The African Continental Free Trade Area (AfCFTA) is a potential game-changer for promoting Africa’s inclusive growth and sustainable development and some of its benefits are already being realized, although more still needs to be done to harness its full potential.
A year after the AfCFTA’s operationalization, the Office of the Special Adviser on Africa (OSAA), in collaboration with the Secretariat of the African Continental Free Trade Area (AfCFTA) Secretariat, look at its progress, challenges and state of implementation. They also make recommendations for Africa to reap the benefits of this initiative in a Policy Brief titled Africa is delivering the AfCFTA: whoever thinks otherwise is wrong.
Established in and operationalized in January 2021, the AfCFTA creates a market of 1.3 billion people and a combined gross domestic product (GDP) of . It is also the largest free trade area established in terms of geographical area and the number of participating countries, since the establishment of the World Trade Organization (WTO).
Among its benefits, the AfCFTA is expected to increase intra-continental trade and enhance the beneficiation of raw materials, thereby boosting sustainable and inclusive industrialization and subsequent development.
The Economic Commission for Africa (ECA) estimates the increase in the value of intra-African trade at between 15 per cent ($50 billion) and 25 per cent ($70 billion) by 2040, due to the elimination of 90 per cent of tariffs on goods and the reduction of trade costs.
It is also expected to strengthen the economic participation of women and youth. Women represent over 70 per cent of cross-border who could benefit from the to small-scale, cross-border traders and smallholder farmers.
In addition to diversifying Africa's exports and building a more resilient economy, the AfCFTA holds significant potential for the competitiveness of African economies and their integration into regional and global value chains, increasing economies of scale and attracting foreign direct investment (FDI) to the continent.
Through the AfCFTA, African countries are establishing a single continental market for goods and services, facilitated by the movement of capital and people, thus laying the foundation for the eventual establishment of a continental Customs Union. It is also expected to promote sustainable and inclusive development, gender equality, structural transformation, industrial development and diversification, regional value development, agricultural development and improve food security on the continent.
Significant strides have been made by African countries in operationalizing the AfCFTA. A substantial number of the countries that signed the Agreement creating the AfCFTA have completed the respective ratification process and are AfCFTA States Parties.
Since 1 January 2021, it has been possible for State Parties whose customs procedures are ready, to trade under the AfCFTA preferential terms. This marked the start of a historical journey that knits together previously disparate trade practices and rules, making it easier for goods, services and investments to flow between and among African countries.
With regard to tariff concessions and specific commitments, 43 countries have submitted their offers, including members of four customs unions, namely the East African Community (EAC), Economic Community of West African States (ECOWAS), Central African Economic and Monetary Community (CEMAC) and Southern African Customs Union (SACU).
According to data from the AfCFTA Secretariat, there was also important progress in determining the rules of origin applied to products that will benefit from the preferences, with member States finding consensus on about 87 per cent of tariff lines. In addition, 46 countries presented liberalization offers covering the five priority sectors of business, communication, financial, tourism and transport services sectors. The Dispute Settlement Body has been activated and is operational, while much work is being done to address customs clearance delays, certification issues, restrictive licensing regimes and other barriers to African trade.
Unleashing the requires enhancing investment in key areas, particularly regional and cross-border infrastructure projects as well as promoting inclusive industrialization and value addition, which are critical for creating regional value chains and promoting economic diversification. This is also crucial for reversing the in FDI flows to the continent, which had declined, even before the COVID-19 pandemic, recording a reduction of 10.3 per cent in 2019 compared to 2018.
To capitalize on the full potential of the AfCFTA, OSAA and the AfCFTA Secretariat make four key recommendations:
1. African Member States are encouraged to maximize the momentum created by the start of trading under the AfCFTA to conclude negotiations on the second phase of the process, harmonize trade policies and promote sustainable infrastructure and industrial development.
2. There is a pressing need to complete the few pending negotiations on critical rules of origin and tariff schedules to facilitate commercially meaningful trade under the rules of the AfCFTA legal instruments. African States are encouraged to proactively participate and find consensus in the ongoing negotiations.
3. Capacity building and institutional support are key to enabling African countries to harness the potential of the AfCFTA and benefit from expanding international trade flows. It is imperative to further build trade and productive capacities and implement industrial policies to increase added value in manufacturing and create decent jobs for Africa’s burgeoning population of young people.
4. The AfCFTA holds significant potential for promoting more inclusive sustainable development, including through advancing women’s economic participation. The AfCFTA Agreement emphasizes the importance of gender equality for the development of international trade and economic cooperation and underscores the need to promote sustainable and inclusive socio-economic development, gender equality and structural transformation. It’s crucial to maximize the AfCFTA impact on boosting trade and export capacities of the formal and informal sectors, with a focus on strengthening the participation of women and youth.
It is hoped that implementing these recommendations will go a long way in enabling Africa to harness the AfCFTA’s potential.