The African Continental Free Trade Area (AfCFTA) is one of Africa’s development framework Agenda 2063’s flagship projects. The 18th ordinary Session of the Assembly of Heads of State and Government, held in Addis Ababa, Ethiopia in January 2012, endorsed the action to create an African Continental Free Trade Area and the Action Plan for Boosting Intra-African Trade as a key venture whose execution would foster socio-economic growth and development. By increasing Africa’s shared discourse and strategic space in global trade discussions, the AfCFTA intends to accelerate intra-African trade and increase Africa’s commercial competitiveness in the global market (African Union).
Almost all African nations signed the African Continental Free Trade Area agreement on March 21, 2018, during the African Union’s 10th Extraordinary Summit, resulting in the world’s largest free trade area (African Union). 55 nations and 1.3 billion people were linked under the accord. The AfCFTA countries’ total gross domestic product (GDP) is worth US$3.4 trillion. Following the approval of the agreement by 22 nations, the deal comes into force on May 30, 2019.
The AfCFTA Agreement was signed on March 21st in Kigali, Rwanda. The AfCFTA went into effect on May 30, 2019, and the AFCFTA’s Operational Instruments controlling commerce were unveiled in Niamey, Niger, in July 2019. The AfCFTA regime went into effect on January 1, 2021. The Protocol on Trade in Goods, the Protocol on Trade in Services, the Protocol on Rules and Procedures for Dispute Settlement, the Protocol on Investment, the Protocol on Intellectual Property Rights, and the Protocol on Competition Policy are all part of the Agreement Establishing the AfCFTA (AfCFTA Secretariat).
AfCFTA, according to the World Bank, tackles Africa’s long-standing economic fragmentation. Across the continent, trade obstacles remain strong. Even though legislated tariffs have been cut to around 5% in about half of the nations, they are still high in sensitive areas. Nontariff barriers in services and other sectors, flawed and disorganized regulations designed to promote investment and competition, and insufficient institutions such as customs management are all stumbling blocks to continental economic integration (Davis, 2017).
Africa makes up less than 3% of global commerce and GDP, but 16.7% of the world’s people. The signatory nations trade seldom with one another, with fewer than 8% of their exports going to potential member countries. Even when compared to entire intraregional commerce in Africa (about 11 %), this %age is modest, implying that regional trade growth is constrained. In Africa, poverty eradication is a top objective. In AfCFTA nations, the poverty headcount ratio (the %age of the population living on less than US$1.90 per day) is high, averaging 32.2 %. Madagascar has a ratio of 77.8 %, whereas Algeria and Mauritius have a ratio of 0.5 % (World Bank 2020).
As several of these nations attempted to keep commerce moving while boosting imports of necessary commodities and reducing the spread of the disease, the COVID-19 pandemic exposed flaws in bilateral trade and border control systems. The agreement would help mitigate the negative impact of COVID-19 on economic growth by reducing trade costs and strengthening regional commerce and value networks. It provides a roadmap for integration and growth-enhancing reforms, allowing nations to anchor expectations (Songwe et al., 2021). The epidemic has highlighted the importance of greater collaboration among trading partners. AfCFTA might assist nations to strengthen their adaptability in the face of future economic crises by eliminating a patchwork of regional accords, simplifying border processes, and prioritizing trade reforms (World Bank 2020).
AfCFTA has the potential to move 30 million people out of acute distress and 68 million out of moderate poverty (Songwe et al., 2021). In 2015, the most recent year for which precise World Bank statistics are available, 415 million people in Africa were living in severe poverty (at a purchasing power parity of US$1.90 per day). Poverty rates vary greatly across the continent, ranging from 41.1 % in Sub-Saharan Africa to less than 3 % in North Africa, for example. The Central African Republic has a poverty rate of 77.7%, whereas Algeria and Egypt have poverty rates of under 0.4 %. According to baseline simulations, Africa’s severe poverty headcount ratio is expected to drop to 10.9 % by 2035, down from 34.7 % in the most recent projection (World Bank 2015) (Davis, 2017).
By moving an extra 30 million people out of severe poverty, full implementation of the AfCFTA would aid in a further drop. The number of people living in poverty in West Africa would drop by 12 million, while the numbers in Central and East Africa would drop by 9.3 million and 4.8 million, respectively. AfCFTA has the potential to elevate 67.9 million people out of poverty by 2035, or 3.6 % of the continent’s population, at the moderate poverty threshold of PPP US$5.50 per day (World Bank 2020).
The ratification of the AfCFTA would enhance job prospects and incomes for low-paid employees, as well as assist to reduce the wage gap between men and women. The share of people employed in energy-intensive industries would expand throughout the continent. Agricultural employment would expand in 60% of nations, and salaries for unskilled labor would grow faster when agricultural employment increased. Wages for unskilled employees would be 10.3% higher than the baseline by 2035, while skilled workers would see a 9.8% gain. As production grows in major female labor-intensive industries, women’s wages would climb somewhat faster than men’s. Women’s salaries would climb 10.5 % above the baseline by 2035, compared to 9.9 % for males (World Bank 2020) (Songwe et al., 2021).
The labor market would differ per nation, and some employees would lose their employment while others gained new chances and increased pay. Governments must focus on assisting a seamless and comprehensive transition by supporting flexible labor markets, strengthening intra-country connectivity, and maintaining solid macroeconomic policies and a business environment that is welcoming to both domestic and foreign investors. Policymakers will need to keep a close eye on the AfCFTA’s distributional effects across sectors and nations, as well as on female and male employees. As a result, they will be able to devise policies that lower the costs of changing jobs and offer adequate protection measures where they are most needed (World Bank 2020).
By 2035, complete execution of the AfCFTA may enhance real income by 7%, or roughly US$450 billion (in 2014 prices and market exchange rates). However, the aggregate figures conceal the diversity of effects between nations and sectors. Cote d’Ivoire and Zimbabwe, with income increases of 14 % apiece, are at the top of the list. At the low end, a few nations, such as Madagascar, Malawi, and Mozambique, would achieve real income improvements of roughly 2%. (World Bank 2014).
Tariff liberalization alone generates just a minor increase in real income, roughly 0.2 % at the continental level, however certain nations might see increases of more than 1%. The high expenses of African commerce are a major stumbling block for the continent’s trade. As a consequence, the elimination of NTBs and adoption of the TFA would yield the greatest benefits. At the continental level, combined tariff liberalization and NTB reduction would result in a real income gain of 2.4 % in 2035. The most significant boost would come from the TFA, which would increase AfCFTA members’ gains to 7% of their income (World Bank 2020).
The African Continental Free Commerce Area (AfCFTA) would greatly expand African trade, notably intraregional manufacturing trade. In comparison to the baseline, the number of overall exports would grow by about 29% by 2035. Exports inside Africa would expand by more than 81 %, while exports to non-African nations would climb by 19 %. Cameroon, the Arab Republic of Egypt, Ghana, Morocco, and Tunisia would see rapid increases in intra-AfCFTA exports to AfCFTA partners, with exports doubling or tripling compared to the baseline (World Bank 2020).
Manufacturing exports would increase by 62 % under the AfCFTA scenario, with intra-Africa trade expanding by 110 % and exports to the rest of the world increasing by 46 %. Agriculture would see smaller improvements, with intra-Africa trade increasing by 49% and extra-Africa trade increasing by 10%. The growth in the services trade is less impressive, at around 4% globally and 14% inside Africa (World Bank 2020).
The AfCFTA deal would also increase regional output and productivity, as well as resource reallocation between industries and nations. By 2035, the continent’s overall output would be about US$212 billion greater than the baseline. Natural resources and services would enjoy the biggest growth (1.7 %), while manufacturing would see a 1.2 % gain. However, at the continental level, agricultural output would fall by 0.5 % (compared to the baseline in 2035). The services sector (US$147 billion) would reap the most of the profits, with manufacturing (US$56 billion) and natural resources (US$17 billion) coming in second and third (World Bank 2020).
Agriculture output would fall by $8 billion by 2035 compared to the baseline. Agriculture is increasing faster in all sections of Africa than it was in 2035, except for North Africa, which is transitioning toward industry and services under the AfCFTA. The aggregate figures, on the other hand, obscure the diversity of effects among nations and industries. Under the AfCFTA, 90% of nations’ service volumes will increase, reflecting, in part, increased demand for services as Africa’s economy expands. Likewise, 60% of nations would see an increase in the value of their agricultural and manufacturing production (World Bank 2020).
For most nations, the short-term impact of the AfCFTA on tax collections is negligible. For 49 of the 54 nations, tariff revenues would fall by less than 1.5 %. In 50 of the 54 nations, total tax receipts would fall by less than 0.3 %. To begin with, imports from African nations account for just a modest portion of tariff earnings (less than 10 % ). Second, because most tariff revenues are clustered in a few tariff lines, exclusion lists can protect most tariff income against liberalization (1 % ) As imports rise and tariff liberalization is complemented by a reduction in non-tariff barriers and the deployment of trade facilitation measures, tariff revenues would climb by 3% by 2035 compared to the baseline (World Bank 2020).
The AfCFTA is therefore, a critical response to Africa’s developmental challenges. It has the potential to enable Africa to significantly boost intra-Africa trade, improve economies of scale and to establish an integrated market. It has the potential to be a catalyst for industrial development, placing Africa on a path to exporting value-added products, improving Africa’s competitiveness both in its own markets and globally. It also sends a strong signal to the international investor community that Africa is open for business, based on a single rule-book for trade and investment.
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