1st January 2021 will go down as a historic day for free trade agreements. As one economic bloc is shaken, another is created. The UK left the European Union, but African nations started operating under their new free trade agreement. The African Continental Free Trade Area (AfCFTA) finally came into force in the new year having been years in the making and delayed by the pandemic.
AfCFTA has created the largest free trade area in the world by number of member countries. All bar Eritrea having signed the agreement. It will connect 1.3 billion people with a combined GDP of $3.4 trillion dollars, and the capacity to bring 30 million people out of extreme poverty. Currently, it eliminates 90% of import tariffs on goods traded within the continent and aims to increase that figure to 97%. Removing non-tariff barriers to trade is also an important part of the agreement, streamlining the export/import procedures. It also guarantees the free movement of people across the continent.
Intra-African trade has been historically low, in 2019 12% of imports came from within the continent. The free trade area should go along way in changing this figure by reducing costs and increasing efficiency. Generally speaking, the continent has been trapped at the lower end of the global economy, selling low value raw materials and buying high value manufactured goods. This problem has been accentuated by what many call an exploitation by developed nations on Africa’s abundance of natural resources. The UN Economic Commission for Africa predicts the Free Trade Area (FTA) could increase intra-African trade by over 50%.
Non-tariff barriers such as customs delays and administrative bottlenecks at border posts emphasize the challenges facing African traders. The World Bank has claimed it takes about three and a half weeks for a container of car parts to be cleared by Congolese customs. Eliminating non-tariff barriers is said to boost the income of African countries by $292 billion.
AfCFTA’s plans are simple in theory, but harder in practice. There are several challenges that stand in the way. An increase in intra-continental exports will need robust and cheap transport options, which currently do not exist in much of the continent. The high price of transportation jeopardises the competitiveness of intra-African exports. There are calls for individual states to invest heavily in infrastructure to help facilitate increasing movement of goods.
Education on AfCFTA is a factor that could slow progress in the short term. Meron Dagnew, a coffee and cocoa trader based in Accra went to the customs services in Ghana and explained that she did not need to pay tariffs because of the FTA, but they did not know what she was talking about. This could be an isolated case but nonetheless, a worrying sign.
This is not the first-time countries in Africa have tried to cooperate in this fashion, both regionally and nationally. Legitimacy and enforcement challenges, along with insufficient political will from national governments has blighted previous attempts at economic cooperation and coordination. For AfCFTA to work there needs to be continental wide cooperation. Nations cannot focus on the same markets and goods otherwise they will be limited to domestic markets. Specialisation facilitates economies of scale.
AfCFTA benefits the international community too with the UN suggesting it could result in an extra $76 billion in income for the global markets. It also increases the appeal of investment into the continent. Growth opportunities have been identified by the major powers for many years now, this is only set to increase.
Could AfCFTA become beacon of multilateral cooperation in an increasingly divided world? Time will tell. This is an exciting new chapter for Africa but it does come with its difficulties.
Geo-Political Risk Review 