Benissan Barrigah – edited by PACT
Trade integration across the African continent has been hindered by outdated border and transport infrastructure, as well as varying regulations across numerous markets. Governments have frequently erected trade barriers to protect their domestic markets from regional competition, making it more costly for countries to trade with neighboring nations than with those much further away.
Consequently, the statistics reflect these challenges:
- Intra-African exports accounted for only 15 percent of total exports in 2019, a comparatively small share that lags behind intra-regional trade in other parts of the world, such as Asia and Europe.
- From 2000 to 2019, Africa’s share of exports to the rest of the world ranged from 80 to 90 percent, with only Oceania exhibiting a greater dependence on exports to the rest of the world during this period.
These factors underscore the urgent need for improved infrastructure and coordinated policies to overcome the barriers to trade and foster economic development across the African continent.
AfCFTA
Established in 2018 through the African Continental Free Trade Agreement, the African Continental Free Trade Area (AfCFTA) is a transformative trade pact to create the world’s largest free trade area by creating a single market for goods and services for nearly 1.3 billion people in Africa and deepening Africa’s economic integration.
The implementation of the AfCFTA is coordinated by the AfCFTA Secretariat, an autonomous body operating within the African Union. To date, 46 of the 54 signatory countries have deposited their instruments of ratification, officially becoming States Parties to the agreement.
The main objectives of AFCFTA are:
- Increase trade within Africa by removing barriers such as tariffs, non-tariff obstacles, and excessive regulations.
- Enhance competitiveness by providing access to a larger market and enabling economies of scale, fostering innovation, productivity, and sustainable development.
- Attract foreign direct investment (FDI) by establishing a unified market, harmonizing trade rules, and improving the business environment, making Africa an appealing investment destination.
Potential Outcomes
The African Continental Free Trade Area (AfCFTA) presents a significant opportunity to enhance intra-regional trade and strengthen Africa’s position in international negotiations. The proper implementation of AfCFTA holds the potential for substantial economic and social advancements across African countries.
Studies conducted by reputable institutions such as The World Bank and International Monetary Fund highlight the following potential benefits:
- Full implementation of the AfCFTA could lead to real income gains of nearly $450 billion by 2035.
The removal of non-tariff barriers and improved trade facilitation measures would contribute about two-thirds of these $450 billion in revenue gains. Reducing border crossing times and compliance costs would also make it easier for African firms to integrate into regional and global supply chains.
- By 2035, total exports would increase by almost 29% compared to the business-as-usual scenario. Intra-continental exports would see a significant rise of over 81%, while exports to non-African countries would increase by 19%.
- AfcFTA has the potential to lift an additional 30 million people from extreme poverty and 68 million people from moderate poverty, contributing to poverty reduction.
- Implementation of AfCFTA is expected to generate higher-paid and better-quality jobs, with women experiencing significant wage gains.By 2035, women could witness a wage increase of 11.2%, while men could see a rise of 9.8%.
- AfCFTA’s unified market, elimination of tariff and non-tariff barriers, and integration into global and regional value chains are expected to attract cross-border investment. With a combined GDP of $3.4 trillion and a population of 1.3 billion people across 55 member countries, Africa could experience a significant increase in foreign direct investment (FDI), with FDI inflows potentially rising by 111% to 159%.
Overall, AfCFTA has the potential to reshape Africa’s economic landscape, promote inclusive growth, and position the continent as an attractive investment destination.
Addressing current challenges
While the African Continental Free Trade Area holds immense potential, it is not without its challenges.
Here are some key challenges that need to be tackled:
Infrastructure Development: Improvement of transportation networks, logistics systems, and connectivity are essential for seamless intra-regional trade.
Customs and Regulatory Harmonization: Unifying customs procedures, reducing non-tariff barriers, and simplifying regulatory frameworks across countries can facilitate smoother trade flows.
Capacity Building and Institutional Strengthening: Training of customs officials, enhancement of trade infrastructure, and strengthening of trade-related institutions are vital for AfCFTA’s smooth functioning.
Addressing Sectoral Challenges: Tailored interventions (such as supporting industries in enhancing their competitiveness, promoting innovation and technology adoption, and providing assistance to small and medium-sized enterprises to participate actively in cross-border trade) are needed to help specific sectors adjust to new trade dynamics under the AfCFTA.
Inclusive Participation: Including all stakeholders in the policymaking process and promoting transparency and dialogue is crucial for AfCFTA’s success.
Addressing these hurdles will pave the way for effective implementation and maximize the benefits of AfCFTA.
Conclusion
Harnessing the full potential of the AfCFTA requires an enduring commitment over the ensuing years to enhance the trade environment. A paradigm shift is necessary where trade openness becomes a central pillar in policy frameworks. This means moving beyond traditional practices such as using import tariffs to shield domestic industries or generate significant fiscal revenue, and curbing the sporadic imposition of arbitrary export restrictions.
For African countries to fully reap the benefits of trade integration, they must work toward fostering a conducive business environment underpinned by macroeconomic stability. This undertaking needs to be complemented by strategies aimed at improving governance, bolstering educational systems, augmenting the efficiency and productivity of physical infrastructure, and fortifying financial development.
In conclusion, AfCFTA is not merely a trade agreement but a transformative tool for economic development. It is a roadmap toward a more interconnected and prosperous Africa. With a commitment to overcome existing challenges and the political will to implement necessary changes, the AfCFTA could indeed be a game-changer, signaling the dawn of a new era of trade and prosperity for the African continent.