When the African Continental Free Trade Area (AfCFTA) was launched on January 1, 2021, it became one of the largest trading blocs in the world. Consequently, there was a huge fanfare and high expectations. With the introduction of COVID-19 vaccines and the easing of lockdowns, many believed the trade area will finally live up to the expectations. Looking back to a year later, will the enthusiasts feel the same about AfCFTA?
To date, only Eritrea is not a signatory to the agreement. All the other African countries that signed the agreement agreed to eliminate import tariffs on 97 percent of goods traded within the continent. Many believed this will improve intra-African trade.
Sadly, African countries continue to trade more with countries outside the continent than with themselves. According to the World Economic Forum, Africa trades more with Europe (68%) and Asia (59%) than with other African countries (17%).
No doubt, a number of trades took place under the AfCFTA arrangement in the last year. Although data on trade volume is not yet available, there is evidence of trades on cosmetic products and alcoholic beverages. Nevertheless, the Nigeria intra-Africa trade data shows no impact from AfCFTA.
The Jostle to Capture the African Market
The announcement of the African Continental Free Trade Area threw many nations into a panic. For a brief moment, various nations started reaching out to African countries to brainstorm ways to boost mutual trades.
For example, Stephanie Sullivan, the United States Ambassador to Ghana reached out to Ghanaian officials to discuss ways to boost trades between the two countries. The belief was that if African countries start trading more with each other, fewer raw materials will leave the continent.
Consequently, that will create a huge vacuum in many industries outside the continent that rely on African raw materials to remain functional. Speaking at the commissioning of the Chamber at East Legon’s new office in Accra, Sullivan said,
“As Africa’s economy continues to develop, the opportunity is ripe for the AfCFTA to deliver on its promise to expand intra-regional trade and capture new foreign direct investment. That’s why, with the opening of this new office, AmCham Ghana is also launching its AfCFTA Resource Centre – an effort to help U.S companies understand more about the implementation of the AfCFTA agreement.”
What didn’t work
Negotiations are still ongoing as some countries believe they have more to lose than gain from the African Continental Free Trade Area. One of the biggest setbacks to the full implementation of the agreement is tariff offers.
Therefore, African governments need to step up on policy support to ensure the actualization of the goals of the free trade area. One important policy requirement is the full liberalization of agricultural and nutrition-sensitive goods. This is important considering the fact that this forms the bulk of African export to the rest of the world.
Also, another key component of AfCFTA is the availability of data—which is lacking at the moment. Trade and market data need to be digitalized and democratized. This allows small and medium enterprises to adequately plan and maximize their trade potentials.
More work lies ahead
One year after, African Continental Free Trade Area appears to have no real impact on African economies. However, many will blame this on the COVID-19 disruptions for which many countries are still struggling to emerge. Further emphasizing this point, the head of the German Chamber of Commerce and Industry for Southern Africa, Matthias Boddenberg said,
“Manufacturers in neighboring Botswana couldn’t supply wiring harnesses for the auto industry in South Africa because borders were closed”
However, AfCFTA is more than just boosting intra-Africa trade. According to the scope, the agreement includes competition policy, intellectual property rights, investment, and services. However, there is still a tough negotiation in these areas.
Nevertheless, the continental body hopes to achieve these visions by 2064. For Africa to enjoy the full impact of the African Continental Free Trade Area, more countries need to invest in manufacturing. Africans need to add value to raw materials and export them for a premium rather than just exporting raw materials.
For example, chocolate is a trillion-dollar industry but Ghanaian cocoa farmers are still struggling to survive. Interestingly, cocoa is the precursor for chocolate. The difference, in this case, is value addition.