Africa is embarking on a transformative journey toward a single continental market, poised to spark an economic revolution. The African Continental Free Trade Area (AfCFTA) is at the heart of this initiative, aiming to unite African nations under a common economic umbrella.
Map of countries participating in the African Continental Free Trade Area
Nigeria’s president, Muhammadu Buhari, emphasized the commitment of African leaders at the 30th African Union Summit, stating, “We must push ahead to speedily establish the Continental Free Trade Area (CFTA), which will make Africa more integrated, united and prosperous.”
What is the AfCFTA?
According to the African Union, the AfCFTA is a project designed to integrate all African countries-encompassing 1.2 billion people and a combined GDP of over $3.4 trillion-into a single continental market for goods and services. This includes the free movement of businesspeople and investments, as well as the expansion of intra-African trade.
Trade is crucial to development. Unfortunately, Africa currently has the lowest percentage of intra-regional trade in the world at 18%, compared with 70% in Europe, 55% in North America, 45% in Asia, and 35% in Latin America. Nonetheless, analysts are confident that Africa is marching forward, citing the CFTA plus other developments as notable indications.
Read also: Comprehensive SWIFT Guide
An estimate by the United Nations Economic Commission for Africa notes: “The CFTA could increase trade between African countries by as much as $35 billion, an increase of more than 50 percent from current levels.” What’s more, it will make Africa the world’s largest free-trade area in terms of member states.
How the Single Market Will Transform Africa's Economy
Here’s how the single market will pave the way for a remarkable transformation in Africa’s economy.
Actualizing Africa’s Economic Independence
There’s ample research that validates how impossible it is to achieve economic development without trade. As such, it’s excruciating that Africa does not trade enough with itself.
The only way to improve the current dismal levels of regional trade is to disrupt all the existing barriers on the demand and supply sides that limit its rapid increase. According to Oby Ezekwesili, former vice-president of the World Bank’s Africa division and co-founder of the anti-corruption NGO Transparency International, only a single market model has the enormous potential to deliver such a massive scale of disruption and, ultimately, place Africa on the route to economic prosperity.
Aligning the trade policies, regulations and institutions of the 54 countries to promote continental trade will enhance the economies of scale, structural transformation, diversification, efficiency and productivity boosts. This will benefit producers, consumers and governments in phenomenal ways.
Read also: American Ambassadors in Nigeria
The single market has the potential to push regional trade levels up from 15% to 25% within a decade, which will, in turn, exponentially increase the continent’s annual economic growth, create wealth more inclusively and reduce poverty.
Deregulating the Aviation Industry
Aviation contributes $72.5 billion in GDP to Africa, and supports over 6.8 million jobs. This is in spite of the challenges that abound in the 54 countries, in dealing with 54 different civil aviation authorities and 54 sets of rules regarding travel, trade and tourism.
Leaving aside the difficulty of doing business, it can be a nightmare even travelling from one African country to another in the face of all this red tape. Imagine the massive gains if all of the 54 sets of rules were collapsed into one regulatory framework that allows the movement of goods and services in one singular market!
Fortunately, the African Union has just unveiled the first phase of the Single African Air Transport Market in a bid to untangle intra-African air connectivity. This development, notes Segun Demuren, the managing director and CEO of the Lagos-based EAN Aviation, will turbo-charge African aviation through improved market access across the continent.
A 2014 study by the International Air Transport Association shows that implementing these changes in just 12 key markets out of the 54 would provide a potential 5 million extra passengers a year with unrestrained opportunities to travel and trade. It would also create an additional 155,000 jobs and potentially increase the GDP of those 12 countries by an additional $1.3bn.
Read also: Morocco Travel: United Airlines
That’s just a quarter of the countries. Imagine the impact a single market would have across the continent.
The African Continental Free Trade Area #AfCFTA (English version)
From Tariff Liberalization to Massive Investment Rate
A major obstacle to intra-African trade is the tariff barrier. Firstly, it makes the process of trading extremely difficult. On top of that, it raises the price of imported goods, as well as hiking transaction costs.
If the central goal of the single market is to jump-start the continent’s economic prospect, then tariff reduction or a total elimination of custom duties on imported goods from within the continent is a necessity. By recommending these measures, the CFTA presents the hope for a more stable trade regime, continental market access and huge increase in the rate of investment. This is because the CFTA will trigger trade liberalization, an imperative catalyst for economic prosperity and sustainable development.
By and large, Africa would gain tremendously from a single market - plus other highly anticipated projects, such as a single currency, which would enhance regional monetary unions and international currency value.
As stated by African Economic Outlook’s 2017 report: “Trade between African countries has the greatest potential for building sustainable economic development and integration.” It will not only increase the scale and rate of mobility of persons, businesses, goods, services and capital across and within Africa. It will also create higher-wage jobs, catalyze economic evolution and unlock greater business opportunities.
The African Continental Free Trade Area (AfCFTA) agreement will create the largest free trade area in the world measured by the number of countries participating. The pact connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion. It has the potential to lift 30 million people out of extreme poverty, but achieving its full potential will depend on putting in place significant policy reforms and trade facilitation measures.
The scope of AfCFTA is large. The agreement will reduce tariffs among member countries and cover policy areas such as trade facilitation and services, as well as regulatory measures such as sanitary standards and technical barriers to trade.
Full implementation of AfCFTA would reshape markets and economies across the region and boost output in the services, manufacturing and natural resources sectors.
As the global economy is in turmoil due to the COVID-19 pandemic, creation of the vast AfCFTA regional market is a major opportunity to help African countries diversify their exports, accelerate growth, and attract foreign direct investment.
Creating a continent-wide market will require a determined effort to reduce all trade costs.
The Tripartite Free Trade Area (TFTA)
The creation in June 2015 of a free trade area from Cape Town to Cairo is possibly the most significant event in Africa since the formation of the Organization of African Unity in 1963. It is a grand move to merge existing regional organization into a single African Economic Community.
The Tripartite Free Trade Area (TFTA) includes the 26 countries that are members of the Common Market for Eastern and Southern Africa (COMESA), East African Community (EAC), and Southern African Community (SADC). The TFTA covers a population of 632 million and a combined GDP of $1.3 trillion.
Critics argue a single trading bloc will not work where individual sub-regional ones have failed. Between 2004 and 2014 trade within the COMESA region grew from US$8 billion to US$22 billion. Over the same period trade within SADC grew from US$20 billion to US$72 billion and for EAC it rose from US$2.6 to 8.6 billion.
Despite the growth, only about 12% of Africa's trade is intra-regional. It is 22% for South America, 40% for North America, 50% for Asia and 70% for Western Europe.
Benefits of the TFTA
The TFTA will benefit Africa in at least six mutually reinforcing ways:
- The conclusion of the agreement will generate the impetus for the creation of similar arrangements in western Africa, bringing economic powerhouses such as Nigeria into a continental free trade area.
- A much larger market whose free flow of goods and services will help to maintain economic growth at 6-7% per year. At this rate the combined GDP of Africa is projected to reach $29 trillion by 2050, which would be equal to the current combined GDP of the EU and the US.
- The TFTA will serve as an impetus for investment in Africa's cross-border infrastructure. It is estimated that Africa needs to invest nearly $100 billion annually in infrastructure over the next decade. Less than half of this target is met currently. One of the reasons for the low level of investment has been poor coordination across the different trading blocs.
- The prospects for the larger markets and supporting infrastructure will spur industrial development. This will not only create jobs but it will also have the added advantage of diversifying Africa's economies that are largely dependent on raw materials. Trade among the three blocs over the last decade has been dominated by intermediate products and manufactured goods, contrary to the common belief that African countries are trading in similar .
- The signal of larger markets will also help to stimulate trade in services. The first beneficiary is likely to be the financial sector, which will be able to lend to larger industrialists seeking to benefit from economies of scale.
- By being part of larger markets, small African countries will no longer be restricted to producing their traditional products.
There are critical lessons for future negotiations from the process. First is political will. This was demonstrated by the decision of presidents to approve a work program, create a roadmap for negotiations and stick to the timetable. The work was done through technical groups. Trade and Industry ministers met three times over the four-year period to agree on the consolidations, review progress and adopt the outcomes.
A second lesson is the importance of a continuous learning process and experimentation. The three trading blocs served as laboratories that generated lessons for technical negotiations. The importance of incremental learning has prompted COMESA to establish a school of regional integration that will start its operations in 2015.
The TFTA is a key landmark in Africa's economic history. It ranks in significance with the independence of Ghana in 1957, the creation of the Organisation for African Unity in 1963, and its reinvention as the African Union in 2002.
UNDP Support for AfCFTA Implementation
UNDP has been providing support to the implementation of the African Continental Free Trade Area (AfCFTA) at national, regional and continental levels. This support includes direct support to countries, training for micro small and medium-sized enterprises (MSMEs), creating links between MSMEs in different regions, research and support for the development of trade-enabling technologies.
On 29 March 2021, the AfCFTA Secretariat and UNDP signed a strategic partnership to promote trade as a stimulus for Africa’s socioeconomic recovery from the COVID-19 crisis, and as a driver of sustainable development particularly for women and youth in Africa, in line with the Sustainable Development Goals (SDGs) and Agenda 2063 common vision for the continent.
AfCFTA Objectives
The AfCFTA will make intra-African trade easier by achieving several important inter-related objectives as follows:
- The One African Market: create a single African market for goods and services. This means most trade barriers will be removed and common policies will be put in place to ease the movement of goods, also money, people, businesses and services
- Make it easier for businesses, especially MSMEs, to trade
- Remove non-tariff barriers i.e. measures that make trade between African countries difficult, such as customs delays
- Build African expertise in the areas of intellectual property rights, investment, competition and e-commerce
- Lower taxes and tariffs between member countries
- Help develop policies that facilitate trade and related services, such as the building of roads and easier access to ports.
The One African Market Guide: Intellectual Property Rights This guide explores intellectual property rights (IPRs) and their implications for the production and trade of goods and services within the emerging One African Market. IPRs are legal rights of ownership over processes and products granted to creators and inventors for a specific time period. Individuals and businesses can protect their processes and products, whether goods or services, using IPRs to ensure that they are not copied or used by others without authorization. IPRs can, therefore, contribute to businesses having a competitive edge in the marketplace - and securing revenue from their efforts, innovations and products.
Liberalization of trade in services is a different process from that of trade in goods. There are no tariffs on services, whereas there are on goods. Thus, liberalizing services does not entail reducing a duty on a product.
The Engine of Trade in Africa The report provides an in-depth reflection of the experiences of Africa’s women who trade across borders through micro-, small-, medium and large-sized enterprises in both the formal and informal sectors. The report fills the knowledge gap on Africa’s women in trade and how they understand and engage with the AfCFTA, offering a rare opportunity to understand women’s issues in trade, as expressed by the women themselves.
Understanding the AfCFTA: Guide for Small and Medium-Sized Enterprises in the ECOWAS Region Understanding the AfCFTA: Guide for Small and Medium-Sized Enterprises in the ECOWAS Region, was created to help small business owners, traders and producers, especially women, in the Economic Community of West African States (ECOWAS) region understand how the African Continental Free Trade Area (AfCFTA) works so that they can be in a position to make the best use of the business opportunities that can be found within the AfCFTA, including trading more easily across the continent and adding value to goods and services. The guide was produced by the ECOWAS Commission with support from UNDP.
Futures Report 2021 With this product, government officials can target which sectors consist of opportunities for their nation's entry into the AfCFTA market, creating targeted trade capacity-building programmes that can strengthen exporter readiness. Businesses are also in a better place to make sound decisions of where to invest to seize AfCFTA opportunities. And those areas where further improvements need to be made are also pointed out - to create stronger chances for a Made in Africa Revolution.
The Futures Report: Making the AfCFTA Work for Women and Youth This report demonstrates that, beyond the numbers and negotiations, the realization of this promise will depend on decisive actions and the collective efforts of the African people. Concrete policy measures and investments are needed, in particular to ensure that women and youth, who account for the majority of the population, business owners and workforce, can be better integrated into the value chains, jobs and opportunities stemming from the African Continental Free Trade Area (AfCFTA)
| Trade Area | Intra-regional Trade (%) |
|---|---|
| Africa | 12 |
| South America | 22 |
| North America | 40 |
| Asia | 50 |
| Western Europe | 70 |
