Year of the African Continental Free Trade Area

In 2023, the Assembly of Heads of State and Government of the African Union (the AU Assembly) adopted the “Acceleration of AfCFTA Implementation” as the theme of the year. By making 2023 the Year of the African Continental Free Trade Area (AfCFTA), the AU hopes to make major breakthroughs in its implementation by increasing the political commitment of member states and the different stakeholders and improving their collaboration.

The AfCFTA Alleviating Poverty

The Year of the African Continental Free Trade Area, one of the major projects outlined in Agenda 2063 of the AU, is set to greatly contribute to the alleviation of poverty in Africa. By eradicating barriers to trade and expanding commerce within the continent, the program has the creation of a unique African market as its goal. It aims to achieve development in a sustainable and inclusive manner and to ensure food security and the development of the agricultural and industrial sectors.

With 55 member states of the AU and an expected 2050 population of 2.5 billion, the AfCFTA is also set to be the world’s largest free trade zone since the World Trade Organisation was formed, and per the World Bank estimates, it will increase the continent’s income by $450 billion by 2035.

All of this will have a major impact on poverty in Africa. The program should enable around 30 million people to leave extreme poverty. Another 68 million will be able to escape moderate poverty. By creating employment and enhancing sustainable development, the AfCFTA will significantly improve the African population’s average quality of life. 

The AfCFTA Roadmap

  1. May 2019 marked the AfCFTA Agreement entering into effect, and its implementation has progressed ever since. As of March 2023, 46 countries have ratified the agreement. Before the start of the 2023 Year of the AfCFTA, eight countries had met the minimum requirements for trade and participated in the program’s Guided Trade Initiative, an important start in the implementation of the AfCFTA. However, the project has still been limited by a need for foreign direct investment and by infrastructure issues. Furthermore, negotiations were complicated by competing interests between individual governments and the continent-wide project. 

However, 2023 being the Year of the AfCFTA has had non-negligible advantages. In July 2023, the AU’s Mid-Year Coordination Meeting remarked that the negotiations on the “strengthening of infrastructure through the corridor approach”, which had been stalling before, were now completed. The AfCFTA implementation has thus been accelerated and is on the right path to one day generate significant income and jobs for the continent, thus benefiting millions of people in poverty and the world economy. 

A Focus on Women and Youth 

The AfCFTA project also aims to guarantee socio-economic inclusiveness across the continent by facilitating women’s and youth’s access to cross-border trade. With Africa’s population being the youngest in the world (people under the age of 30 make up 70% of the overall population), and women being major participants of cross-border activities in Africa, their involvement in the development of the AfCFTA is essential. However, social inequalities in Africa impede women’s participation in the economy, thus pushing them into the informal sector.  Like young people, women are disproportionately impacted by financial and systematic obstacles and lack of employment. 

Among its objectives, the AfCFTA wishes to address this situation by including a Protocol on Women and Youth in Trade in the Agreement on the AfCFTA. 

Discussions on the Protocol, which had already been held in 26 countries before the start of the Year of the AfCFTA, have been a forum for African women in trade to shape their participation in the project and address the challenges they face today. The Protocol aims to find solutions to abolish the structural obstacles that women and youth face in trade, such as significant trade tariffs, or gender-based violence.

The inclusion of women and youth in the implementation of this program is paramount to the sound development of the trade area and the African economy. It is also essential to ensure that this important part of the African population is lifted out of poverty and can access better welfare. 

The Road Ahead

Despite the progress made in the 2023 Year of the AfCFTA, there is still work ahead to ensure its full implementation. Notably, the project is still in need of investment and hampered by infrastructure issues. However, the AU has made impressive strides toward the trade area’s full development in the past years and in 2023 alone, which shows its eagerness to succeed in this endeavor. If the AU achieves the full implementation of the program, it could mean unprecedented benefits for both the African and world economies. The potential for poverty alleviation it holds would be revolutionary for the African population.

– Kenza Oulammou
Photo: Unsplash

African Continental Free Trade Agreement Increases Economic Growth

Uniting 54 countries in the African Union, The African Continental Free Trade Agreement (AfCFTA) will create the largest free trade area in the world since the World Trade Organization formed in 1994. The implementation of the treaty was originally supposed to occur on July 1, 2020, but was postponed due to COVID-19 restrictions. Over 1.3 billion people with a cumulative GDP of $3.4 trillion will come together to further economic expansion. This effort will push Africa into a competitive spot in the global economy. The treaty outlines a reduction of tariff restrictions and of non-tariff barriers (NTBs) as well as a trade facilitation agreement (TFA). The AfCFTA will make vast improvements in catching intra-African trade up with the numbers of the rest of the world. 

Currently, continental exports across Africa clock in at about 19% of total exports, comparatively lower to intra-Asian and intra-Europe exports which make up around 60% of their total exports. AfCFTA looks to encourage a higher level of intra-African trade by cutting all tariffs between countries in the zone by 2035, expected to increase intracontinental exports by more than 81%, as stated by the World Trade Organization in its 2020 report.  According to CNBC, this could mean a $2.8 billion per year rise in net income in the area.

Overall, the UN Economic Commission for Africa expects African trade to increase from 15% to 25% by 2040, translating to a GDP growth of over $2 trillion. Expectations also determine that intra-African trade will encourage globalization and technology advances. Africa’s adoption of e-commerce and other electronic advantages into its economy will further those goals.

Poverty Reduction Effects

AfCFTA projects that an additional 30 million people will emerge out of extreme poverty, reducing the headcount ratio without the deal from 10.9% to 9.3% with it. The World Trade Organization also expects that 67.9 million will rise out of moderate poverty by 2035. The largest change in income will be for unskilled workers and women. Still, most social groups will see a 10% increase in income.

A key factor in poverty reduction is the growth of industries, which creates new jobs. Energy-intensive manufacturing will grow as African trade and other markets develop. Total exports related to the manufacturing industry should rise by 110% in intra-African trade and by 46% worldwide. The production of the manufacturing industry will see a $56 billion increase. As a result, a number of countries are looking to provide larger foreign direct investments to the continent. 

Growth in the agricultural sector will work alongside manufacturing to pull people out of poverty. The AfCFTA will cause the industry to see a loss of $8 billion. However, agricultural employment will see a rise in 60% of the countries involved in the deal. Expectations determine that agricultural exports (only second to manufacturing) will grow 49% in intracontinental trade and 10% in worldwide trade.

Overall income will also grow as a result of the AfCFTA. A higher quality of life will close the gender gap and the gap between skilled and unskilled workers. The full implementation of AfCFTA could cause a 7% growth in real income ($450 billion) by 2035. Still, it is important to note that this growth will not occur equally over all the countries involved.

Mitigation of COVID-19 Economic Effects

Due to COVID-19, the implementation of the AfCFTA terms is on hold indefinitely. Officials expect to start again Jan 1, 2021 but are unable to continue negotiations at this time. Poor internet connections and language barriers amongst different officials also pose challenges. Nevertheless, the AfCFTA will act as a stimulus plan for countries in the region that lack economic or fiscal means to distribute a large relief package.

While economic growth has been steadily increasing at about 2.4% in 2019, the World Bank expects it to drop from anywhere between -2.1% to -5.1% in 2020. This means a loss of between $37 billion to $79 billion during 2020. The economic drops could cause less food security as food prices rise in many areas.

The losses come from a combination of sources. Shutdowns reduced exports and imports, and many African countries are reluctant to open borders. The shutdowns caused welfare losses of up to 14%. In addition, reduced tourism and commodity prices have taken their toll.

Connecting Countries

The AfCFTA will look to open up borders between African countries in order to encourage free trade once again. As a larger market, African countries can obtain necessary medical instruments and food resources at a cheaper price. The agreement will double or triple exports in Cameroon, the Arab Republic of Egypt, Ghana, Morocco and Tunisia. The countries will see the largest benefits, although almost all of the other countries will see growth.

The introduction of AfCFTA will shift the global marketplace significantly. China has been the center of manufacturing in recent years, but there may be a shift to Africa, as China’s investment in the signing of the AfCFTA has shown. Major powers, such as the U.S., European Union and India, have shown an increased interest in African foreign development as they see the rise in this cohesive market. Although COVID has taken its hit on the world, the AfCFTA might encourage a quick bounce back, lifting millions out of poverty and increasing jobs for many.

– Nitya Marimuthu
Photo: Flickr