African Leaders Establish Continental Free Trade Agreement

African political and economic leaders held a summit last week to work towards finalizing a $3.4 trillion free trade bloc known as the African Continental Free Trade Area (AfCFTA). This effort would unite economies across the continent, encompassing 1.3 billion people, 55 nations, and a combined GDP of approximately $2.5 trillion. By definition, the pact would eliminate tariffs on most goods traveling between countries, designed to encourage the spread of goods and ideas between economies. The International Monetary Fund (IMF) estimates that the arrangement would increase trade in the region by 15% to 25% in the coming years, but its potential to do better is dependent on efforts to overcome particular challenges (such as political violence and instability, corruption, poor travel infrastructure including roads, and other border protections). The African Union told Reuters that the summit also worked towards a digital payments system for the AfCFTA and began to address both tariff protocol and monitoring systems for non-tariff barriers to trade.

The IMF stated in May that creation of an African free trade bloc would be an “economic game changer,” but offered concession that “reducing tariffs alone is not sufficient.” Landry Signe, a Fellow at the Brookings Institution’s Africa Growth Initiative offered in corroboration, “It will be important to address those disparities to ensure that special and differential treatments for the least developed countries are adopted and successfully implemented.”  Signe and other officials are referring to significant differences in the size and nature of member countries’ economies; for example, Nigeria, Egypt, and South Africa together account for more than 50% of the continent’s cumulative GDP. Africa’s six island nations combined make up less than 1% of the continent’s cumulative GDP.

The level of economic diversification is also uneven among member countries; undiversified but developed economies will likely benefit less than those in smaller countries. Nigeria’s economy, heavily reliant on oil exports, is undiversified but developed. Even so, Nigeria agreed to sign on to the agreement last week. Nigerian officials warned its participation might lead to the flooding of low-priced goods into its country. Unions have also expressed strong concerns related to AfCFTA. Cheap imports could impact Nigeria’s industrial workers, and the Nigeria Labour Congress called AfCFTA a “radioactive neoliberal policy initiative” driven by an unprecedented “unbridled foreign interference.”

Certain economies, such as that of South Africa, may have an advantage under the new pact as their relatively developed manufacturing sectors expand their market areas around the continent. As countries seek to maximize economic growth, tariff-free access to markets will likely spur increases in demand and in production, ultimately reducing costs to consumers. Industries expected to gain the most are those that are labour intensive, according to Vera Songwe, Executive Secretary of the Economic Commission for Africa. These include manufacturing and agro-processing export goods. Women, who make up nearly 70% of the informal cross-border training, as well as youth entering the workforce, stand to gain the most from reduced import duties.

At present, current overlapping trade zones including ECOWAS, EAS, SADC, and COMESA – each of which encompasses a different region of the continent – feature complex and unique trade protocol. The negotiation of AfCFTA will be the largest intra-African free trade bloc in history. While these Regional Economic Communities (REC) will maintain their trade agreements, AfCFTA extends and simplifies free trade for more countries than any other REC.

If leadership continues to work towards greater political security and commits to cooperation at their respective borders, AfCFTA has remarkable potential to integrate and bolster the economies of the African continent. Positive externalities resulting from free trade – particularly for youth and women – are especially promising. Full ratification is still necessary, however, and nations will need to work together to ensure policies are well-designed and enforced. Regular auditing and evaluation of the short-term effects of AfCFTA are also critical to its long-term success, due in part to workers’ unions’ concerns. If well-executed, AfCFTA may prove a historic success. Egyptian President and African Union Chairman Abdel Fattah al-Sisi remarked at the summit, “The eyes of the world are turned towards Africa […] The success of the AfCFTA will be the real test to achieve the economic growth that will turn our people’s dream of welfare and quality of life into a reality.”

Isabelle Aboaf