Leaders from 54 African nations met in early July to sign the African Continental Free Trade Agreement (AfCFTA), becoming the largest free trade zone since the World Trade Organization was formed in 1995. Leaders hope that the deal will create a $3.4 trillion economic bloc and bolster the Africa’s low intracontinental export rate. With Eritrea currently being the only country to not sign (though they have now requested to sign), the newly-formed free trade area would include 1.3 billion people and $2.3 trillion in GDP.
The 27 countries that have officially ratified the agreement have eliminated 90% of tariffs and plan to phase out the other 10% on “sensitive goods” over time. According to the United Nations, trade among African nations could be boosted by over 50% by 2022 and could double once all of the tariffs have been eliminated.
Part of Africa’s woes is that it consists of a plethora of small economies that do not attract large-scale investment. According to Alexander Hammond, Senior Fellow at Africa Liberty, “Africa has extremely low-levels of intra-regional trade compared to other regions in the world. For example, in Europe and Asia, intra-continental trade accounts of 69% and 59% of total exports respectively, whereas in Africa just 18% of total exports were traded within the continent.”
Tariffs and regulations have also played a role, and cause seemingly nonsensical export decisions. Nigerian cement business owner and billionaire Aliko Dangote claims that he has troubles selling to neighboring Benin despite it being only 25 miles away from Nigeria and that they prefer to buy from China instead. Unfortunately, exports intracontinentally are just too expensive.
The majority of Africa’s exports are oil and minerals to large economies like the United States, Europe, and China, which are vulnerable to price fluctuations making too much reliance a boon to any economy. “When African nations trade with each other, they’re much more likely to trade in higher-value manufactured goods,” states Hammond. “Therefore, increasing intra-continental trade […] will help African nations diversify their exports and build more resilience to price fluctuations.”
The AfCFTA is also expected to create a more diverse job market. Being a large exporter of raw materials means fewer opportunities to work from home. Secretary General of the UN Conference on Trade and Development Mukhisa Kituyi hopes that Africa will “gain more industrial and value-added jobs in Africa because of intra-African trade,” since there should be an increase in demand and an expanded production due to the deal.
Although talks are enthusiastic, some leaders do have concerns about the effects of the agreement, the most notable being Nigeria. The concern of a flood of cheap imports worries Nigerian president Muhammadu Buhari who stated that the AfCTFA could “undermine local manufacturers and entrepreneurs, or […] lead to Nigeria becoming a dumping ground for finished goods.” Local manufacturers backed the President’s decision before he eventually decided to sign after South Africa agreed.
At the Kigali Summit in 2018 where the first countries signed the AfCTFA many also signed the Protocol on Free Movement of Persons which gives citizens a “right of entry” into any member state, a “right of establishment” that gives “the right to […] to take up and pursue economic activities […] in the territory of another Member State” and a “right of residence.” The 30 countries that signed this agreement will eliminate visa requirements and agree to not discriminate against members of other countries.
The inability to enter other African nations without adhering to visa and stringent entry requirements practically halted free trade and made it much more difficult to fix skills gaps among labor. Businesses within participating countries will be more easily able to hire talented and essential staff to increase production and overall economic growth.
The countries that haven’t signed are primarily concerned with mass immigration would create job loss and lower wages for local workers. Poorer countries are also concerned about “brain drain” (also known as human capital flight) where their most skilled workers move to more developed economies potentially causing lower consumer spending and lower quality of goods.
This agreement is only the beginning, as phase II regarding competition policy, investment, and intellectual property are to be negotiated, and with nearly every country agreeing to free trade, there are hopes of creating a future customs union, and perhaps a continent-wide currency. The massive potential is extremely exciting and it is great to see Africa begin to take control of its economy after being a victim of colonization for so long. This agreement is a net positive not only for the continent, but the rest of the world as well.
Luke Henderson
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