The Potential of the AfCFTA

The Potential of the AfCFTA

Benjamin Bucheger

AP Econ A4

In March of 2018 the leaders from 44 African nations met in Kigali, Rwanda, committing to launching a common market for Africa. The African Continental Free Trade Agreement (or AfCFTA or CFTA for short) is not something that average American thinks about or maybe even knows about. But this agreement that would create the largest continental trade-bloc for goods and services in the world is arguably the biggest story in international economics to date. In order to stay informed let’s get into the finer details of what the CFTA is and what it plans to do.

The CFTA intends to bring together the markets of all 55 AU member states covering a population of 1.2 billion people with a collective GDP of $3.4 trillion. Further it seeks to boost intra-African trade through trade liberalization allowing the free movement of local businesses, investment and people. Better coordination between governments and businesses through this international economic forum will also resolve disputes that arise from membership in multiple smaller trade unions (such as the Economic Community of Central African States or the EC of West African States). The hope is these goals will enhance competitiveness, market interaction, and effectively deal with a century old problem caused by colonialism - impediment to trade and economic development due to an overemphasis on raw materials. Despite the potential of growth for the African economy there are still some points of disagreement amongst African nations mainly dealing with execution.

The goals will be accomplished through several measures. The CFTA consolidated text itself is split into two phases. The first (currently underway) deals with the trades in goods & services and dispute settlements. The second phase (to be concluded in 2020) will cover investment, intellectual property rights, and competition policy. The part I’m going to focus on - included in phase 1 - is the progressive reduction of tariff and non-tariff barriers.

According to the United Nations Conference on Trade and Development a Full Trade Agreement (that is, eliminating all tariffs) could generate welfare gains of $16.1 billion at the cost of $4.1 billion in tariff revenue loss. At the same time GDP and employment are projected to grow 0.97% and 1.17% respectively. Intra-African trade is estimated to grow by 33% and the trade deficit across the continent would decrease by 50.9%.

On the other hand if African nations instead go to a Special Product Categorization model (exempting sensitive products from trade liberalization) in order to appease nation-states with concerns towards a FTA, more on that later, welfare gain would decrease to $10.7 billion in the long term. Tariff revenue loss would also decrease to $3.2 billion. Meanwhile GDP and employment are expected to grow by 0.66% and 0.82% respectively. Intra-African trade would still grow, but only by 24% and the trade deficit would only decrease by 3.8%. Though the SPC option seems worse on the surface the draw to such a model for nations at odds with the CFTA, such as Nigeria or Burundi, is that it appears to address concerns over a lack of protection for local industry in a completely liberalized market. There is also concern that the agreement favors larger nations that already have a somewhat industrialized economy while leaving smaller nations behind without proper incentives to invest in them. However, nations who refuse to sign the CFTA are outliers and as of this month 52 nations have signed the agreement. The more contentious part of the agreement, which only 29 nations have signed, is the Free Movement Protocol.

As the name suggests, the protocol allows the free movement of people, right to live and establish businesses anywhere in Africa. Despite its less than ideal support the FMP is the backbone of the CFTA as free movement improves the interconnectivity between African businesses by lessening the cost of and time it takes to cross borders. The reason certain nations don’t support the protocol, such as Tanzania, is due to concerns over potential mass immigration to more wealthy nations with an inability to properly manage these immigrants. This mainly applies to fears over job loss of citizens due to overcrowding in the job market. Francis Mangeni, director for Trade, Customs, and Monetary Affairs for the Common Market for Eastern and Southern Africa, puts it best why these fears are unwarranted stating, “Many African states still believe in overblown myths that when they open up to other nationals, it will cause insecurity and jobs will be fewer for their citizens. But they have to look at countries that have successfully done it. Rwanda, Kenya, Seychelles and others opened up their borders and they have not collapsed,” In any case the signing of this protocol by all nations involved will be crucial to the success of the CFTA.

Wrapping up, the AfCFTA will undoubtedly take a lot of work to implement. Participating nations will have to implement minor and major economic reforms to be better responsive to a more liberalized trading system and economy while at the same time putting in place the infrastructure required to fully take advantage of the potential benefits of the CFTA. Furthermore trade agreements between African nations and nations outside of the African continent such as China and the US will have to be renegotiated with the greater African Union. So far 22 countries have ratified the agreement meeting the minimum requirement to bring it into full force. More who have signed are expected to ratify the agreement as phase 1 negotiations continue and more specifics are made available. As you watch the news be sure to keep an ear out for word on the AfCFTA, an agreement that will change the course of African economics for generations to come.

Map of whose signed the AFTCA in March, 2018: 

Works Cited

“Africa Continental Free Trade Area: Benefits, Costs and Implications.” Infomineo, 20 Apr. 2018, infomineo.com/africa-continental-free-trade-area/.

“Africa Wary of Free Movement as Single Market Opens.” The East African, 22 Mar. 2018, www.theeastafrican.co.ke/business/Africa-wary-of-free-movement-as-single-market-opens/2560-4352792-cv2rmfz/index.html.

“African Continental Free Trade Area: What Do We Expect in 2019.” Daily Monitor, 29 Apr. 2019, www.monitor.co.ug/OpEd/Commentary/African-Continental-Free-Trade-Area-What-expect-beyond/689364-5091612-adta3t/index.html.

“Kigali Declaration, 2003.” ACHPR, www.achpr.org/instruments/kigali/.
“THE AFRICA CONTINENTAL FREE TRADE AGREEMENT AND CROSS-BORDER DATA TRANSFER: MAXIMISING THE TRADE DEAL IN THE AGE OF DIGITAL ECONOMY.”

AANoIP, 20 Mar. 2019, aanoip.org/the-africa-continental-free-trade-agreement-and-cross-border-data-transfer-maximising-the-trade-deal-in-the-age-of-digital-economy/.