AfCFTA: African Internal Trade Awakening
AfCFTA is the largest free trade area since the World Trade Organisation (WTO), combining 1.2 billion people and over 4 trillion in combined consumer and business spending. Six years after its creation, AfCFTA now includes 54 out of 55 African Union member states
The African continent, due to its unfavourable history of exploitation, has always been the subject of great poverty and poor economic advancement. The past 15 years, however, have seen a clear attempt by the African countries to cooperation towards growth. The African Continental Free Trade Agreement (AfCFTA) is a joint endeavour at improving internal relations and, ultimately, depending less on extra-continental states.
Negotiations began in January 2012 and took eight rounds for a broader consensus to be reached. As of the 21st of March 2018, AfCFTA was created. 44 countries initially adhered, with significant African economic powers Nigeria and South Africa taking more time to understand the implications of the trade agreement but finally joining in later that year or the year after.
AfCFTA is the largest free trade area since the World Trade Organisation (WTO), combining 1.2 billion people and over 4 trillion in combined consumer and business spending. Its purpose is to enhance continental integration through the establishment of a continental market for goods and services including a customs union to allow the free movement of capital and commercial travelers. Furthermore, it seeks to tackle the issue of overlapping membership of regional economic communities (RECs), ultimately reducing their efficiency and effectiveness. One example is Kenya being a participant of both EAC (East African Community) and SADC (Southern African Development Community).
Early projections have estimated the removal of tariffs on 90% of goods to improve intra-African by 52.3%, a figure set to double with further removal of non-tariff barriers. The World Bank predicted AfCFTA to have huge potential in improving Africa’s economic situation. Continental GDP could increase by 7% by 2035, or an estimated 450 billion dollars. Among the benefits expected from this acceleration in intra-African trade are higher incomes for nearly 68 million people and the prospect of 30 million Africans emerging from extreme poverty.
With such an optimistic future, where is AfCFTA now? What are some of the challenges it has been facing?
Six years after its creation, AfCFTA now includes 54 out of 55 African Union member states, with 47 countries having ratified the agreement. The trading bloc is still in the first phase of establishing rules and diminishing trade barriers. About 100 products are being traded out of 4,500; this is understandable, given its youth.
Hopes remain high. The Guided (and Facilitated) Trade Initiative, launched on October 7, 2022, acted as a kind of simulation to indicate the feasibility and benefits of AfCFTA by facilitating and simplifying trade between 8 participating countries. Nevertheless, the countries involved showed clear commitment.
However, there have been other interesting developments to point out. The AfCFTA Adjustment Fund is a joint fund consisting of a Base Fund, a General Fund and a Credit Fund. It will support African countries and the private sector to effectively participate in the new trading environment established under the AfCFTA. The Base Fund consists of contributions from member states, grants, and technical assistance funds to tackle the losses resulting from lower tariff revenue as tariffs are progressively eliminated. It will also support countries to implement various provisions of the AfCFTA Agreement, its Protocols and Annexes. The General Fund and Credit Fund will mobilise commercial and concessional funding to support both the public and private sectors. It is estimated that the resources required for this project to go through the next 5-10 years are 10 billion dollars. Another major advancement has been the creation of the Pan-African Payment and Settlement System or PAPSS. It is a centralised Financial Market Infrastructure that enables the efficient and secure flow of money across African borders. PAPSS is supposed to allow countries to trade in their own currencies. For example, if a trader from Ethiopia is trading with a trader in Nigeria, both central banks should be able to settle the payment of goods they are trading without worrying about the dollar exchange rate.
On the other hand, AfCFTA has several issues that put at stake its effectiveness and longitude. Under a sustainability aspect, AfCFTA has been dependent on external actors such as the UN, the EU and other governmental agencies for financial funding. The future of AfCFTA could be put at risk if the interests of external actors diverge from the African initiative.
Moreover, competing internal interests obstruct the pan-wider African agenda. There is great disparity among member states and “smaller” countries are concerned about being dominated by “bigger” countries. Kenyan manufacturers have expressed their concern about the competitiveness of some of their products against Egyptian imports in East African markets and with tariff losses under the AfCFTA. Studies projected that Kenya would experience the highest tariff revenue loss within the EAC region at US$14.2 million. Bigger actors such as Nigeria have also maintained a more conservative stance in regard to issues of trade openness. On the other hand, South Africa opts to protect trade liberalisation as 65% of intra-African trade occurs within the SADC. When free trade is not effectively managed, it can increase regional inequalities and exacerbate uneven development.
