the world. UNCTAD estimates that intra-African trade (or the average of exports and imports on the continent) at 15.2% for the period 2015–2017. Meanwhile, comparable figures for America, Asia, Europe were, respectively, 47%, 61%, 67%.
The African Union estimates that the elimination of tariffs on 90% of goods (as well as reduced barriers) could boost income on the continent by 7% – or USD 450 billion by 2035 – as well as bring 30 million people out of extreme poverty and lift another 68 million from moderate poverty.
Photo: 10th Extraordinary Summit of the African Union in Kigali, 21 March 2018 (Paul Kagame/ Flickr)
Potential benefits and consequences of AfCFTA implementation
Creating this new trade area and facilitating the movement of goods and people across borders will have a dramatic effect on the African economy. Many groups will benefit, if they’re able to take advantage of the new system. Below, we’ve outlined several notable benefits and consequences of AfCFTA implementation:
Increased industrialization and economic diversification
With reduced barriers, as well as a continental framework in place to maintain that ecosystem, entrepreneurs and business owners will have a greater ability and incentive to invest long term, which should drive industrialization, create new job opportunities, and increase consumer choice.
Women-owned businesses could make gains…
Women engaged in cross border trade and intra regional trade, as well as agriculture, manufacturing (like clothing and textiles), and services will find increased trade and business opportunities. Additionally, the AfCFTA encourages national governments to support women-owned businesses in the public procurement process, which could result in greater representation in contracts awarded, as well as revenue and social gains.
…But only if they are positioned to do so.
At the same time, a 2022 policy brief by UN Women notes that gains for women will not be automatic. Though women run a significant number of micro, small, and medium enterprises (MSMEs) on the continent, they may “miss out on opportunities that arise from continental trade integration because [their businesses] are mostly informal, have low productivity and are confined to non-tradable sectors, in low-value-added nodes of regional and global value chains.”
Youth could be transformative, but continue to face barriers
One.org noted that information (for example, knowing about and understanding the AfCFTA), access to finance (having the opportunity to start a business), and education will be the three critical factors in determining whether Africa’s youth can capitalize on not just the AfCFTA but Africa’s demographic rise on the global scene in the coming years.
In January 2023, the UN Economic Commission for Africa (UNECA) declared that the AfCFTA would be African youth’s opportunity to “accelerate trade and industrialization,” specifically through entrepreneurship in agriculture, financial technology, IT and in the creative industry.
Indeed the AfCFTA includes a Women and Youth in Trade Protocol that outlines these envisioned benefits and future trends, while also noting that challenges persist. These include a lack of infrastructure and access to technology, funding (as with women-owned businesses above), electricity, and generally-low internet penetration on the continent. If not addressed, these factors will continue to keep youth on the sidelines.
AfCFTA’s impact in the coming years
As with any new trade area, the AfCFTA will be phased in gradually. The first phase will focus on the elimination of tariffs on goods traded within the free trade area, and the second phase will address non-tariff barriers, such as customs procedures and technical regulations.
To be more precise, Tralac noted in February 2023 that:
The operational phase of the AfCFTA was launched during the 12th Extraordinary Session of the Assembly of the Union on the AfCFTA in Niamey, Niger on 7 July 2019. Start of trading under the AfCFTA Agreement began on 1 January 2021, however, no trade has as yet taken place under the AfCFTA regime.
The implementation of the AfCFTA is expected to face some challenges, including the need to harmonize regulations and standards across participating countries and RECs, as well as address infrastructure and logistical challenges that could impede trade flows.
Also notable, implementation may face delays as some countries are acutely aware they will face short-term economic disruptions as they adjust to increased competition from within the free trade area. If they are unable to address these shocks before they happen, they could lose popular support for this continental initiative.
Final note
The AfCFTA is easily the most ambitious integration effort the continent has seen in a generation, and it has made tremendous progress in recent years. While it is, overall, expected to have a positive impact on the African continent, if systemic issues like education and access to finance are not addressed, it could serve to exacerbate existing inequality, especially amongst women and youth.
However, by promoting regional integration and trade, the agreement has the potential to drive economic growth, reduce poverty, and enhance political stability across the continent on a scale previously unimaginable without outside assistance. The AfCFTA demonstrates that the Africa of the 21st century is more united and integrated. The next challenge will be seeing whether that goodwill can translate to creating better lives for its people.
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