The African continental free trade area: potential economic impact and challenges

Apr. 8, 2023 | By MindPulse Editor | Our Thinking | 

44 African countries have so far signed a framework protocol for the African Continental Free Trade Area (AfCFTA), inching the continent closer to becoming one of the world’s largest free trade areas. On November 15, 2020, 15 countries who are members of the Association of Southeast Asian Nations (ASEAN) and five regional partners — signed the Regional Comprehensive Economic Partnership (RCEP), arguably the largest free trade agreement in history. These two agreements points to efforts by regional countries to not only improve their intra-regional trade but also build their bargaining power in negotiating with other economic blocks. If – or when – all 55 African countries ratify the free trade area, it would amount to over $4 trillion in combined consumer and business spending and a market size of 1.2 billion people.

Removing import duties could potentially boost intra-African trade by over 50% while a reduction in non-tariff barriers will double trade volumes, notes the Economic Commission for Africa (ECA). Intra-African trade is currently only 16%, compared with 19% intra-regional trade in Latin America, 51% in Asia, 54% in North America and 70% in Europe. Between 2012 and 2014, over 75% of the continent’s exports were extractives; yet, less than 40% of intra-African trade were extractives during the same period, according to the African Union (AU), underscoring the need to boost trade within the continent.

The agreement will also aim boosting the service sector beyond the reduction of trade tariffs. The growth in services in Africa is expected to boost access to data and the use of data for planning. Understanding 1.2 billion consumers across the continent may prove to be the next biggest economic activity beyond extraction.