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6 members of The African Continental Free Trade Area have a panel discussionThe New Year has brought a host of new possibilities, and in particular, for Africa. The African Continental Free Trade Area (AfCFTA) agreement went into effect on January 1, 2021. The expectations are high for the continent.

AfCFTA is the largest free trade conglomerate in the world; 55 countries signed on to AfCFTA, consisting of 1.3 billion people and a gross domestic product of $3.4 trillion. Moreover, expectations have determined that 30 million Africans will be able to improve their income, leaving poverty behind. The move could remake Africa as a new power for trade, both internally and externally. However, the agreement is contingent on some key workings to reach the full potential of AfCFTA’s reach.

China and AfCFTA

The contingencies are large and focus on infrastructure, policy and eliminating tariff and non-tariff obstacles to improve and enhance continental trade. Some of these contingencies require funding beyond continental borders.

China, the burgeoning world power, is making its presence known in Africa, folding the continent into its monolithic project, The Belt and Road Initiative (BRI). The initiative would give incentives for Chinese investors to support infrastructure, trade and industrialization in Africa.

The BRI pivots on the ancient “Silk Road,” which were the trade routes that flowed in and out of China to the West and beyond. The Han Dynasty established the road in the year 220 B.C.E. It was over 4,000 miles long, connecting the Middle East to Central Asia and eventually, Europe.

The updated Silk Road Economic Belt and the Maritime Silk Road combine to make the BRI. The initiative invests in railways, highways, energy pipelines and benefits from streamlined border crossings. Folding in over a billion African workers and consumers is tantamount to its success. Through the initiative, China and AfCFTA have a great interest in working with each other.

Infrastructure

Africa is receiving funding for infrastructure already. In fact, China is the top investor in the African infrastructure of any foreign country. This is a much-needed economic boost for the continent.

The United Nations Economic Commission for Africa’s chief for energy and infrastructure, Dr. Robert Lising, placed a price estimate on what would allow AfCFTA work. He pointed to estimates the African Development Bank put forth amounting to $130-$170 billion per year.

He stated that “This is a huge amount of money so China’s involvement is definitely welcome… In addition, we all know that there is available capital and equipment linked to China’s involvement in Africa’s infrastructural development.” He also pointed out that China’s competitive involvement would lower prices, benefitting Africa. Additionally, he mentioned that while Western involvement is welcome as well, Western forces often come with conditions, whereas China does not.

He said that “If you want to reap the full benefits of the AfCFTA, you need regional infrastructure development… If you want to close the gap in infrastructure development in Africa, you need to bring in all the partners including China through the BRI.” He reminded others that Chinese involvement in African infrastructure is not a new thing, happening for the last five decades. Citing the completion of Nairobi to Mombasa rail lines and the Addis Ababa to Djibouti line to support his claim.

A Partnership of Need

A round table discussion that the Center for China & Globalization organized and held in December 2019 further supports Dr. Lising’s thoughts. Isabel Domingos, ambassador from Sao Tome and Principe at the conference lays out a plan for mutual benefit. She stated that “China has needs and Africa also has needs; China has potentialities and Africa also has potentialities. We have the African Continental Free Trade Area that can be one place to promote both sides, and find a place to deepen the cooperation between China and Africa.”

While there remain anxieties over the confluence of Chinese involvement in AfCFTA, the consensus is clear; the involvement of foreign capital in AfCFTA is crucial. China stands to gain from its involvement and has the capital available that the African continent needs.

China and AfCFTA are a strong match. As Africa continues on its current trends of globalization, China can heed the call. The entire world will watch the results as a blueprint for international involvement.

– Christopher Millard
Photo: Flickr

African Continental Free TradeGender inequality in the workforce is an issue that affects women globally. Women account for 60% of all jobs globally but earn only 10% of all income. In addition, 70% of women experience financial exclusion, which contributes to gender inequality in Africa. Barriers to educational opportunities are also factors of gender inequality with up to 4 million girls that have not enrolled in the educational system. Advancing women’s involvement and opportunity in the African economy will aid in closing the gender gap. The African Continental Free Trade Area (AfCFTA) agreement aims to economically transform Africa and women are an important part of this process.

The African Continental Free Trade Area Agreement

The AfCFTA agreement came into effect on January 1, 2021, and created one of the largest free trade areas in the world. AfCFTA created a new market of 1.3 billion people across Africa. This accounts for a combined gross domestic product (GDP) of $3.4 trillion. According to the World Bank, AfCFTA has the potential to take up to 30 million Africans out of extreme poverty and increase the incomes of 68 million Africans who live on less than $5.50 a day.

The provisions of the agreement include lowering trade tariffs between participating countries and other beneficial regulatory measures. Overall, AfCFTA aims to completely reshape African markets and boost the economy with the creation of new jobs, increased industrialization and increased trade within Africa. In addition, women will benefit from the agreement by improving their access to trade opportunities and stimulating wage gains by up about 10.5%.

Boosting Women-Owned Businesses

The AfCFTA can boost women’s roles in jobs across different sectors like the agricultural sector. In agricultural jobs, AfCFTA can expand markets for exports and widen opportunities available to women. With increased industrialization and diversification, the AfCFTA can benefit women’s manufacturing and wage employment in manufacturing industries. Higher-skilled jobs will also become more available and accessible to women. In addition, significant benefits are present for women entrepreneurs. Regional value chains support smaller women-owned businesses. The chains allow larger firms to use smaller women-owned businesses as suppliers.

The SheTrades Project

Empowering Women in the AfCFTA project also addresses the gender gap. The purpose of the SheTrades project is to support women-owned businesses so that they can experience the free trade benefits under AfCFtA. The project focuses on capacity building, networking and advocacy as a means to achieve this. The project works with more than 50 women’s business associations to raise awareness of prioritizing women in terms of AfCFTA and discuss recommendations for prioritizing women as well as policy advocacy strategies. It also works to provide a platform for women’s business associations to work with each other as well as policymakers.

Addressing Gender Inequality

Women are key stakeholders in the development of the African economy under AfCTA, consisting of 70% of informal traders.

AfCFTA also recognizes the importance of gender in trade relations in Africa by stating the importance of incorporating gender inequality in the context of trade and the economy. A method of fighting gender inequality in Africa is through gender mainstreaming. Gender mainstreaming is defined as, “a process of assessing the implications for women and men of any planned actions, including legislation, policies or programs in all areas and at all levels.” Strategies like gender mainstreaming are addressed and applied in several countries’ AfCTA National Implementation Strategies.

Implementation of further gender gap-related policies can strengthen the impact that the African Continental Free Trade Area agreement has on Africans and help to eradicate gender inequality in Africa.

Simone Riggins
Photo: Flickr

The AfCFTA Lays the Groundwork
There is a continental shift happening in Africa by the name of the AfCFTA or the African Continental Free Trade Area. While this shift may not be like the literal seismic ones, it is no less earth-shaking. Here is how the AfCFTA is laying the groundwork to battle poverty.

About the AfCFTA

As of January 1, 2021, the AfCFTA is the largest free trade conglomerate in the world. Fifty-five countries entered the AfCFTA, connecting 1.3 billion people across the African continent and resulting in a combined gross domestic product (GDP) of $3.4 trillion. Expectations have determined that 30 million Africans will be able to improve their income, thus allowing them to leave poverty. It is a daunting task, but the promise could turn Africa’s relationship with the world on end.

The dramatic shift is finally coming to fruition after the AfCFTA began in 2018. The novel Coronavirus pushed the progressive agenda back to a 2021 release date. However, in order to make the area the world-changing force it can be, experts have noted that the AfCFTA has some obstacles.

How the AfCFTA is Laying the Groundwork to Aid Business

Simply put, the AfCFTA is an agreement among African governments to greatly reduce or eliminate tariffs on trade within the continent. This shot in the arm for African industry opens up trade within Africa and also makes goods and services available to off-continent markets more attractive.

Within 20 years, predictions have determined that the AfCFTA will bring $34.6 billion and a further $85 billion in trade facilitation across African borders without any sign of letting up. Further analysis suggests there is a notable connection between positive trade facilitation and industrial growth.

A Case Study

For example, the regional coffee trade has always had to compete with European products that have greatly reduced tariffs. Many are hopeful the AfCFTA will level, if not enhance, the playing field for local producers, such as Meron Dagnew. Dagnew has lived with the tariffs her whole professional career as a coffee producer and knows the benefits the AfCFTA should bring.

Dagnew said that “I am hoping to not pay as much as 35% tariffs on my goods; I am hoping that soon I can take my value-added cocoa and coffee to [other] African countries without problems… [and] then make more profit, expand my business and hire more people.” As a result, she is a prime example of AfCFTA’s efficacy.

The AfCFTA effectively eliminates 90% of the tariffs, opening up entirely new trade possibilities for the 55 nations involved in AfCFTA. This will allow coffee-producing countries, like Ghana and Côte d’Ivoire, to be competitive with their European counterparts, such as Nescafé. Despite the promise of rosier days for the continent, a number of concerns have experts warning of developmental concerns.

Infrastructure

Infrastructure equals connectivity. In order for Africa to experience proper industrialization, raw materials need to go in and finished products need to go out safely and efficiently. Additionally, for Africa to achieve connectivity, everything from physical roads to electricity needs attention.

Many refer to this combination of industrial needs as an “infrastructure deficit.” It is one of the biggest challenges to industrial growth itself.

The Politics of Growth

Supply-side constraints have rattled Africa with the continent currently needing to import basic-needs goods and rely on foreign production. In response, government policies have aimed to support a shift to more domestic production and restructure rules (and aid) to further new industries.

The COVID-19 pandemic has laid these inefficiencies bare, making the continent even more reliant on non-domestic goods. African banking also intends to extend credit incentives to new businesses that alleviate this dependency and foster intra-continental trade.

For example, the AfCFTA could raise intra-continental trade in agricultural products by 20% to 30%, improving the balance of payments. Food import bills have become a major driver of these external imbalances and policy needs to positively favor Africa.

Elimination of Tariff and Non-Tariff Obstacles

In a sense, this is the literal logistics of the issue, and it combines the previous two. Through policy and infrastructure, the trade disparity improves along with bettering logistics.

Removing tariff and non-tariff obstacles improves the movement of goods and services across regional borders, along with the transfer of the objects. The enforcement of non-tariff agreements also becomes crucial.

For example, the Single Customs Territory (SCT) in the East African Community has helped the area improve its logistics and shipping times. Ultimately, the end customer benefits as well, driving up exports between 30%-50%. This idea thrives predominantly in regions that are landlocked.

Synopsis

The African Continental Free Trade Area has the potential to be a game-changer. However, there are palpable concerns that need solving for the area to achieve its full potential. All-in-all, these are exciting times for a continent marred with troubles.

The AfCFTA may hold the key to the industrialization, development, modernization and reconfiguration of the continent’s politics. Furthermore, the AfCFTA is laying the groundwork to lift billions out of poverty.

Christopher Millard
Photo: Flickr

Intra-African tradeSince 2015, the African Union (AU) has been working to boost intra-African trade. In May 2019, 52 out of the 55 AU member countries signed the African Continental Free Trade Area (AfCFTA) agreement, making Africa the largest free trade area in the world. Africa, as a whole, has struggled with extreme global poverty and economic development. AfCFTA aims to unlock Africa’s economic potential and improve the lives of over 1.2 billion people. Here are eight ways AfCFTA will positively impact Africa.

Eight Ways the African Continental Free Trade Area Agreement Will Impact Africa

  1. AfCFTA will lower tariffs. Within five years, AfCFTA plans to cut tariffs by 90 percent. Currently, it is easier for AU members to export goods to the U.S. and Europe than to other African countries. Only 15 percent of trade in Africa is intra-regional. In comparison, intra-regional trade accounts for approximately 70 percent of all trade in Europe. By reducing the cost of importing and exporting goods in Africa, AfCFTA hopes to increase trade negotiations between African countries.
  2. AfCFTA will replace Africa’s Regional Economic Communities. Since 1991, eight sub-regional bodies called Regional Economic Communities (RECs) were the key building blocks for economic growth. RECs were one of the obstacles that prevented intra-regional trade from blooming. Essentially, Africa was home to eight different trading blocks. Each REC followed its own unique set of trade rules and regulations. AfCFTA will replace RECs as the authority over trade and ultimately unify all the RECs into one trading block.
  3. AfCFTA will standardize trade rules and regulations. Time and money were frequently wasted due to the ambiguity and guesswork required for intra-regional trading. AfCFTA will simplify the process for AU members to trade with each other by standardizing trade rules and regulations. Standardization eliminates the inefficiencies related to intra-regional trading and gives AU members the freedom to build trade relationships with neighboring countries.
  4. AfCFTA will promote a shift towards industrialization. Africa’s new trade agreement came at the best time. China, the lead producer of industrial goods, is increasing its efforts to move away from industrializations. China’s trade tensions with the U.S. has prompted the country to find other ways to sustain their economy. Many economists have predicted that Africa will become the next hub for industrial goods. By allowing goods to move more freely across the continent, AfCFTA will give AU members an incentive to shift towards industrialization.
  5. AfCFTA will advance manufacturing opportunities. With the new focus on industrialization, Africa will have to add more factories to produce more goods. AfCFTA gives small and large African countries alike the opportunity to advance manufacturing opportunities. Many economists believe that manufacturing is one of the main drivers of economic growth. Since global trade is based on goods, countries that produce the most goods often have the highest economies. The increase in factories and goods produced in Africa will help drive economic development.
  6. AfCFTA will replenish Africa’s natural resources. Raw materials, such as oils and minerals are currently one of Africa’s main exports. These extractive exports account for 75 percent of Africa’s external exports. The U.S., Europe and China are the main consumers. The extractive market is a volatile one and severely depletes African countries from valuable natural resources. The shift towards industrialization and manufacturing will help stabilize reserves of oils and minerals in Africa. AfCFTA also opens a new demand for extractives within Africa, allowing for the continent’s natural resources to move freely throughout its borders.
  7. AfCFTA will create more job opportunities. Employment is another important factor for economic development. Agriculture is the biggest industry in Africa and therefore the source of most employment opportunities.  As AfCFTA encourages AU members to invest in industrialization, the labor force will shift from agriculture to manufacturing. Research has shown that one manufacturing job has created an additional job in another sector that supports the work being done by the manufacturers.
  8. Through AfCFTA, Africa hopes to improve the lives of its citizens. Today, Eritrea remains the only AU country that has not signed the AfCFTA. Benin and Nigeria signed the agreement in early July. Once all 55 countries sign the agreement, it is predicted that intra-African trade will spike up to 52.3 percent. Industrialization and manufacturing opportunities are predicted to develop rapidly in Africa as well.

These changes will not occur overnight. But in a couple of years, through intra-African trade, Africa can expect to see an overall improvement in its economy and a significant dip in extreme global poverty thanks to the African Continental Free Trade Area Agreement.

– Paola Nuñez
Photo: Flickr