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Your Guide to Understanding the African Continental Free Trade Area (AFCTFA)

January 31, 2021 | Estimated Reading Time: 3 minutes
Written by Tolu Okunade

“It is clear that we must find an African solution to Africa’s problems, and that this can only be found in African unity. Divided, we are weak; united, Africa could become one of the greatest forces for good in the world.” — Kwame Nkrumah

Over the years, the continent of Africa has been a huge market for multinationals as we barely produce anything ourselves. However, the problem is a bit more complex as we do not trade among ourselves and prefer to import products from outside the continent. So thousands of containers on cargo ships are being brought into Africa each day from other Europe, China and other continents. This has been a huge source of concern. It looked like madness — how would you be able to trade effectively with your friends abroad and not be able to trade with your neighbours?

However, on January 1st 2021, the African Free Trade Continental area (AFCTA) was launched as a panacea to that problem. The AfCFTA is an AU Agenda 2063 flagship initiative established to create an integrated continental market for goods and services and to support the movement of capital and natural persons. This market will be actualized through the progressive elimination of tariffs and removal of non-tariff barriers. For many years, the African business community has been individualistic in driving the continent’s agenda. The implementation of the AfCFTA however gives us a united voice and shows us how we can do this together.

Africa is a diverse continent fragmented in 54 independent sovereign states, which are organized in Trade Blocks and associate under the African Union as Members. African trade in comparison to world trade is still very low at less than three percent: this is because commodities and natural resources still dominate Africa’s export basket and the continent’s participation in the global value chain has remained minimal. Insecurity and border conflicts in some parts of Central Africa (DR. Congo), West Africa (Bokoharam in Nigeria), and East Africa (Somalia) are among the factors contributing to low internal African and external trade.

Africa trades less within itself and more with third countries increasing our balance of payment and rising trade dependence on foreign markets. The formation of the AfCFTA is an attempt to reverse this trend by progressively eliminating tariffs on intra-African trade, making it easier for African businesses to trade within the continent and cater to and benefit from the growing African market.

The agreement is expected to: create a liberalised market for goods and services through successive rounds of negotiations; contribute to the movement of capital and persons and facilitate investments; lay the foundation for the establishment of a Continental Customs Union; enhance the competitiveness of the members’ economies and promote industrial development through diversification and regional value chain development, agricultural development and food security. And in the long run, it will help promote and attain sustainable and inclusive socio-economic development, gender equality and structural transformation across the continent.

The landmark African Continental Free Trade Area (AfCFTA) agreement, which will be fully operational in 2021, has the potential to create a continental free-trade zone with a combined Gross Domestic Product (GDP) of USD$3.4 trillion, according to the African Union (AU). This trade agreement has become the largest in the world. The AfCFTA is one of the flagship projects of the First Ten-Year Implementation Plan (2014-2023) under the AU’s Agenda 2063— “The Africa We Want.”

One important benefit for countries is that AfCFTA will ease the process of importing raw materials from other African countries. It will also enable SMEs to set up assembly firms in their countries, in order to access cheaper means of production and thereby increase incomes, and also promote learning among the firms in that country to upgrade and then be able to export to other countries too.

But what does that mean for the entrepreneurs? The AfCFTA agreement has the potential to become a game-changer and bring some great opportunities for entrepreneurs, such as:

  1. Improving the intra-African trade landscape and export structure;
  2. Creating a sound global economic impact;
  3. Developing better policy frameworks;
  4. Fostering specialization and boosting industrialization;
  5. Strengthening regional and inter-state cooperation;
  6. Increasing employment and investment opportunities, as well as technological development;
  7. Providing the opportunity to harness Africa’s population dividend.

However, for young people to benefit equitably, these aspects must be addressed and improved across the content: access to information, access to education, and access to capital. Without these three elements, youth will be inactive in the AfCFTA and Africa will not achieve population dividend, where a country’s working-age population grows larger relative to the young dependent population.

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