Executive Summary
African Continental Free Trade Area (ACFTA) is a continental market with free movement of people, capital, goods, and services which are crucial for deepening economic integration, promotion of agricultural development, sustaining food security, industrialization, and structural economic transformation among the countries that have ratified the treaty in Africa.
Regional integration is inevitable for political transformation and sustainable socio-economic development in Africa. On one hand, it is a development strategy aimed at aggregating Africa’s smaller countries into one large market that can deliver economies of scale, improved competitiveness, foreign direct investment (FDI), and poverty reduction. On the other hand, regional integration will help in addressing non-economic problems such as recurring conflicts and political instability as well as increasing the continent’s bargaining power in the multilateral fronts with the rest of the world.
Despite the recent shift in the growth poles of the global economy from developed countries to emerging and developing countries, Africa lags behind and remains marginalized. This is partly because the continent remains a fragmented bundle of many countries rich in resources but commodity-dependent economies. Africa is endowed with vast resources and the continent needs to fully optimize this in a way that will be beneficial for the teeming population and for this to happen, regional integration is inevitable.
The African Continental Free Trade Area (AfCFTA) is a free trade area founded in 2018 with trade commencing as of 1 January 2021. It was created by the African Continental Free Trade Agreement among 54 of the 55 African Union nations. The free-trade area is the largest in the world in terms of the number of participating countries since the formation of the World Trade Organization.
The cornerstone of the CFTA is promotion of industrialization, sustained growth, and development in Africa. The agreement has the potential to “boost intra-African trade, stimulate investment and innovation, foster structural transformation, improve food security, enhance economic growth and export diversification, and rationalize the overlapping trade regimes of the main regional economic communities”. Similarly, the broad vision of the Economic Recovery and Growth Plan (ERGP) of Nigeria is to turn around the country’s economic performance and lay the foundations for sustained inclusive growth.
The agreement was brokered by the African Union (AU) and was initially signed by 44 of its 55 member states in Kigali, Rwanda on March 21, 2018.
The agreement initially requires members to remove 90% tariff from goods, allowing free access to commodities, goods, and services across the continent.
The United Nations Economic Commission for Africa estimates that the agreement will boost intra-African trade by 52 percent, compared to 2010 levels, by 2022, thus reducing the gap with intra-regional trade quotas currently characterizing Asia (51%), North America (54%), and Europe (67%). In the short term, the main beneficiaries of the AfCFTA would be small and medium-sized enterprises, that today account for 80% of the continent’s companies. However, in the medium to long term, the benefits will extend to all African citizens, who will achieve a welfare gain estimated at 16.1 billion dollars, especially favoring women (who currently manage 70% of informal cross-border trade) and young people, who could benefit from new job opportunities. The continent’s GDP is currently worth over $2trillion /year. The population is 1.2 billion people.
The African Continental Free Trade Area (AfCFTA)- General Objectives
- Create a single market for goods, services, facilitated by movement of persons in order to deepen the economic integration of the African continent and in accordance with the Pan African Vision of “An integrated, prosperous and peaceful Africa” enshrined in Agenda 2063
- Create a liberalized market for goods and services through successive rounds of negotiations.
- Contribute to the movement of capital and natural persons and facilitate investments building on the initiatives and developments in the State Parties and RECs.
- Lay the foundation for the establishment of a Continental Customs Union at a later stage.
- Promote and attain sustainable and inclusive socio-economic development, gender equality, and structural transformation of the State Parties;
- Enhance the competitiveness of the economies of State Parties within the continent and the global market.
- Promote industrial development through diversification and regional value chain development, agricultural development, and food security; and resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes.
The African Continental Free Trade Area (AfCFTA)- Simple Objectives
- Progressively eliminate tariffs and non-tariff barriers to trade in goods; progressively liberalize trade in services.
- Cooperate on investment, intellectual property rights, and competition policy. Cooperate on all trade-related areas.
- Cooperate on customs matters and the implementation of trade facilitation measures
- Establish a mechanism for the settlement of disputes concerning rights and obligations.
- Establish and maintain an institutional framework for the implementation and administration of the AfCFTA.
Expected Benefits for Nigeria.
Export Market: Expand market access for Nigeria’s exporters of goods and services, spur growth and boost job creation. Eliminate barriers against Nigeria’s products.
Manufacturing & Services: Stimulate, specifically, an estimated 8.18 percent increase in Nigeria’s total exports with a small structural shift in Nigeria’s economy towards manufacturing and services. This is expected to lead to a total increase in Nigerian economic welfare by 0.62% – equivalent to around US$2.9 billion in 2018 terms. Changes would result from tariff reduction, ease of doing business and, trade facilitation.
SME Market: Provide a platform for Small and Medium Enterprises (SMEs) integration into the regional economy and accelerate the empowerment of women. To provide an expanded platform for Nigerian manufacturers and service providers for connection to regional and continental value chains.
Improve Competitiveness: Improve competitiveness and the ease of doing business. Provide a platform for Nigerian continued leadership role in Africa. Consolidate and expand Nigeria’s position as the number one economy in Africa.
Trade Governance: Establish rules-driven trade governance in intra-African trade to invoke trade remedies, safeguard the Nigerian economy from dumping and unfair trade practices.
Benefits for Africa
- Cover a market of 1.2 billion Africans with a combined GDP of US$2.5 Trillion. Would increase intra-African trade by up to 52.3%.
- Enable all AU countries to share in the welfare gains, which are estimated at around 2.64% of continental GDP – roughly $65 billion in 2018 terms
- Increase real wages for unskilled workers in the agricultural and non-agricultural sectors as well as for skilled workers with a small shift in employment expected from agricultural to non-agricultural sectors.
- Export diversification, durable sustained growth, an enlarged regional market that better attracts FDI with wider economic space for industrialization, and catalytic effects for structural transformation.
- Expand the size of the African economy to US$29 trillion by 2050, as estimated by the United Nations Economic Commission for Africa.
References:
- African Continental Free Trade Area: Challenges and Opportunities of Tariff Reductions –Mesut Saygili, Ralf Peters, Christian Knebel, February 2018
- Agreement Establishing The African Continental Free Trade Area- March 2018.
- An Independent study on the potential benefits of The Adrican Continental Free Trade Area (AFCFTA) on Nigeria, May 2018 by Bell IHUA, Martin IKE-MUONSO, Olumide TAIWO, Sand MBA-KALU
- https://www.tralac.org/documents/resources/african-union/2026-fact-sheet-on-the-afcfta-benefits-for-africa-and-nigeria-notn-june-2018-1/file.html
- African Continental Free Trade Area: Opportunities and Challenges – By Andrea Cofelice, November 2018.
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