New Year ushers in start of world’s largest free trade zone: the African Continent Free Trade Area
On the international trade scene, the start of the New Year has certainly ushered in two landmark events that are potent enough to leave notable marks in the global marketplace. The first is effectuation of the United Kingdom and European Union (EU)’s Brexit trade deal that formally seals the nature of the EU-UK breakup. The second is the coming into force of the African Continental Free Trade Area (AfCFTA), the world’s largest free trade area since the formation of the World Trade Organization (WTO) itself.
Delayed from its original start date of July 1, 2020 due to the Coronavirus Disease (COVID 19), the massive free trade area, which sports a combined Gross Domestic Product (GDP) of US$3.4 billion and a population of 1.3 billion, kicked off formally on Friday, January 1, 2020, just in time to motivate the continent’s economic recovery efforts. With 54 of the 55 member countries of the African Union having signed the agreement, the AfCFTA—with all the acknowledged challenges ahead—is en route to creating a massive intra-regional single market “for goods [and] services, facilitated by movement of persons in order to deepen the economic integration of the African continent.”
In addition to World Bank estimates that predict that the successful implementation of the AfCFTA promises to lift more than 30 million Africans out of extreme poverty and another 67.9 million out of moderate poverty by 2035, it also has the potential to increase the intra-AfCTFA trade by roughly 50% over that same period of time. For 2019, UNCTAD data shows that intra-continental imports amounted to roughly 14% of total imports. This figure is less than half the intra-regional imports for the Americas (39%), and is barely a quarter of the intra-Asia and European trade which both represent about 61% and 66%, respectively. Only the Oceania region demonstrates a level of intra-regional imports (7.1%) that is less than the levels observed in the African continent.
While overall intra-regional trade (both imports and exports) is expected to hover around 20% for the next fifteen years (a figure that is likewise 50% higher than current levels), estimates point to a robust uptick of 81% in intracontinental exports, especially in more sophisticated, manufacturing products. As elucidated by the World Bank:
“In volume terms, manufacturing exports dominate the export picture for Africa. Of the US$2.5 trillion in exports projected in 2035 for Africa, US$823 billion are in manufactures; US$690 billion in natural resources; US$191 billion in agriculture; and the remaining US$256 billion in services. Of the total growth in exports of US$560 billion, the increase in exports of manufactures represents some US$506 billion—an increase of US$220 billion within Africa and US$286 billion with the rest of the world.”
In terms of continent’s exports to non-African countries, estimates predict a 19% uptick by 2035. At this juncture, it’s worth asking which non-African regions have been the largest importers of African commodities. In 2019, according to UNCTAD statistics, Asia is the leading geographic region which buys more than 42% of Africa’s merchandise sold to the world market. Europe comes in second, importing roughly 35%, while the Americas (including Latin America and the Caribbean) only account for about 8%. As subsets of the larger Americas, Latin America and the Caribbean only import about 2% of goods sold out of Africa, with the Caribbean only accounting for 0.34%.
While the new continental trade bloc—which will eliminate tariffs on 90% of tariff lines over the next 5 years (with an additional five-year grace period for least developed member states)—is indeed promising, there are quite a few lingering hurdles to be addressed if the intended vision will be realized. Frankly, the political, infrastructural, and logistical constraints that had caused intra-Africa trade to have been low over the years have not suddenly vanished. The region will have to work assiduously on improving trade facilitation, reducing non-tariff barriers, diversifying their economies, improving transport infrastructure, and more.