Africa’s Big New Free Trade Agreement: Opportunities and Challenges for the Continent
Africa’s recent big new free trade agreement is a significant step towards regional integration and economic growth. The African Continental Free Trade Area (AfCFTA) was signed in March 2018 and officially launched on January 1, 2021. It is the largest free trade agreement since the establishment of the World Trade Organization and covers a market of over 1.2 billion people with a combined GDP of $3 trillion. The AfCFTA offers tremendous opportunities for businesses, governments, and consumers across the continent. However, it also poses some challenges that need to be addressed for the agreement to succeed.
One of the main benefits of the AfCFTA is that it promotes intra-African trade by eliminating tariffs on 90% of goods traded among African countries. This will reduce the high costs of doing business on the continent and create a larger market for local producers and consumers. It will also boost intra-African investments, export diversification, and industrialization. According to estimates by the United Nations Economic Commission for Africa, the AfCFTA could increase intra-African trade by 52% by 2022 and contribute to a 3% increase in GDP by 2034.
The AfCFTA also has the potential to attract foreign direct investment (FDI) to Africa by creating a more predictable and transparent business environment. This will enhance Africa’s competitiveness and attractiveness as an investment destination. However, to achieve this, African governments need to address the existing infrastructure deficits, such as power supply, transportation, and digital connectivity, that hinder investment and trade.
The AfCFTA is not without challenges, though. One of the main challenges is the diverse nature of the African economy, which ranges from oil-rich countries to agrarian economies. The AfCFTA seeks to liberalize trade across all sectors, including agriculture, which may pose challenges for some countries with limited capacity to compete with cheaper imports. To address this issue, African governments need to invest in agriculture and value addition to enhance productivity and competitiveness.
Another challenge is the lack of coordination among African countries in implementing the AfCFTA. The AfCFTA requires all African countries to ratify and implement the agreement at the national level, but not all countries have done so. Moreover, some countries have raised concerns about the potential negative effects of the AfCFTA on their domestic industries, particularly small and medium-sized enterprises. African governments need to address these concerns and create an enabling environment that promotes inclusivity and equity.
In conclusion, Africa’s big new free trade agreement, the AfCFTA, offers great opportunities for the continent to accelerate economic growth, promote regional integration, and attract foreign investment. However, it also poses some challenges that require concerted efforts by African governments, businesses, and civil society to address decisively. The AfCFTA is a game-changer for Africa, and its success will depend on the collective efforts of all stakeholders to harness its potential and overcome its challenges.