By Dr. Banks Odole, Ph.D., MBA
Brief History
The fifty-five member states of the Africa Union (AU) during its Eighteenth Ordinary Session of the Assembly of Heads of State and Government, held in Addis Ababa, Ethiopia from 29th-30th January 2012, established the African Continental Free Trade Area (AfCFTA).
To create a single continent-wide market for goods and services and promote capital and natural persons’ movement.
Signatories: 54 out of 55 African Union Member States
Ratifications: 31 African Union Member States AfCFTA negotiations launched: June 15th, 2015, Johannesburg
AfCFTA Treaty signature: March 21st, 2018, Kigali
Formal entry into force: May 30th, 2019
Operationalization phase launched: July 7th, 2019, Niamey
Trading commences on: Planned July 1st, 2020, started January 1st, 2021 Implementation.
• The ACFTA is a comprehensive agreement that covers trade in goods and services. It also covers competition policy, intellectual property rights and investment facilitation. The pact connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion.
• Its implementation presents a significant opportunity for African countries to bring 30 million people out of extreme poverty and raise 68 million others who live on less than $5.50 per day.
• With the implementation of AfCFTA, trade facilitation measures that cut red tape and simplify customs procedures would drive $292 billion of the $450 billion in potential income gains.
• AfCFTA implementation would help usher in the deep reforms necessary to enhance long-term growth in African countries.
Benefits
The African Continental Free Trade Agreement represents a significant opportunity for countries to boost growth, reduce poverty, and broaden economic inclusion. The potential impact of the CFTA includes expanding intra-Africa trade, manufacturing exports, job creation for youth, and poverty alleviation. The potential for the CFTA is immense for both structural transformation and poverty alleviation in Africa. Implementing AfCFTA would: (according to World bank).
• Lift 30 million Africans out of extreme poverty and boost the incomes of nearly 68 million others who live on less than $5.50 a day;
• Boast Africa’s income by $450 billion by 2035 (a gain of 7 percent) while adding $76 billion to the rest of the world’s income.
• Increase Africa’s exports by $560 billion, mostly in manufacturing.
• Spur more enormous wage gains for women (10.5 percent) than for men (9.9 percent).
• Boost wages for skilled and unskilled workers—10.3 percent for unskilled workers and 9.8 percent for skilled workers. Under AfCFTA, extreme poverty would decline across the continent—with the most significant improvements in countries with currently high poverty rates.
• West Africa would see the most significant decline in the number of people living in extreme poverty— a drop of 12 million (more than a third of the total for all of Africa).
• Central Africa would see a decline of 9.3 million.
• Eastern Africa would see a decline of 4.8 million.
• Southern Africa would see a decline of 3.9 million.
• Countries with the highest initial poverty rates would see the most significant declines in poverty rates.
• In Guinea-Bissau, the rate would decline from 37.9 percent to 27.7 percent
• In Mali, the rate would decline from 14.4 percent to 6.8 percent.
• In Togo, it would decline from 24.1 percent to 16.9 percent.
Achieving the gains from AfCFTA is especially important due to the COVID 19 pandemic, which is likely to have caused up to $79 billion in output losses in Africa in 2020 alone.
• The agreement is projected to increase the value of intra-African exports and imports. Indeed, it seeks to boost intra-African trade by 52.3% by 2022.
• This significant growth would be possible by cutting tariffs by 90% and harmonizing trading rules.
• According to the UNECA’s study (UNECA, 2016), intra-African trade in industrial products would increase by around 25% (or $36 billion) and 30 (or $44 billion) more than predicted with no AfCFTA by 2040 depending on the degree of liberalization.
• Regarding agriculture and food products, the increase would range between 20% (or $9.5 billion) and 30% (or $17 billion), and it would rise between 5% (or $4.5 billion) and 11% (or $9 billion) in energy and mining products.
Challenges
• The substantial fall in budget revenues may adversely affect the governments’ capacity to invest in infrastructure, education and social programs, which are crucial for attaining sustainable development and decrease inequality in developing countries.
• In the absence of developing a financial sector, rising education levels and robust governance structures, trade liberalization, on its own, does not lead to lower poverty levels (Le Goff and Singh, 2014)
• Members countries honouring their existing unilateral trade agreements with bodies like the EU, USA, China, CANADA and commitments to WTO will pose some challenges to the effective takeoff of the pact
• Harmonization of standards and certification among member countries is also a priority that must be quickly addressed.
• RoO – Rules of Origin should be well considered to be made more favourable among African nations; this will reduce importation from outside Africa and enhance intraAfrica importation.
References
Le Goff, M., and R. J. Singh. 2014. “Does Trade Reduce Poverty? A View from Africa.” World Bank Policy Research Working Paper 6327, Washington, DC The African Continental Free Trade Area (worldbank.org)
UNCTAD, African Continental Free Trade Area : Developing and strengthening Regional Value Chains in Agricultural Commodities and Processed Food Products, New York and Geneva, 2016 : https://unctad.org/en/PublicationsLibrary/webditc2016d4_en.pdf
UNCTAD, African Continental Free Trade Area, Policy and Negotiation Options for Trade in Goods, New York and Geneva, 2016 : https://unctad.org/en/PublicationsLibrary/webditc2016d7_en.pdf
