A common African market for a shared African future
The African Continental Free Trade Agreement has the potential to revolutionize businesses, create economies of scale
Four years ago, negotiations were initiated for an African Continental Free Trade Agreement (AfCFTA), which entered its operational phase in July 2019. This represented a major development as the agreement not only set up the world’s largest free trade zone but also created a common African market for a shared African future.
The agreement is ambitious, transformative and game-changing. It recognizes the enormous potential for African countries to boost trade with one another and expand their share of world trade.
By eliminating 90% of tariffs on goods and significantly reducing non-tariff measures (NTMs) on merchandise and services, the AfCFTA represented an unprecedented effort to integrate the continent into a unified market. It includes a combined gross domestic product (GDP) of $2.5 trillion and a population of more than 1 billion people, with 60% of them below age 25.
Africa is the continent containing the highest number of countries. Of course there are considerable variations in size both physically and economically. They encompass 32 least developed countries (LDCs), 16 landlocked developing countries (LLDCs) and six small island developing States (SIDS).
A majority of these countries face considerable supply constraints compounded by geographic and structural features. Ensuring that the rollout and benefits of the AfCFTA reach out to all across a highly diverse group of economies will be critical.
We must ensure that the implementation of global frameworks, such as the programmes of action for LDCs, LLDCs and SIDS, and that of AfCFTA are mutually reinforcing. It is the synergies capable of delivering the full benefits of free trade to all countries across the continent.
All such endeavours focus on the urgent action to improve infrastructure; expand access to sustainable energy; promote skills development and entrepreneurship; and expand access to development finance. These preconditions must be met to enable countries to produce efficiently and to compete both regionally and globally.
Let us consider, for example, high transport costs as an impeder of trade in African LDCs, LLDCs and SIDS. Export and import expenses for some African LLDCs are more than twice that of neighbouring transit countries. These costs have increased over time, undermining the competitiveness of goods and services produced by such countries.
It is thus an imperative to improve physical transport systems with a view on building integrated, sustainable and efficient transit systems. This is at the core of reducing transport and transit costs. This will facilitate the movement of goods and services, expand trade opportunities and enable countries to integrate and benefit from regional and global value chains.
The AfCFTA presents the potential to generate economies of scale, boost intra-continental trade and advance an inclusive and sustainable development. At present, an estimated 85% of African exports go outside the continent. African countries have set the ambitious goal of making inter-African trade move from roughly 16% of total continental trade currently to 25% within the next decade.
By creating a single market, the agreement has the potential to help Africa’s most vulnerable countries to industrialize and to structurally transform their economies. This should result in producing higher value-added products, generating decent jobs for the growing number of young people entering the job market and retaining much of the generated wealth within the continent. These objectives are at the core of the Istanbul Programme of Action for LDCs, the Vienna Programme of Action for LLDCs and the SIDS Accelerated Modalities of Action (SAMOA) Pathway.
The implementation of AfCFTA should also bode well for stimulating foreign direct investment (FDI) by providing a more attractive environment for investors. The aim is for increased FDI to lead to the acquisition and use of new technologies and to improved productive capacities in Africa’s most vulnerable countries.
Furthermore, implementation ought to generate payoffs through stimulating the development of small and medium-sized enterprises (SMEs), which should particularly benefit the empowerment of women. It is also hoped that SMEs presently facing considerable difficulties in penetrating foreign markets can access regional markets that in turn can serve as a springboard for entering international markets.
Cross-border informal trade in Africa tends to be a predominantly female activity. The elimination of customs duties or at least their significant reduction due to the AfCFTA is expected to boost cross-border flows, generate higher incomes for women and provide them with improved working environments.
The AfCFTA and the various programmes of action for LDCs, LLDCs and SIDS naturally complement one another and we must proactively leverage their synergies. Taken together, they offer an important avenue in ensuring that the benefits of free trade among African countries are fairly distributed. OHRLLS is committed to fostering their joint implementation for the benefit of an inclusive and sustainable development for all by 2030.