AfCFTA: THE PAST, THE PRESENT, AND THE FUTURE
The African Continental Free Trade Area is a trade and economic alliance between African countries to foster intra-African trade and commerce by initially ensuring that member countries remove tariffs from 90% of goods, allowing free access to commodities, goods, and services across the continent amongst other interesting trade incentives employed to ensure that Africans do business in Africa with Africans. It was created by the African Continental Free Trade Agreement among 54 of the 55 African Union nations except for Eritrea.
Interestingly, The Africa Continental Free Trade Agreement kicked off the same day the United Kingdom officially left the European Union. The trade agreement between African countries was originally scheduled to kick off on July 1, 2019, but was postponed because of the global economic disruptions occasioned by the coronavirus pandemic.
According to The Nation, the trade liberalization deal was expected to create a Continental Free Trade Area (CFTA) for goods and services in Africa, liberalize and facilitate the free movement of people, investments, and businesses across the continent, while also signaling a step towards building strong regional value chains.
With its promise of creating a continental trade bloc of 1.3 billion people across Africa, with a combined Gross Domestic Product (GDP) of about $3 trillion, the AfCFTA is the world’s largest trade agreement since the creation of the World Trade Organization (WTO) in 1994, in terms of participating nations.
In other words, the AfCFTA is arguable, the most ambitious and strategic push to build an integrated, diversified, and industrialized continent capable of holding its own in the global economy. AfCFTA is projected to increase the value of intra-African trade by 15 to 25 percent by 2040. This would translate to between $50 billion and $70 billion in dollar value.
One of the key challenges that AfCFTA seeks to address is the increase in intra-African trade. The National Bureau of Statistics (NBS) reported that imports in Asia hovered between 40-45% of Nigeria’s total imports compared to less than 20% imports from Africa between the first and last quarters (Q1-Q4) of 2019. These figures are not exciting when compared to intra-trade levels in Europe (69%), Asia (59%), and North America (31%). Economists have argued that lack of industrialization, poor infrastructure, economic instability, and exorbitant tariffs are the causes of low intra-regional trade rates within Africa as a trading bloc.
More importantly, the trade liberalization initiative is poised to lift millions of Africans out of extreme poverty by ensuring rapid industrialization, urban infrastructural renewal, and easier movement of goods and services across the continent.
According to the World Bank official website, The African Continental Free Trade Area (AfCFTA) presents a major opportunity for African countries to bring 30 million people out of extreme poverty and to raise the incomes of 68 million others who live on less than $5.50 per day. With the implementation of AfCFTA, trade facilitation measures that cut red tape and simplify customs procedures would drive $292 billion of the $450 billion in potential income gains. Implementing AfCFTA would help usher in the kinds of deep reforms necessary to enhance long-term growth in African countries.
If effectively and efficiently implemented, the African Continental Free Trade Agreement will change the fortune of Africans and stir the continent on the right track to economic emancipation. Full implementation of AfCFTA would reshape markets and economies across the region and boost output in the services, manufacturing, and natural resources sectors.
While the global economy is recovering from the turmoil caused by the COVID-19 pandemic, the 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 is imperative and timely.
Obviously, AfCFTA is a potential game-changer for African economies but full implementation is key to aggressively harnessing the gains its implementation plans to provide for African economies but we need to ensure that a conducive atmosphere for trade and commence thriving within African countries is enabled and we would address those challenges in subsequent paragraphs.
First, Heads of governments and key decision-makers on the continent need to sincerely begin to address Africa’s infrastructural challenges. The provision of critical infrastructure needed to boost local manufacturing and the provision of goods and services are increasingly becoming important with the commencement of AfCFTA. In Nigeria for instance, over N70Billion is expended on the provision of alternative power generation because of the epileptic power supply situation in the country. The cost of electrical power provision is transferred to the goods and services and it leads to an increase in price whereby reducing their competitiveness in the global market.
Second, African countries need to immediately begin to make the necessary internal changes for the full implementation of AfCFTA in their countries. The Minister for Trade and Industry in Ghana, Alan John Kwadwo Kyeremanten listed several interesting initiatives that Ghana is putting in place to adequately and strategically tap into the African Continental Free Trade Agreement, upon winning the bid to host the AfCFTA Secretariat in July 2019. Mr. Kyeremanten was addressing the Ghanian legislature when he noted that related infrastructure for Ghana to meritoriously harness the benefits of AfFCTA included the Tema Port expansion, roads, airports, and railway projects, and stimulus package for local banks, banking reforms, and national trade policies. He also said that series of sensitization workshops and seminars are being organized to provide information on the implementation of the AfFCTA. I encourage other African countries to begin to make necessary adjustments for the full implementation of the African Continental Free Trade Agreement to take immediate effect. Legislations, training and seminars for key stakeholders, infrastructural renewal, and other urgent and necessary changes needed to make AfCFTA a success story should be provided immediately. We all have to learn from Ghana.
Third, African countries continue to lag in the global ease of doing business index. According to information from Altas Magazine, only Rwanda made the top 50 spots in the world at the 37th position. Out of the 190 countries ranked, Congo, Chad, DR Congo, Central African Republic, South Sudan, Libya, Eritrea, and Somalia were in the last ten. This is means that 8 African countries made the last 10 spots on the global ease of doing business index. Nigeria was ranked 21 on the continent and 146 in the world moving 15 places up from its previous position of 161.
Arguably, African countries need to ensure that their competitiveness in the regional and global marketplace is amply prioritized. Legislations and initiatives to ensure that they are global business hubs need to be strengthened to guarantee the success of the African Continental Free Trade Agreement and attract Foreign Direct Investment from far and near.
Fouth, corruption, and insecurity continue to plague different parts of the continent. Political instability and financial recklessness are often interrelated and work together hand in hand. According to Transparency International, there is a strong link between corruption and insecurity. When a country’s institutions are weak, its security forces are not trusted and its borders are not strong, as is the case in Nigeria, giving terrorist organizations room to flourish. This is borne out in academic research, specifically in Nigeria but also in other regions.
Conclusively, We have addressed the gains of the African Continental Free Trade Agreement and what the Africans tend to benefit from its successful implementation in the opening paragraphs of this post, we have also highlighted and discussed perceived challenges that need to be urgently addressed by key decision-makers and heads of governments on the continent. The Africa Continental Free Trade Agreement promises to be the game-changer for intra-Africa trade and a massive poverty alleviation initiative for millions of people on the continent but its attainment is largely dependent on the successful implementation and provision of a conducive atmosphere for trade and commerce to flourish.
Oluwole Olusanya is the Founder and Chief Executive Officer (CEO) of one of the fastest-growing lifestyle and entertainment website in the country. He is a banker, writer, blogger, public affairs analyst and a tax consultant. He anchors Trending Topics on SHEFFA where he shares his thoughts and opinions on trending issues.
He is currently studying for a Master’s Degree in Business Administration at the University of South Wales, Wales, United Kingdom. He has diplomas in Banking and Finance, Investigative Journalism, Creative Writing, and Linguistics from Lagos State Polytechnic, Isolo, Lagos, University of Strathclyde, Glasgow, Scotland and The Open University, Milton Keynes, United Kingdom.