The need for regional integration within the African market has been a prominent topic for decades. Navigating the diversity in the commercial landscape and harmonising trade regulations has posed a significant challenge within Africa’s trade industry. This led to the formulation and adoption of the African Continental Free Trade Area (AfCFTA) to address these regional trade dynamics.
Launched in 2018 and operational since then, AfCFTA is a transformative initiative aimed at creating a single continental market for goods and services, fostering economic integration and development. As the world’s largest free-trade area by the number of participating countries, AfCFTA represents a landmark agreement designed to drive trade and enhance economic and social conditions across Africa.
Intra-African trade accounts for less than 17 percent of the continent’s total trade, compared to 69 percent within the European Union, 47 percent in Asia, and 27 percent in Latin America. This low percentage is due to small domestic markets and continental fragmentation in the production and distribution of goods and services. AfCFTA seeks to address this by eliminating tariffs on 90% of goods traded between African countries, thereby facilitating the free movement of goods, services, and people across borders.
AfCFTA expands market access for businesses within Africa. Prior to AfCFTA, intra-African trade and travel faced significant challenges due to market fragmentation, high tariffs, and non-tariff barriers. The initiative reduces tariffs and customs procedures, providing opportunities for small and medium-sized enterprises (SMEs) to access regional markets.
Intra-African trade is a vital component of Africa’s economic landscape. It has been growing steadily at 7.2 percent year-on-year, reaching USD 192 billion in 2023, which accounts for 15 percent of total African trade and represents a 13.6 percent increase from the previous year. The reduction of tariffs and trade barriers is intended to significantly boost intra-African trade. The African Union projects that AfCFTA could increase intra-African trade by over 50% by 2030.
By fostering the creation of a regional value chain, AfCFTA promotes industrialisation, enabling African manufacturers to produce goods more competitively. According to the African Development Bank (AfDB), Africa requires over USD 400 billion between now and 2030 to accelerate its structural transformation. This investment is crucial for adding value and transforming Africa’s economy from one reliant on raw exports to a more diversified industrial base.
Although the impact of AfCFTA has been limited so far, it has positively affected specific areas within African economies. Countries like Ghana and Nigeria have seen significant improvements in their manufacturing and agricultural sectors. Reduced tariffs have increased demand for Ghana’s textile and automotive industries in Nigerian markets, and vice versa for Nigerian agricultural products.
Rwanda has utilised AfCFTA’s provisions to reduce trade costs and access new markets across the continent, focusing on value-added products. South Africa is also expanding its reach into other African markets under AfCFTA. South African companies are capitalising on regional opportunities by providing goods and services that cater to diverse markets across the continent.
However, the adoption of AfCFTA faces several challenges. The most prominent is ensuring the consistent implementation and compliance with AfCFTA’s provisions across various national contexts. Non-tariff barriers such as regulatory discrepancies, customs procedures, and logistical constraints also impede trade. Additionally, economic disparities between African countries can affect the equitable distribution of benefits.
The future of AfCFTA holds promise as it continues to evolve and address its challenges. By tackling implementation issues, promoting inclusive growth, and leveraging regional opportunities, AfCFTA has the potential to transform Africa’s economic landscape and establish the continent as a significant player on the global stage. As African countries navigate this transformative era, the potential for increased trade, industrialisation, and economic growth is substantial.
