Summary of the Africa Continental Free Trade Area Agreement (AfCFTA)

On 5th December 2020 the African Union Heads of State and Government adopted the decision to kick-start trading under the African Continental Free Trade Area Agreement (AfCFTA) from 1st January 2021. The African Continental Free Trade Area Agreement (the AFCFTA Agreement) which established the African Continental Free Trade Area (the AFCFTA) came into force on 30th May, 2019. So far, 54 out of 55 African Union members have signed the AfCFTA (with the exception of Eritrea), making it the largest trade agreement by number of participating countries, since the WTO. 34 countries have already deposited their instruments of ratification, and 41 countries/custom unions have forwarded their tariff proposals.

AfCFTA presents exciting opportunities for the economic growth of Africa. Research has shown that regional integration boosts trade; and that trade has a robust positive correlation with economic growth. AfCFTA brings together Africa’s 1.2 billion population and combined GDP of over USD 2.5 trillion. AfCFTA is predicted to boost Africa’s GDP by 4% and to boost intra-African trade by at least 52%. Currently Intra-African trade stands at a mere 15%. For comparison purposes Intra EU trade stands at more than 60%. It is therefore anticipated that this deeper integration will boost Africa’s trade and subsequently spur economic growth.

Africa has long been marginalised in world trade. In 2018, Africa’s share in world exports stood at a mere 2.5%. This has been caused by various factors including the fact that Africa’s trade tends to be concentrated in a few unprocessed commodities, agricultural products, and extractive industries, which do not have favourable terms of trade. Africa’s trade and transport policies, as well as infrastructure have also had a significant negative effect on Africa’s ability to compete in world trade; with research showing that restrictive trade policies has hampered Africa’s participation more than any other factor!

AfCFTA’s objective, therefore, is to progressively eliminate tariffs and non-tarriff barriers in order to boost trade. AfCFTA provides for the liberalization of 90% of tariff lines within 5 years for non-least developed countries (LDCs) (10 years for LDCs). Tariffs for sensitive products (7% of tariff lines) are to be eliminated within 10 years for non LDCs (13 years for LDCs). The AfCFTA Agreement preserves 3% of the tariff lines for excluded products. AfCFTA also addresses the elimination of Non-Tariff barriers (NTBs) (which have been found to have an even more detrimental effect on intra- Africa trade than tariffs). Article 13 of the AfCFTA Agreement obligates state parties to set up institutional mechanisms to identify, report on, resolve, monitor and eliminate NTBs in member countries. AfCFTA also provides for an online mechanism for reporting and resolving non-tariff barriers experienced by businesses.

The ability to capture the benefits from AfCFTA will depend on a myriad of factors including whether the member states can keep up the political commitment, whether states can build the requisite capacity to design and implement national strategies and mitigation policies for sectors that may face negative effects; and whether there will be a continued interest to remain in negotiations. The pace at which AfCFTA was concluded has been heralded as indicative of the requisite commitment and if this commitment continues there is much to hope for.

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