5 ways the African Continental Free Trade Agreement will benefit Africa
Policy

5 ways the African Continental Free Trade Agreement will benefit Africa

Join

Join the fight against extreme poverty

Until now, the pace of Africa’s regional integration—where countries coordinate policies to achieve greater prosperity—has been sluggish. But after 2 years of rigorous negotiations, African leaders have adopted the African Continental Free Trade Agreement (AfCFTA). The agreement is huge. It means that goods, services, investment, skilled labour, and people will be able to move freely across the 54 countries on the continent, without the multiple checks and restrictions that exist today. If successfully implemented by 2020, the AfCFTA would make Africa the largest single market in the world based on number of participating countries, and further unite the 1.3 billion people on the continent.

Here are 5 key benefits to Africa that could come out of AfCFTA:

1. African youth will get better quality jobs

African youth aged 15-24 currently face double the unemployment rate of adults, with marked differences by country. The AfCFTA will generate significant employment for Africa’s teeming youth because manufacturing and agricultural goods that benefit most from AfCFTA require more labour. As young and emerging enterprises gain access to the largest single market in the world today, their production capacity will increase, leading to more employment.

For example, a Malian rice farmer based near the border with Niger could begin to export their excess produce to the nearby capital of Niamey. This would incentivise them to use more productive resources, including farm labour. Also, citizens will be better positioned to access jobs in more specialist fields due to more mobility across countries.

2. African businesses will become more productive and competitive

Access to a bigger market means small businesses can increase production, distinguish product types, and potentially leverage economies of scale benefits, such as cheaper input costs. For example, a Nigerian-based shoe manufacturer could establish production in another country with abundant leather and lower electricity costs without losing the right to sell in its home country.

3.African consumers can purchase goods at cheaper prices

Increased competition among African businesses and access to more variety of goods from neighbouring countries would drive prices down, allowing for better access to high quality products at affordable prices. It is estimated that if the AfCFTA is successfully implemented, Africa could have a combined consumer and business spending of $6.7 trillion by 2030, up from around $2.7 trillion in 2015. In particular, households living below the poverty line benefit from increased purchase of different products at cheaper prices.

4. African women will be empowered

Women represent more than two-thirds of informal cross border traders. Women face exposure to high levies, delays, corruption, and even sexual violence as they cross borders to trade. Free movement under AfCFTA would reduce these challenges, encouraging increased productivity as women’s barriers to expanding their market beyond borders are reduced.

5. African governments will make more revenue

Reduced costs of trading within Africa could lead to almost double the intra-regional trade in Africa—especially if supported by a reduction of non-tariff barriers to trade. Although benefits will vary by country, economic integration will lead to increases in Africa’s overall economic output, putting the continent on the path of accelerated and inclusive economic development. Declines in government revenue from import duties are currently estimated to be low at 0.03% of GDP, due to ineffective tariffs on low volumes of existing intra-regional trade. However, once non-tariff barrier removal is accounted for, revenue would actually increase due to greater economic output.

What must African leaders do to make AfCFTA successful?

Success will strongly depend on both how African leaders negotiate the details of the AfCFTA , and its ability to help smallholder business adapt to new opportunities and challenges.

First, elimination of non-tariff barriers to trade is essential. There are 5 areas that are needed to do this: simplified trade processes, reduced waiting time at borders, improved regional connecting infrastructure, enhanced payment systems, and leveraging of digital technology.

Also, AfCFTA should allow for professional and educational mobility, and upskilling of Africa’s workforce. Policy makers must ensure that Africa’s workforce is equipped with the skills needed to benefit from this agreement.

Finally, small and medium enterprises, which represent around 80% of regional businesses, need to be involved. For these businesses to benefit from AfCFTA, they need support, training services, and access to cheap financing. Small business owners must also be aware of their potential gains and be actively involved in the design and implementation of AfCFTA policy.

The AfCFTA could usher a new era of development in Africa, where Africans trade more with Africans and the rest of the world, small businesses prosper, women become more empowered, and government revenue increases. This would uplift millions of poor people and benefit the continent as a whole.

Join the Conversation

Comment Guidelines

Related Articles