Exploring AfCFTA
African leaders will convene in Addis Ababa for the annual summit of the African Union (AU) on February 17, where they are set to deliberate on critical business matters, prominently featuring the African Continental Free Trade Area (AfCFTA) agreement. This treaty aims to transform Africa into a global economic powerhouse by fostering unprecedented trade integration among its nations. However, despite its potential, the AfCFTA faces challenges that raise questions about the practicality of achieving its ambitious goals.
Understanding AfCFTA and Its Objectives
The AfCFTA initially agreed upon in July 2019, is a cornerstone of the AU‘s long-term strategy to stimulate economic growth across Africa. The primary objectives include:
- Enhanced Economic Integration: Facilitate seamless flow of goods and services, promote cross-country investments, and eliminate trade barriers to deepen economic integration.
- Revenue Boost: Reduce or eliminate tariffs on 90% of products, generating an estimated additional $450 billion in revenues by 2035.
- Large Market Formation: Unify 55 African economies into a single market of over a billion people, establishing one of the world’s largest free trade areas.
- Global Trade Influence: Elevate Africa’s influence in global trade, where the continent currently contributes only 3 percent.
Current Trade Dynamics in Africa
The current trade landscape in Africa is characterized by trade barriers erected by governments to shield domestic markets. Intra-continental trade tariffs make it 6.1 percent more expensive to import goods within Africa than from external sources, resulting in meager intra-African exports. This stands in stark contrast to other regions, with Asia, North America, and the European Union boasting significantly higher levels of intra-regional trade.
China has emerged as a dominant player, both as a significant importer of African raw materials and a major exporter to the continent. The trade imbalance is attributed, in part, to Africa’s insufficient manufacturing capabilities, leading to a dependence on foreign countries for value addition to raw materials.
AfCFTA Implementation Progress and Challenges
1. Operational Since 2021:
- The AfCFTA became operational in January 2021, bringing together 55 African countries into a united market worth approximately $3 trillion, equivalent to India’s GDP.
2. Trade Initiatives Launched:
- In 2022, the AU initiated the AfCFTA Guided Trade Initiative, involving eight countries in a pilot program. The program saw the first-ever shipments under AfCFTA rules, with South Africa, Kenya, and Rwanda participating.
3. Challenges and Delays:
- The onset of the COVID-19 pandemic delayed significant actions under AfCFTA, affecting the realization of potential benefits.
- Issues such as information sharing between countries and unfamiliarity with proper tariffs have been reported, hindering smooth trade operations.
4. Informal Trade Exclusion:
- Critics argue that the AfCFTA overlooks informal trade, potentially excluding existing small businesses, especially those in border areas, which constitute a significant portion of intra-Africa trade.
5. Continuity and Delays:
- The promised common passport allowing access to all African countries, scheduled for 2022, is yet to materialize, highlighting challenges in AU’s continuity and implementation.
6. Additional Protocols Pending:
- Separate protocols addressing intellectual property rights, gender inclusion, cross-country investment, and digital trade are still pending approval and will be discussed at the upcoming summit.
The Road Ahead for AfCFTA
As African leaders gather for the AU summit, the AfCFTA remains a focal point of discussions. Key considerations include finalizing pending protocols, addressing challenges in information sharing and tariff familiarity, and ensuring inclusivity, particularly for small businesses engaged in informal trade.
The success of AfCFTA hinges on overcoming these hurdles, fostering political will, and monitoring progress effectively. The AU’s commitment to complementary initiatives like the African passport and free movement will play a pivotal role in shaping the continent’s economic future.
