Limpar Global

When you hear “AFCFTA,” what pops into your head? No worries if it’s your first time encountering this term, because we’re here to fill you in!

The African Continental Free Trade Area (AfCFTA) agreement binds its member states to gradually remove tariffs on the majority of goods and services over 5, 10, or 13 years, depending on factors such as a country’s level of development or the nature of the products involved.

Its overarching objectives are to establish a unified, liberalized market; diminish barriers to investment by easing restrictions on capital and labor; enhance regional infrastructure; and institute a continental customs union. The ultimate goals of AfCFTA include fostering socioeconomic growth, alleviating poverty, and bolstering Africa’s competitiveness in the global economic arena.

The African Continental Free Trade Area (AfCFTA) is that giant marketplace that covers most of the continent. It was started in 2018 and presently has 43 countries as members, with 11 more waiting to join. That makes it the biggest free-trade area in terms of the number of countries involved, after the World Trade Organization. Plus, it’s also the biggest in terms of the number of people and how much land it covers. Imagine, it spans across 1.3 billion people in the world’s second-largest continent!

Speaking at Limpar Global’s Webinar on the implementation of AFCFTA, senior trade expert, Olusegun Olutayo, highlighted that AFCFTA is primarily about facilitating business activities. He stressed that the significance lies not just in negotiating the terms but in effectively executing them. According to him, while negotiation plays a part, the essence lies in implementation, which constitutes 80% of the effort. Implementation serves as the cornerstone that encourages cross-border trade among manufacturers.

According to Mr Olutayo, AFCFTA is structured around several key pillars that serve as the foundation for its implementation and success:

1. Trade Liberalization: This pillar involves the gradual elimination of tariffs and non-tariff barriers to trade in goods and services among member states. It aims to create a single market by reducing or eliminating barriers to intra-African trade.
2. Customs Cooperation and Trade Facilitation: This pillar focuses on harmonizing customs procedures and regulations among member states to streamline trade flows, reduce administrative burdens, and facilitate the movement of goods across borders.
3. Infrastructure Development: Infrastructure development is crucial for enhancing connectivity and trade facilitation across the continent. This pillar emphasizes the development of transportation, energy, and digital infrastructure to support intra-African trade and economic integration.
4. Market Integration: Market integration involves creating a unified market with common rules and regulations to ensure a level playing field for businesses operating across borders. This pillar aims to harmonize trade policies, standards, and regulations among member states.
5. Industrial Development and Competitiveness: This pillar focuses on promoting industrialization, innovation, and competitiveness within Africa. It aims to support the growth of African industries, enhance productivity, and foster economic diversification.
6. Sustainable Development and Socioeconomic Inclusion: Sustainable development and socioeconomic inclusion are essential considerations for the AfCFTA. This pillar emphasizes the importance of ensuring that trade benefits are inclusive and sustainable, contributing to poverty reduction, job creation, and broader socioeconomic development.

These pillars collectively form the framework for the implementation and advancement of the AfCFTA, guiding efforts to promote economic integration, trade facilitation, and sustainable development across Africa.

The implementation of the African Continental Free Trade Area (AfCFTA) offers numerous benefits for African businesses:

1. Access to a Larger Market: AfCFTA creates a single market of over 1.3 billion people with a combined GDP exceeding $3.4 trillion. This provides African businesses with access to a significantly larger consumer base, allowing them to expand their customer reach and grow their businesses.
2. Increased Trade Opportunities: By reducing or eliminating tariffs and non-tariff barriers to trade, AfCFTA fosters increased intra-African trade. African businesses can take advantage of this by tapping into new markets, exploring export opportunities, and diversifying their customer base.
3. Cost Reduction: AfCFTA aims to lower the cost of doing business by reducing trade-related costs such as tariffs, customs procedures, and transportation expenses. This can enhance the competitiveness of African businesses by making their products more affordable and attractive both domestically and internationally.
4. Stimulated Investment: The creation of a unified market under AfCFTA is expected to attract foreign investment into Africa. This investment can fuel the growth of African businesses through technology transfer, infrastructure development, and access to capital.
5. Enhanced Competitiveness: AfCFTA encourages competition among businesses within the continent. This competition can drive innovation, efficiency improvements, and product quality enhancements, ultimately making African businesses more competitive in the global marketplace.
6. Value Chain Integration: This agreement facilitates the integration of regional value chains, allowing businesses to source inputs and components from neighbouring countries more easily. This can lead to increased efficiency in production processes and lower production costs for African businesses.
7. Job Creation and Economic Growth: As African businesses expand and become more competitive, they are likely to create more job opportunities across various sectors. This, in turn, contributes to economic growth, poverty reduction, and overall socio-economic development within African countries.
8. Cross-Border Collaboration: AfCFTA encourages collaboration and partnership among businesses across borders. African businesses can leverage such partnerships to access new markets, share resources, and learn from each other, fostering a vibrant and interconnected business ecosystem across the continent.

In summary, the implementation of AfCFTA presents African businesses with significant opportunities for growth, expansion, and increased competitiveness in both regional and global markets. By leveraging these opportunities, African businesses can play a central role in driving economic development and prosperity across the continent.