On 21 March 2018, 44 African Heads of State and Government signed the Agreement establishing the African Continental Free Trade Area (AfCFTA) in Kigali, Rwanda. Further six countries also signed the separate Kigali declaration reaffirming commitment to the pan-African initiative, thus raising the number of countries endorsing either or both documents to 50. Three countries, namely Rwanda, Ghana and Kenya, have already ratified the treaty. The latter two countries have also deposited the instruments of ratification with the Chairperson of the African Union Commission (AUC). The 10th Extraordinary Session of the African Union Summit also saw 27 African leaders put their signature to the Protocol to the Treaty Establishing the African Economic Community relating to Free Movement of Persons, Rights of Residence and Right of Establishment complementing the AfCFTA.
The AfCFTA marks a milestone in the African regional integration efforts, which have been envisaged and driven by the African countries within the framework of the 1991 Abuja Treaty. The world’s largest free trade bloc in terms of participating countries that is set to come about is expected to ultimately span all 55 member States of the African Union (AU) and cover a market of 1.2 billion people and an aggregate GDP of $2.5 trillion.
The United Nations Economic Commission for Africa (ECA), the United Nations Conference on Trade and Development (UNCTAD) and the African Development Bank provided technical support along the way. H.E President Mahamadou Issoufou of Niger championed the negotiations in the run-up to the signing of the Agreement.
The AfCFTA is a flagship initiative of the AU Agenda 2063, the continent’s long-term development and integration strategy and vision, as well as the 2030 Agenda for Sustainable Development of the United Nations. The AfCFTA will provide economic opportunities and can serve as a platform to accelerate social inclusion. Phase one of the AfCFTA encompasses trade in goods, trade in services and the creation of a dedicated dispute resolution mechanism. Work on Phase 2, pertaining to the questions of investment policy, intellectual property and competition, is slated to commence in 2018.
Regional value chains linking economies with different production patterns and levels of industrial sophistication will should emerge or strengthen following the reduction in trade costs and investment facilitation. Industrial exports are expected to receive a boost from the establishment of the trade area. The intra-African trade that the AfCFTA aspires to promote should be particularly conducive to sustainable development. While commodities accounted for three quarters of Africa’s exports to the rest of the world between 2012 and 2014, they amounted to less than 40% of trade among African nations with manufactured products comprising 43%. Comprising relatively more manufactured and value-added products, intra-African trade gives rise to economic growth as well as jobs for Africa's bulging youth population.
The ECA has estimated that if all import duties are removed, the volume of intra-African trade would rise by 52.3 percent by 2022 compared to the 2010 levels. This trade could be doubled if non-tariff measures are also eliminated. According to UNCTAD, African economies could annually reap $3.6 billion in welfare gains in the absence of tariffs. As not all tariffs will be immediately withdrawn, the anticipated economic gains are expected to accrue more gradually, however.
Small and medium-sized enterprises, which form the productive backbone of African economies and accounting for 80 % of formal jobs, are expected to capitalise on the AfCFTA. Those businesses could place their products in regional markets or to supply larger enterprises on the continent engaged in overseas exports. By reducing trade costs, the AfCFTA will make it easier for small informal cross-border traders to transition and operate through formal channels. This effect could be particularly important for women who constitute about 70 percent of informal cross-border traders in Africa and are often subject to harassment, violence or even confiscation of goods and incarceration.
African businesses and consumers will save on tariffs currently applicable to a significant amount of traded goods. Transaction costs for traders will fall as a result of streamlined customs procedures as well as cooperation of authorities on product standards and regulations and trade transit and facilitation. Gradual liberalisation and mutual recognition of standards will allow services suppliers to compete in other markets on the continent.
The separate AU protocol on the free movement of people is an important complement to the AfCFTA with the provision of visa-free travel, the right of residence, and the right of business and professional establishment. Among other measures, the Protocol also envisages the creation of a single passport for all African nationals. Several regional economic communities (RECs), including the East African Community and the Economic Community of West African States, already operate regional passports.
According to ECA, several accompanying measures and policies will be necessary to fully realise the full potential of the AfCFTA. The Action Plan for Boosting Intra-African Trade (BIAT) provides guidance on areas requiring further attention to ensure that all African countries reap the benefit of the AfCFTA. Less industrialised countries would gain from a speedy implementation of the Accelerated Industrial Development of Africa programme seeking to bolster the skill base of the working population. Resource-based economies should harness the free trade area to promote their export diversification through the Africa Mining Vision.
The AfCFTA will come into force once the 22nd instrument of ratification has been deposited with the Chairperson of the AUC. A new AfCFTA Secretariat will be set up in one the AU Member States to oversee the implementation process. The RECs will coordinate and support the implementation at the national level. African countries ought to develop and follow through with dedicated AfCFTA strategies to take full advantage of the process.