African Nations Launch Free Trade Agreement

By Malcolm Speaks

Representatives of African nations who signed AfCFTA earlier last year

Representatives of African nations who signed the AfCFTA.

African nations launched a continental free-trade zone this past month that can unite 1.3 billion people, create a $3.4 trillion economic bloc, and usher in a new era of development. The African Continental Free Trade Agreement (AfCFTA) which consists of 55 countries is now the largest of its kind in the world. The World Trade Organization, which was created in 1995, previously held this distinction.

Ghana was announced as the host of the trade zone’s future headquarters and discussions were held on how exactly the bloc will operate.

Currently, most imports from African nations are from China or Europe. However, many products could be produced much closer, for example, in Ghana, Morocco, Nigeria, South Africa, and other African countries with an industrial base.

Prior to the free trade agreement, a patchwork of self-imposed regulations and tariffs made intra-African commerce costly, time-consuming, and cumbersome. AfCFTA has created a tariff-free continent that can grow local businesses, boost intra-African trade, rev up industrialization, and create jobs.

The agreement creates a single continental market for goods and services as well as a customs union that allows free movement of capital and business travelers. Countries that join AfCFTA must commit to removing tariffs on at least 90% of the goods they produce.

The UN Economic Commission for Africa (ECA) added that intra-African trade is likely to increase by 52.3% in 2020 under the AfCFTA.

Many economists agree that tariff-free access to a huge and unified market will encourage manufacturers and service providers to leverage economies of scale; an increase in demand will instigate an increase in production, which in turn will lower unit costs. Consumers will likely pay less for products and services as businesses expand operations and hire additional employees.

“The types of exports that would gain most are those that are labour intensive, like manufacturing and agro-processing, rather than the capital-intensive fuels and minerals, which Africa tends to export,” concurred Vera Songwe, executive secretary of the ECA, in an interview with Africa Renewal, emphasizing that the youth will mostly benefit from this job creation.

In addition, African women, who account for 70% of informal cross-border trading, will benefit from simplified trading regimes and reduced import duties.

AfCFTA will move Africa toward its age-long economic integration ambition and spark the establishment of pan-African institutions such as the African Economic Community, African Monetary Union, African Customs Union, and so on.

“I am dreaming of the day I can travel across borders, from Accra to Lomé [in Togo] or Abidjan [in Côte d’Ivoire] and buy locally manufactured goods and bring them into Accra without all the hassles at the borders,” said Iso Paelay, who manages the Place Entertainment Complex in Community 18 in Accra, Ghana.

“Right now, I find it easier to import the materials we use in our business—toiletries, cooking utensils, food items—from China or somewhere in Europe than from South Africa, Nigeria or Morocco,” Paelay added.

Nigeria, Africa’s most populous country and another huge economy, was the last holdout, with the government previously saying that it needed to have further consultations with indigenous manufacturers and trade unions. Some Nigerian unions warned that free trade could open a floodgate for cheap imported goods that could atrophy Nigeria’s nascent industrial base.

The Nigeria Labour Congress, an umbrella workers’ union, described AfCFTA as a “radioactive neoliberal policy initiative” that could lead to “unbridled foreign interference never before witnessed in the history of the country.” Note that the foreign interference that the workers’ union referred to was from Africans, not Chinese or Europeans.

However, former Nigerian president Olusegun Obasanjo expressed the view that the agreement is “where our [economic] salvation lies.”

While experts believe that Africa’s large, industrializing economies will reap the most from the free trade area, it is clear that smaller countries also have a great deal to gain because factories in larger African countries will source inputs from smaller countries to add value to products.

Additionally, the AfCFTA has also been designed to address many countries’ multiple and overlapping memberships in Regional Economic Communities (RECs). Kenya, for example, belongs to five RECs.

For Ibrahim Assane Mayaki, former prime minister of Niger and chief executive of the New Partnership for Africa’s Development (NEPAD), infrastructure development is crucial to intra-African trade. NEPAD’s Programme for Infrastructure Development in Africa (PIDA) is an ambitious list of regional projects. Its 20 priority projects have been completed or are under construction, including the Algiers-Lagos trans-Saharan highway, the Lagos-Abidjan transport corridor, the Zambia-Tanzania-Kenya power transmission line, and the Brazzaville-Kinshasa bridge.

The African Free Trade Agreement intends to spur these projects and many more as this is all part of the vision of Kwame Nkrumah, the first president of Ghana after it liberated itself from Britain in 1957. That vision is of a United States of Africa.

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