Africa is finally hitting major milestones in regard to the African Continental Free Trade Area (AfCFTA) agreement which has kicked off this January.
This means that trading starts formally on the continent under the agreement following an African leaders’ summit held last month approving the operationalisation of the AfCFTA.
To ensure that the rollout is smooth, African institutions were directed to provide technical and financial support for its implementation. The agreement is one of the cogs towards achieving greater economic success for Africa in line with the African Union Agenda 2063.
The AfCFTA is expected to deepen continental integration and is seen as the great edifice that holds Africa’s collective dreams and aspirations for an integrated and prosperous continent.
Trading under the AfCFTA is expected to be one of the ways to boost intra-African trade by promoting industrialization and competitiveness while contributing to job creation. The agreement is also anticipated to unleash regional value chains that will facilitate Africa’s meaningful integration into the global economy.
Digitalization of trade across the continent can significantly boost free trade in Africa, helping to realize the objectives of the AfCFTA.
According to the Economic Commission for Africa’s (ECA) Tunde Fafunwa, Africa will need digitalization in two aspects for the proper implementation of the AfCFTA. One is the digital and virtual services in and of themselves, including everything that delivers across finance, remote health, agriculture and education. The second facet is the enabling exercise that digitalization gives particularly for trade and in the different sectors.
Fafunwa adds that realising these gains will take multisector and multifactor efforts.
The AfCFTA is seeking to create an integrated African market of an estimated 1.7 billion consumers by 2030 from the current 1.2 billion people. The aggregated gross domestic product from this opening up of the economic borders could see the market hit US$3.4 trillion.
Benefits from the trade agreement are so expansive that ECA and the United Nations System Staff College (UNSSC) are carrying out research to document the opportunities, challenges and the role of digitalization in the implementation of the AfCTA.
The research is looking at case studies in some regional economic communities like the East African Community (EAC), the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA). In these trade regions, digitalization is already happening thus the need to draw some comparative lessons for the implementation of AfCFTA.
Already, a new trade intelligence tool enabling firms to easily explore and compare trade opportunities across Africa has been released.
The African Trade Observatory was rolled out on December 5, 2020, by the African Union (AU), the European Union (EU) Commission and the International Trade Centre (ITC).
To enable the growth of trade, information is vital and this is what the tool avails to users.
In addition to promoting regional economic integration, the AfCFTA also lowers trade barriers and the African Trade Observatory will be valuable for empowering economic operators especially during the ongoing Covid-19 pandemic.
The tool is aggregating the entire continent of trade intelligence putting it at the fingertips of African entrepreneurs which will come in handy in supporting small businesses as well as women and young people in exploiting and creating new opportunities.
More than half of the African countries have ratified the trade agreement with Nigeria, the biggest economy on the continent, being the latest to ratify.
The AfCFTA covers trade in goods and services including intellectual property rights, competition policy, investment and dispute settlement with the aim of progressively reducing and eventually eliminating customs duties and non-tariff barriers on goods while allowing the free provision of services in priority sectors.
Concerning trade in goods, the goal is set for 90 per cent of products at zero duty across the continent.
During the African leaders’ summit where trading under the AfCFTA was approved, AU Chairperson, South Africa’s President Cyril Ramaphosa said commencing trading would be one of the most significant milestones in the continental integration project. This would also be the clearest affirmation yet that Africa is determined to take charge of its own destiny.
To increase trade opportunities for women, Ramaphosa called on the AU to consider a Protocol on Women while focusing on removing non-tariff barriers to trade. According to Ramaphosa, the AfCFTA should be used to advance the empowerment of African women which would expand the productive capacity of countries.
December 2021 is the common deadline for phase II and phase III negotiations showing the continent’s commitment to realize and lock in the e-commerce benefits.
AfCFTA negotiations take into account the integration benefits generated by the Regional Economic Communities (RECs).
Arrangements on free trade areas or customs unions have their own deeper integration agendas which economic communities continue to pursue.
2020 estimates by the World Bank show that within the increase of total exports by almost 29 per cent in comparison to business as usual, manufacturing exports would gain the most. Intra-Africa manufacturing trade could increase by 110 per cent while manufacturing exports to the rest of the world would grow by 46 per cent.
These estimates show the potential AfCFTA has in creating new opportunities for African manufacturers and workers. This would boost industrialisation translating into even better livelihoods and better quality goods.
With jobs being scarce and with earnings low, implementing the AfCFTA will lead to an almost 10 per cent increase in wages, with unskilled workers and women being the biggest gainers. This would also see the gender wage gap closing.
Many African countries rely on the export of commodity/ raw materials but this needs to change and the countries should diversify their exports and transition to value-added products.
With better-integration, the African economy offers a much larger market for African exports of such products in comparison to what the segregated regional markets are offering.
While foreign direct investments (FDI) have been dropping in recent years, implementing the AfCFTA could positively change the trend especially in the manufacturing and services sectors. Foreign investors would be willing to venture in Africa to tap into the continental market since they can diversify investments beyond the traditional sectors.