Today, 1st January 2021, marks the start of the African Continental Free Trade Area which
allows African businesses to trade in a single market. A major milestone for Africa economic development. Africa will start to really trade with Africa. It’s a historic moment for our continent as the world’s largest free trade area opens its doors to traders both large and small.
With the impact of COVID-19 on AfCFTA so far, the African economy was set to grow at about 3.4 % in 2019 and projected to increase to 3.9% in 2020, but COVID-19 has had a very negative impact.
Over 53% of Africa’s exports go to countries, particularly Europe, that are themselves suffering from the pandemic. That has had a subdued effect on Africa’s export markets.
To potential investors and traders outside of Africa, an an agreement for a single market was established—from Egypt to South Africa, from Senegal to Djibouti—of 1.2 billion people with a combined GDP of over $2.5 trillion. Africa have a young African population and a growing middle class whose purchasing power is increasing. Investors will be able to do business on a single set of trade and investment rules across the African continent. Investors will achieve economies of scale and overcome the challenges of market fragmentation
In brief, AfCFTA will create a single market for goods and services, in hopes of boosting trade among its nations. Africa has historically had low internal trade. In 2017, intra-African exports were 16.6% of total exports, compared with 68% in Europe, and 59% in Asia.
The agreement will work towards a continental customs union; eliminate tariffs on 90% of intra-Africa goods; aid in the movement of capital and people between countries; facilitate external investment; and reduce non-tariff barriers, like the time it takes goods to pass through customs.
AfCFTA has the potential to increase intra-African trade by over 50%, according to the UN Economic Commission for Africa, while the World Bank suggests the agreement could mean an added $76 billion in income for the rest of the world.
Free trade in Africa is expected to boost intra-African trade from 18% to about 50% within a given timeframe. With the objective of reaching 50% intra-African trade between now and the year 2030.
Despite the clear benefits and historic accomplishment, experts say the agreement will face a number of hurdles in practice, like a lack of modern and efficient infrastructure, unclear information about processes, and barriers for women-led businesses, and the economic destruction brought on by Covid-19 that could reverse years of progress in the region. Some also fear that large economic gains made in the diverse economies will be unequally distributed.
Regardless, there are high hopes for the agreement.
“We want to move Africa away from this colonial economic model of perpetually being an exporter of primary commodities for processing elsewhere,” the trade bloc’s secretariat Wamkele Mene said “We want to stop approaching tariffs as a tool for revenue. We want tariffs to be a tool for industrial development.”