African Free Trade Agreement Seeks to Establish Single African Market

South African Minister of International Relations and Cooperation Lindiwe Sisulu attends a meeting of the Extraordinary Session of the African Union Executive Council on AfCFTA in Kigali, Rwanda.

All but one of Africa’s 55 countries have now signed the African Continental Free Trade Agreement (AfCFTA), which aims to promote regional free trade. The East African country of Eritrea is the only state not to sign. Major progress was made at the 12th Extraordinary Meeting of the Assembly of the African Union in July when Nigeria and Benin agreed to the terms. Twenty-seven countries have gone the extra step to fully ratify the agreement. 

AfCFTA seeks to promote free trade within Africa by eliminating 90 percent of tariffs on goods and significantly reducing other non-tariff barriers to trade. The economic implications of a free-trade area of this size could be enormous, with the signatory countries boasting a combined $2.5 trillion in GDP and a population of over one billion. Early projections show it could lead to an estimated two to four percent increase in growth, depending on how fast the agreement can be implemented.

Prior to the agreement, most countries only belonged to free trade areas constrained to specific regions within the continent. Such groups include the Economic Community of West African States (ECOWAS) and the East African Community (EAC). One of the main goals of the AfCFTA was to lower trade barriers between these regional free trade zones.

Negotiations began in 2015 over starting a pan-African free trade area, and the terms of AfCFTA were finally settled at a summit of the African Union this year. The new agreement has been met with enthusiasm by some African leaders, such as President Paul Kagame of Rwanda, who, according to All Africa, said, “We particularly concur on two points. One, the need to cater for small-to-medium cross-border traders by simplifying trade regimes applicable to them. Two, the decision to commence trading under the AfCFTA on July 1, 2020.” 

While the benefits from increased regional free trade may be significant, there are potential underlying concerns with how state institutions will be able to cope with the potential rise in unemployment in some sectors. As seen in other countries around the world, free trade agreements can result in the decline of uncompetitive domestic industries, which results in elevated short-term unemployment. Given the high degree of variance in social safety nets across African countries, this agreement may prove more disruptive in some countries.

Many countries likely face other obstacles to promoting growth as well. While reducing tariffs was a necessary step toward increasing economic growth, some economists believe the tariff cuts are not enough. Obstacles such as poor road and rail infrastructure, rampant corruption, and large areas of civil unrest will continue to hamper intra-regional trade and overall growth. The International Monetary Fund (IMF) wrote in May that while AfCFTA represents an “economic game changer” for the region, “reducing tariffs alone is not sufficient.” 

The first phase of AfCFTA enteredinto force on May 30 for the 24 countries that had ratified the agreement by that date. While the first phase focuses primarily on tariffs concerning goods and related non-tariff barriers, the second phase of the agreement, to be negotiated over the coming year, will concentrate on intellectual property rights and investment protections.