Breaking Down the AfCFTA: What You Need to Know About Africa’s Latest Trade Initiative

As part of our ongoing series on major trade deals, this week we will analyze the African Continental Free Trade Area (AfCFTA). A new trade agreement that has already proven to be a game changer for global trade. In this article we will look at what the AfCFTA is, what it means and how it is changing the trade landscape in Africa.

What is the AfCFTA? The new trade deal that is transforming global trade

The AfCFTA is a free trade area that covers almost the entire African continent. It was brokered by the African Union (AU) and signed in Kigali, Rwanda on March 21, 2018. The agreement aims to create a single market for goods and services in Africa, facilitate the free movement of people and boost economic growth and development across the continent.

The AfCFTA has 54 signatories, making it the largest free trade area in terms of number of member states, second only to the World Trade Organization. It is also the largest in terms of population and geographic size, comprising over 1.3 billion people on the African continent.

This ambitious trade pact creates a single market for goods and services in all member states and deepens Africa’s economic integration. It is expected that the trade area created by this Agreement will: a combined gross domestic product of approximately $3.4 trillion.

Timeline and events that shaped the AfCFTA

Although trading under the African Continental Free Trade Area (AfCFTA) began on January 1, 2021, it is important to note that the process up to that point was lengthy and spanned several years. The agreement itself was signed in 2018, but it took many years of negotiations, consultations and deliberations to get there. The roots of the AfCFTA go back to the 19th centuryth African Union (AU) meeting in 2012, where African leaders agreed to establish a continent-wide free trade area by 2017.

The official negotiations for the African Continental Free Trade Area (AfCFTA), agreed by African leaders in 2015 on April 25, 2015th Ordinary session of the AU. These negotiations continued until March 2018, where the agreement was signed at the 10th Extraordinary Meeting of the Assembly of Heads of State or Government of the AU, where 44 of the 55 member states of the African Union signed the agreement establishing the African Continental Free Trade Area (AfCFTA). .

Almost exactly one year after the signing of the agreement, the AfCFTA came into force on May 30, 2019. During the 12th Assembly of the African Union (AU) in July 2019, the operational phase of the African Continental Free Trade Area (AfCFTA) was initiated. At this point, 27 countries had ratified the AfCFTA, while 28 others had signed but not yet ratified it

From February 2023, 46 of the 54 signatories have deposited their instruments of ratification of the agreementmaking them parties to the agreement.

While trading under the agreement began on January 1, 2021, negotiations are still ongoing to finalize all aspects of the agreement. These negotiations were divided into three phases;

Phase I: Trade in Goods and Services and Settlement of Disputes

• Although trade is allowed under the agreement, negotiations continue on various details such as customs tariffs, rules of origin, the Trade Remedy Guidelines and service commitments for the five priority sectors for liberalization (transport, communications, finance, tourism and business services).

Phase II: Intellectual property rights, investments and competition policy

• Phase II negotiations have begun and have been disrupted by the COVID-19 pandemic, causing delays. However, negotiations to finalize the pending Phase II protocols are well advanced and should be completed soon.

Phase III: Digital Commerce and Women and Youth in Commerce

• Phase III negotiations will begin after Phase II is completed.

The main goals, expectations and operational tools of the AfCFTA

According to the World Bank, the AfCFTA agreement aims to enable broader and deeper economic integration across the continent, attract investment, boost trade, create better jobs, reduce poverty and increase shared prosperity in Africa.

The AfCFTA has the following general objectives:

• Lay the groundwork for establishing a continental customs union;
• intra-African trade liberalization;
• Solve the challenges of overlapping mEmbedding in regional economic communities and acceleration of regional and continental integration processes;
• increasing the competitiveness of the economies of the Contracting States on the continent and on the world market;
• contribute to the movement of capital and people and facilitate investment;
• Promoting and achieving sustainable and inclusive socio-economic development, gender equality and structural change in States Parties;
• Promote industrial development through diversification and development of regional value chains, agricultural development

In order to achieve these general goals, the AfCFTA establishes seven framework protocols to which all contracting states must adhere;

• Gradual elimination of tariffs and non-tariff barriers to trade;
• gradually liberalize trade in services;
• cooperation on investment, intellectual property rights and competition policy;
• cooperation on all trade-related issues;
• cooperation on customs matters and the implementation of trade facilitation measures;
• establish a mechanism for resolving disputes about their rights and obligations;
• Creation and maintenance of an institutional framework for the implementation and administration of the AfCFTA

Each protocol sets a specific agenda that describes exactly what is intended, the timeline for achievement, and benchmarks for evaluating the results.

In addition, the following five operational instruments were adopted to implement the agreement;

• rules of origin;
• Online collective bargaining portal;
• non-tariff barrier mechanism;
• Pan-African Payments and Settlement Platform;
• African Trade Observatory

The continental and global implications of the AfCFTA

The importance of the AfCFTA cannot be overestimated. The scope of the agreement is quite wide and has ambitious goals for the continent. The African Continental Free Trade Area (AfCFTA) represents a significant perspective for countries in Africa as it has the potential to transform markets and economies across the region. It is predicted to have a positive impact on the production of various sectors such as services, manufacturing and natural resources, which would lead to increased economic growth and development. It is estimated that the AfCFTA has the potential to do both 52.3% increase in intra-African trade B. by eliminating import duties, and to double this trade if non-tariff barriers to trade are also dismantled. In addition, the AfCFTA is expected to Expand the size of Africa’s economy to $29 trillion by 2050.

Full implementation of the AfCFTA can also greatly improve the lives of people across the African continent. The World Bank estimates that the AfCFTA could be overturned 30 million Africans out of extreme poverty And increase the income of nearly 68 million others who live on less than $5.50 a day, Increase in wages for skilled workers by 9.8% and wages for unskilled workers by 10.3%and spur greater wage increases for women, estimate a 10.5% wage boost for women compared to 9.9% wage boost for men.

The agreement will not only have a huge continental impact, but also a significant global impact. As it is now the largest free trade area in the world in terms of membership, population and geographic size, this agreement is a game changer for global trade. The World Bank has also estimated that the agreement could Also Increase Africa’s income by $450 billion by 2035 (a gain of 7 percent) during Add $76 billion to the rest of the world’s income

In addition, the agreement could Increase Africa’s income by $450 billion by 2035 (a gain of 7 percent) while adding $76 billion to the rest of the world’s income and Boost Africa’s exports by $560 billion According to estimates, mainly in manufacturing.

In summary, the AfCFTA is a game changer for global trade deals. The agreement has the potential to significantly boost the economy, reduce poverty, promote gender equality and improve governance. With the potential to expand Africa’s economy to US$29 trillion by 2050, the AfCFTA is transforming the African economy and becoming a model for cross-border cooperation worldwide.