EconomyNewsThe Macroscope

Africa is set to become world’s largest free trade area

What happened?

Earlier this month, Gambia approved the ratification of the Africa Free Continental Agreement (AFCTA). The continent therewith reached the threshold of 22 countries for the agreement to come into force, over a year after it was brokered by the African Union and signed by 44 countries. Nigeria’s lack of commitment is a weakness, regarding the country’s economic power, but as the agreement would benefit the country and other high-income countries such as South Africa and Egypt have already signed up for AFCTA, Nigeria is likely to join later. The AFCTA could be a major force on the global economic stage, as it’s to become the world’s largest trade area and could show unity and multilateralism in a world of increasing protectionism.

What does this mean?

More important maybe than the effects it might have on a global scale, are the impacts of such an agreement on the continent and the individual countries themselves. In 2019, Africa will be home to several of the world’s fastest-growing economies, but if intra-continental trade does not increase, the continent will remain dependent on foreign powers rather than benefit from this growth. Africa’s intra-continental trade is less than 15% of total African exports (in comparison to 58% for Asia and 67% for Europe). The agreement could boost intra-African trade by 52% by 2022, by removing trade barriers and allowing the free movement of goods, services, and people across Africa. As the agreement is yet to be implemented, the question remains: will countries dare to fully execute this long-term strategic, pan-African plan? UN research shows that eliminating all tariffs between African countries would take an annual $4.1 billion out of the trading states’ reserves, but would create an overall annual welfare gain of $16.1 billion in the long run. The gains could be high, but some also fear that the agreement will lead to increased competition, primarily benefiting the present economic powerhouses, such as South Africa, Kenya, Ethiopia, and Egypt.

What’s next?

AFCTA’s operational phase will be launched in July. As AFCTA is part of a long-term continental integration strategy, the encouragement of intra-continental trade in the first phase will be followed later by the creation of an African common market and monetary union in later phases. Aside from reduced tariffs, more integration and movement of goods and people will have to start with better connectivity. Often, transiting in Europe is easier than travelling directly between African neighboring countries. Africa’s first cross-continental, high-speed train is now in the making and AU experts envision a high-speed rail network by 2063, linking all African capitals and commercial centers.