Last month, in the World Economic Forum in Davos, the Secretary-General of the African Continental Free Trade Area (AfCFTA) announced that it would soon be extended. In 2024, 24 new countries will join the seven that have been taking part in the Guided Trade Initiative, the pilot phase of the free-trade project that began in October 2022.
By reducing barriers to trade, investment and movement, AfCFTA aims to act as a catalyst for industrialisation and economic growth in Africa. The World Bank estimates that AfCFTA could increase the continent’s real income by up to 9% by 2035 if all policies under consideration regarding investment, e-commerce and intellectual property are adopted.
In addition, the free-trade agreement would make Africa more resilient to external shocks through an increase in intra-regional trade and foreign direct investment (FDI) resulting from the region’s greater attractiveness. According to the African Development Bank, only 13% of Africa’s trade is currently intra-regional, as opposed to 60% or more in Asia and Europe. As a result, the African continent is highly exposed to economic fluctuations affecting its trade partners, notably China, which is the region’s main partner and a large but declining source of FDI.
AfCFTA has already led to considerable progress in reducing Africa’s dependency on the rest of the world. Since September 2021, the Pan-African Payment and Settlement System (PAPSS) has allowed cross-border transactions to avoid using a third currency such as the dollar or euro, resulting in annual savings of USD 5 bn and speeding up transactions.
However, certain non-tariff barriers are harder to eliminate. Firstly, the region lacks logistics infrastructure, and this will act as a medium-term brake on African countries’ ability to increase their exports within the continent. In addition, opponents of a continental free-trade agreement argue that African economies do not complement each other well: they are not all at the same stage of economic development, and if some countries were opened to foreign products prematurely, this could hamper their national economic development.
There is hence some way to go before AfCFTA is fully operational: in 2023, only 96 products were being traded through the Guided Trade Initiative. However, with a GDP of USD 3,400 bn, 54 countries and 1.3 bn inhabitants, AfCFTA could become the world’s largest free-trade zone.
