What is the African Continental Free Trade Area?

Ghana’s first president, led his country to independence in 1957, an achievement that helped inspire many African states to break ties with their colonial powers. Six years later he spoke at the inaugural conference of the Organization of African Unity. “The people of Africa are crying for unity,” he declared. Nationalist though he was, Nkrumah still dreamed of a United States of Africa. He envisaged harmonized systems, dismantled boundaries and more intra-African trade. Some 6 decades later, his dream came a little closer to reality when the African Continental Free Trade Area (AfCFTA) came into effect at the start of 2021. The framework ties together the biggest number of member countries of any trade agreement since the establishment of the World Trade Organization in 1995.

The agreement was signed in 2018, but the idea of building a single market for goods and services in Africa was proposed by the African Union (AU) 6 years earlier. It is one of the AU’s flagship projects and part of its plan to turn the continent into a global economic power over the next few decades. All African countries but one have signed the agreement – Eritrea shunned it in favor of existing regional economic deals – and 35 have ratified it.

Some economists boast that the AfCFTA is a game-changer. Indeed, the World Bank estimates that it could boost Africa’s gross domestic product (GDP) by 7 percent – almost US$450 billion – by 2035, in part by reducing import tariffs, but more importantly by eliminating non-tariff barriers. It should also deliver notable benefits in how income is distributed, potentially lifting some 30 million people out of extreme poverty and 68 million out of moderate poverty.

Such a deal was clearly needed if African businesses were to achieve greater economic integration. Africa is still struggling to detach itself from its colonial past. It remains heavily reliant on external trading partners, notably in Asia and Europe. A paltry 16 percent of Africa’s trade is intra-regional, compared with 60 percent for Asia and 68 percent for Europe.
The continent already has several regional trade agreements, but high tariffs divide the different pacts. Exporters from the 6 countries of the East African Community, for instance, face an average tariff of 16 percent on products they send to the northern Arab Maghreb Union. Regional trade blocs will continue to exist under the continental free-trade agreement. But it will provide an Africa-wide regulatory framework to harmonize intra-continental trade.

The AfCFTA is intended to tackle such obstacles to trade, starting with the removal of tariffs on 90 percent of goods within 5 to 10 years. Final tariff-reduction schedules, alongside rules of origin, are still being worked out.
Non-tariff barriers, such as complex customs procedures, excessive bureaucracy and corruption, also pose considerable challenges. Take the example of east Africa. Mozambican customs officers charge drivers from Eswatini (Swaziland) 500 meticais (around US$7) for vehicle inspections that are in fact rarely performed. To help overcome non-trade barriers, an online portal has been set up as part of the AfCFTA, through which African businesses can report any such problems they face. Complaints are handled by nominated government officials, who are meant to take action to remove the barriers.

Yet although the pact is in place, not all countries are in a position to benefit from it. Some are hampered by poor transportation networks and inefficient customs procedures. Others are scarred by years of violence and regional disputes. The success of the AfCFTA depends on political co-operation. African leaders know that change will not happen overnight. Wamkele Mene, the Secretary-General of the AfCFTA, says the task is “daunting”, but also crucial to ensure Africa’s economic stability and sustainability.
“We are not going to get another opportunity to integrate our market,” he says.

The Economist Group Limited © Copyright 2021