AFRICAN CONTINENTAL FREE TRADE AGREEMENT

AFRICAN CONTINENTAL FREE TRADE AGREEMENT

The African Continental Free Trade Agreement is a trade agreement which is in force between 27 African Union member states. It was signed in Kigali, Rwanda, on 21 March 2018.

As of July 2019, 54 states have signed the agreement.^[11] Ratification by 22 countries was required for the AFCFTA to enter into force and the African Continental Free Trade Area to become effective. The agreement will function as an umbrella to which protocols and annexes will be added.

What are free trade agreements?

Free trade agreements are designed to cut trade tariffs between member countries.

Tariffs are a form of tax, like a border tax.

They are placed on goods coming into a country for a range of reasons, sometimes to try and protect a home-made product.

The purest free trade agreement (FTA) removes all border taxes or trade barriers on goods.

They get rid of quotas too, so there is no limit to the amount of trade you can do.

FTAs also help make a country's exports cheaper and give easier entry to other markets.

They come in all sorts of forms and with different rules but in short, they make trade between countries as liberal as possible and allow for more rules-based competition.

The African Union launched AfCFTA negotiations back in 2015 with the hopes of boosting intra-African trade, which falls behind [PDF] trade within other regional blocs. Only 15 percent of African exports go to other African countries, compared to intra-trade levels of 58 percent in Asia and 67 percent in Europe. High tariffs and colonial-era infrastructure make it easier for African countries to export to Europe or the United States than to each other. Furthermore, overlapping membership in Africa’s eight Regional Economic Communities (RECs) hinders trade standardization and enforcement. AfCFTA, which establishes a single continental market for goods and services, seeks to increase intra-African trade by cutting tariffs by 90 percent and harmonizing trading rules at a regional and continental level. If successful, AfCFTA is expected to boost intra-African trade by 52.3 percent by 2022.

The agreement comes at a critical moment for Africa. For centuries Europe, the United States, and more recently China have stripped the continent of its raw materials. Today, more than 75 percent of Africa’s external exports are extractives, namely oil and minerals. Increasingly, African nations hoping to secure sustainable economic growth are shifting away from the volatility associated with extractive exports towards industrialized goods. While overall intra-African trade is miniscule, 42 percent of it consists of industrial goods and this number is expected to grow under AfCFTA. A focus on industrial goods promotes African industrialization and the advancement of its manufacturing sector, providing more employment opportunities for the continent’s booming youth population. Amid growing U.S.-China trade tensions and China’s efforts to decrease its dependency on export markets, some are betting that Africa is a prime successor to become the manufacturing hub of the developing world.

Nevertheless, AfCFTA will face a number of challenges before it can be considered a success. The agreement has been ratified by twenty-two African countries, but implementation will be gradual as countries continue to negotiate tariff schedules, rules of origin, and commitments for service sectors. The agreement’s most obvious shortcoming is the absence of Nigeria, which along with Benin and Eritrea, has not signed up to AfCFTA.