Africa Continental Free Trade Area: An Overview

INTRODUCTION

The Africa Continental Free Trade Area (AfCFTA) agreement was signed on 21st March 2018 in Kigali, Rwanda, by 44 African Heads of State. This historic trade pact aims to create a single continental market for goods and services, facilitate the free movement of businesspersons and investments, and establish a Continental Customs Union. AfCFTA is one of the most significant steps towards economic integration in Africa and forms the world’s largest free trade area, connecting nearly 1.3 billion people across 54 African countries.

KEY OBJECTIVES

The primary objective of the AfCFTA is to promote intra-African trade by eliminating or reducing tariff and non-tariff barriers among member countries. This is expected to boost trade and investment flows within the continent, foster industrial development, and enhance Africa’s competitiveness in the global marketplace. By creating a unified market, the agreement seeks to accelerate economic growth, create employment opportunities, and drive sustainable socio-economic development in Africa.

IMPLEMENTATION PHASES

The implementation of AfCFTA occurs in several phases, each addressing specific aspects of the trade agreement:

1. Phase 1 – Trade in Goods and Services: The first phase commenced in 2021 and focuses on the elimination of tariffs on 90% of goods traded among member countries over a five-year period (10 years for Least Developed Countries – LDCs). The remaining 10% of tariff lines are divided into two categories: “sensitive products,” with tariffs eliminated over 10 years (13 years for LDCs), and “excluded products,” not subject to liberalization. This phase allows for the gradual reduction of trade barriers, paving the way for increased trade volumes and enhanced regional integration.

The Pan African Payment Settlement System (PAPSS) has recently been launched to enhance trade. This is a cross border, financial market infrastructure enabling payment transactions across Africa. PAPSS as it is called is endorsed by the AU and the AFREXIM bank for cross border transactions. PAPSS ensures instant or near instant transfer of funds between originators in one African country and beneficiaries in another.

2. Phase 2 – Intellectual Property Rights, Sustainable Investment, and Competition Policy: In this phase, member states negotiate intellectual property rights protection, investment policies, and competition policies. Establishing a framework for intellectual property rights protection is crucial for encouraging innovation and technological advancements within the region. Additionally, promoting sustainable investments and implementing fair competition policies can further drive economic growth and attract foreign direct investment.

3. Phase 3 – E-commerce: The third phase, which is yet to commence, will address e-commerce issues and explore opportunities for digital trade within the AfCFTA. As technology plays an increasingly critical role in global trade, leveraging e-commerce can significantly enhance trade efficiency and promote business growth within Africa.

CHALLENGES AND OPPORTUNITIES

While AfCFTA offers immense opportunities for Africa’s economic development, it also presents some challenges that must be addressed:

Challenges:

• Potential loss of government revenue due to tariff reductions may impact public services and development projects.
• Non-tariff barriers, such as bureaucratic challenges and inconsistent regulations, can hinder the smooth flow of trade and investments.
• Harmonization of regulations among member countries is essential to ensure a cohesive and integrated market.
• The reduction of tariffs may expose domestic industries to competition from cheaper imports, necessitating measures to enhance local competitiveness.

Opportunities:

• Increased market access for African businesses across the continent can stimulate economic growth and foster entrepreneurship.
• The elimination of trade barriers can promote economic diversification and specialization in areas of comparative advantage, leading to improved productivity and efficiency.
• AfCFTA has the potential to attract foreign direct investment, as global companies seek to establish operations within the continent to access the continental market.
• Enhanced regional integration and cooperation among African countries can create a conducive environment for sustainable economic development and intra-African trade.

CONCLUSION

The Africa Continental Free Trade Area represents a landmark initiative for African countries to foster economic integration and promote intra-African trade. By creating a continental market and eliminating trade barriers, AfCFTA has the potential to drive economic growth, employment, and sustainable development in Africa. Despite the challenges, the opportunities presented by this historic trade agreement are significant, and with careful planning and cooperation among member countries, AfCFTA can pave the way for a prosperous and integrated Africa, positively impacting the lives of millions of Africans and positioning the continent as a formidable player in the global economy.

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