Introduction.
Digital and physical infrastructure improvements have integrated economies worldwide, facilitating international trade and the proliferation of E-commerce and trade in goods and services. Between the 20th and 21st centuries, people with less than $1.50 per day dropped, workers’ wages rose, and trade between countries boosted economic activity. Unfortunately, Africa lagged behind other continents, but the African Continental Free Trade Area (AfCFTA) is the first step towards faster, inclusive, and broad-based economic growth. This article looks at the rationale and the perceived benefits of the AfCFTA.
Free trade is a prerequisite for sustainable economic development across Africa. However, African citizens have yet to share in the benefits of free trade due to trade barriers, poor infrastructure, low access to electricity, and cumbersome border procedures. The AfCFTA will help eradicate these challenges by creating a regional market with zero tariffs on over 97% of goods. While the absence of political will has stifled intra-regional trade efforts for years, several trade blocs emerged, sectioning off large parts of the African continent and making it difficult for countries to align their trade regulations and legislation.
The AfCFTA is part of the African Union’s Agenda 2063 flagship project, which aims to progressively eliminate tariffs and non-tariff barriers on intra-African trade, thus creating opportunities for African businesses. 54 African Union (AU) member states have signed the AfCFTA (all AU members except Eritrea).
Trade Between African Countries is Low.
Findings from UNCTAD’s Economic Development in Africa Report 2019 found that total trade from Africa to the rest of the world averaged US $760 billion in 2015–2017. This is much lower than North America’s ($5,140 billion), Europe’s ($4,109 billion), and Asia’s ($6,801 billion) exports to the world. Furthermore, the share of exports from Africa to the rest of the world ranged from 80% to 90% respectively from 2000 –2017, making Africa the only region with a higher export dependency than Oceania.
More worrying is intra-African exports, which totaled 16.6% of total exports in 2017, compared with 68.1% in Europe, 59.4% in Asia, 55.0% in America, and 7.0% in Oceania. Historically, African countries do not trade amongst themselves due to high tariffs, poor connectivity, and non-tariff barriers such as indiscriminate checks across land borders.
The Motivation for Greater intra-Africa Trade
Although intra-African trade is not the only driver of economic development, it is important. It can facilitate industrialization and enable the continent’s industries to become competitive by creating economies of scale and weeding out less productive firms (Kimenyi, Zenia, and Routman, 2016).
Furthermore, tariff-free trade can develop and strengthen value chains and facilitate the transfer of technology and knowledge spillovers. It can equally incentivize infrastructure development and attract foreign direct investment over the long run. The AfCFTA is necessary to accelerate economic growth across the African continent. This is especially important for the continent’s many small, landlocked countries that face tremendous challenges trading internationally.
How will Africa benefit from the Continental Free Trade Area?
According to a World Bank report (2018), by 2035, the ratio of extreme poverty in Africa is projected to decline to 10.9% due to higher intra-regional trade. Full implementation of the AfCFTA could lift an additional 30 million people, or 1.5% of the continent’s population, out of extreme poverty (Kayumba,2019).
The same report finds that the agreement will further regional integration and lower tariffs, which “could bring $3.6 billion in welfare gains” to the continent. There will equally be broad-based gains to industrialization and market access. Consumer welfare will increase by $1.4 billion and labor-intensive sectors will grow exponentially. For example, food processing will increase by 76%, light manufacturing by 61%, heavy manufacturing by 31%, and textiles by 18%.
This can create millions of jobs, support the emergence of competitive industries, and insulate the continent’s value chains from exogenous shocks such as low commodity prices and geopolitical tensions. Furthermore, as countries develop unique competitive advantages, current account imbalances will gradually close, and the business sector will be able to create high-quality jobs.
Additionally, the AfCFTA will boost economic integration and enable countries to develop competitive advantages in different product and service categories while creating employment for Africa’s youth. The agreement will equally support the African Union’s 2063 Agenda of “inclusive growth and sustainable development” and an “integrated continent.” (SDG Knowledge Hub, 2021).
How can we make the African Continental Free Trade Area Work?
1). The government should implement sector-specific trade facilitation measures.
Lowering and eliminating tariffs will be the easiest way to make the AfCFTA effective. The hardest part will be enacting the non-tariff and trade facilitation measures, which will make verifying and implementing rules of origin easier.
Governments should design and implement sector-specific trade facilitation measures to establish a transparent and predictable environment for cross-border transactions across the continent. Supporting local production will require suspending value-added taxes for locally made products to stimulate “Made in Cameroon” products such as flour, eggs, rice and wine to name a few. Supporting made in Cameroon products is necessary to boost local production and stimulate exports over the longrun. This should be based on simple, standardized, and digitized custom procedures designed to ensure a faster harmonization of trade legislation across the continent.
2). Better connectivity will support the implementation of the Continental Free Tarde Agreement.
To lessen the adverse impact of poor infrastructure and connectivity issues, policymakers should prioritize investment in trade-heavy routes, ensuring that such improvements benefit local communities, consider environmental ramifications, and are integrated to facilitate cross-border trade. Furthermore, Africa’s digital infrastructure needs investment. Faster internet connectivity should be actively pursued to support e-commerce and trade-in services.
3). The continent should prioritize digitization to enable faster adoption of synchronized trade practices.
From obtaining export permits to the certification of goods and services and phytosanitary measures, a more digitized approach to trade will accelerate the agreement’s implementation, integrate the continent, and enable a faster symmetry of regulation. This should be accompanied by capacity building and a rigorous information campaign to better inform citizens on trade processes and the necessity of new technologies.
Conclusion.
The AfCFTA will bring untold benefits to African citizens, but its successful implementation is contingent on greater trade facilitation and harmonizing legislation across African countries. It will boost intra-regional trade and create sustainable and inclusive economic growth for African countries over the long run.
However, while the agreement’s benefits are numerous, African member states must focus on implementing the deal, removing bottlenecks, and facilitating intra-regional trade. Doing that will support sustained and inclusive economic growth, faster poverty eradication, and industrialization. While the agreement is the first step towards a unified market with lower tariff and non-tariff barriers, it is imperative to prioritize trade facilitation measures and accelerate the implementation of the AfCFTA.
Henri Kouam, Chair, CEPI.
Reference List
- C. (2019). AfCTA Opportunities, Challenges and Adaptability Across Africa: A Policy Brief.
- Maliszewska, M., & Ruta, M. (2020). The African Continental Free Trade Area: Economic and Distributional Effects. World Bank Group
- M. S. Zenia A. L and Routman. B. (2016). Introduction: Intra-African Trade in Context, Brookings Africa Growth Initiative. Brookings Institute, United States.
- Sustainable Development Goals, Knowledge Hub. (2021). African Continental Free Trade Area Completes First Month of Trading. Accessible here
- World Bank. (2020).The African Continental Free Trade Area. World Bank, Washington DC.
