The African Continental Free Trade Area (AfCFTA) is an energetic trade pact to form the world’s largest and astounding free trade area by creating a single market for products and services across African countries. It aims to transform the continent’s economic outlook and provides a market for over 1.3 billion people in Africa.
It was created by all African countries to foster regional trade integration and encourage cross-border cooperation in an era of increasing isolationism. The trade area is schemed to have over 850 domestic products with a gross value of $3.4 trillion. Achieving this feat depends on policy reformation and trade facilitation control among signatory countries.
The AfCFTA agreement was mediated by the African Union (AU) and signed by 44 out of 55 member states in 2018. It aims to reduce tariffs on goods and services among its members and cover policy areas such as sanitary standards, technical barriers, and trade facilitation. However, the agreement will face numerous challenges to realize its numerous benefits.
There are many benefits of the AfCFTA agreement to African countries, entrepreneurs, women, and all Africans at large which will be discussed in this piece. Here we go…
Benefits of the AfCFTA
Here are the potential benefits of AfCFTA:
1. Reduction in poverty level
A recent report from the world bank shows that the trade pact will increase regional income by 7% or $450 billion, accelerate women’s wage growth, lift over 30 million people out of abject poverty, and 68 million people from moderate poverty by 2035. Wages for both skilled and unskilled labor will also get increased by 9.8% and 10.3% respectively.
Just as the Director General of the World Trade Organization, Ngozi Okonjo Iweala stated in her speech “Trade is a force for goods, and can be properly harnessed to lift millions out of poverty and shared prosperity,” AfCFTA will provide goods at a subsidized rate to alleviate poverty in all African states.
2. Employment opportunities
Better jobs will be provided for many people through the pact in a bid to empower people and reduce poverty. This advantage is inclusive of the female gender. Many industries will evolve from the trade action which will provide numerous job opportunities.
Also, there will be an increase in salary for the existing workers. All individuals that will be working to ensure smooth trade will be compensated, thereby boosting income gain. Also since many goods will be available, there will be diverse business opportunities for all individuals.
3. Increase in export rate
AfCFTA agreement will lead to an increase in export duties both within Africa and other nations of the world. In the past years, the export rate between African countries is very low and rated at 2% which is not good for the growth and development of African states.
The pact focuses on increasing total export volumes by 29% relative to business by 2035. Export between African countries will also be increased by 81% while exports to non-African countries will be increased by 19%. It also proffers a 32% rise in Africa’s export by 2035 under deep integration.
4. Increase in women’s income gain
The trade pact extends its tentacle to improving the lives of women. It promises a wage rise of 11.2% for women and 9.8% for men by 2035. Women will also be provided with new job opportunities by growing industries. It focuses on empowering more women within member states to have a viable economy.
Research from Economic Commission for Africa shows that women account for 70% of cross-border traders in Africa. This connotes that women are susceptible to harassment, assault, and confiscation of goods. Tariff reduction will, therefore, enable informal women traders to migrate to the formal channel to foster better protection.
5. Cushioning the negative effect of Covid-19
The negative impact of the pandemic is huge causing a total of $79 billion in output losses in Africa in 2020. Report from Africa Economic outlook also shows that Africa could suffer a GDP loss of $145.5 billion to $189.5 billion in 2020.
However, the AfCFTA presents an opportunity for all African countries to build their economy again and put the effect of the pandemic abate. When more job opportunities are provided and the price of goods reduced, the effect of the pandemic will be cushioned.
6. It fosters cooperation among member states
Across the globe, there are threats to peaceful co-existence, even within African countries. Its true political dynamics are driving short extremism and isolationism but the impact of the trade agreement will lead to cooperation among African countries.
Since there is an agreement binding trade between each country. It will also enable easy movement of citizens within each member state.
7. Promotion of good governance
AfCFTA agreement will promote good governance both within Africa and across the globe through trade integrity. Trade integrity is an international trade transaction that is lawful, accountable, and properly priced.
This encourages clean transactions between countries and bans illegitimate procurement of goods, thereby, fostering good governance.
8. Economic integration
The diversifying export will integrate the economy and increase foreign investment, and incomes. AfCFTA will provide an avenue to regulate various policies required for economic integration and a better standard of living.
The agreement will increase Africa’s export by $560 billion. AfCFTA will also eliminate a 90% tariff on all goods in a bid to sustain African economic growth.
9. Access to a wide range of products
The African continent is blessed with mineral resources for the production of a wide range of products. However, due to the low volume of trade between African countries, they are deprived of access to different products.
This trade pact will create a common market for all goods in all member states thereby improving accessibility to a wide range of competitive goods and services.
10. Regional integration
AfCFTA aims to reinforce regional trade in Africa. Regional integration is the practice of strengthening interconnectivity undertaken by the economies of a region. It has, to date, been asymmetrical, with some countries well integrated at the region level and the others less so.
Regional integration provides an opportunity for countries with similar levels of development to trade and derive mutual benefits from the trade. AfCFTA is aimed at building regional integration among African countries.
Africa Continental Free Trading Area is seen as a central driver for industrialization, economic integration, and sustainable development in Africa. It aims to transform trading between African countries through policy reformation and thereby enhance the standard of living of Africans.