The African Free Trade Agreement: what does it change for Africa?
African leaders are conscious of the barriers in Africa and are working to increase integration. As part of this effort, the African Continental Free Trade Area (AfCFTA) was implemented in April 2021, and it has been heralded as a landmark agreement (Source). The AfCFTA is an ambitious trade pact signed by 54 out of 55 countries in Africa with the aim to reduce tariffs among members and facilitate trade in goods and services within the continent. The agreement also plans to ensure the free movement of persons in Africa, based on the idea that free trade and free movement are closely intertwined, in a continent where 30 to 40% of the cross-border trade takes place informally (Source).
The AfCFTA’s implementation could provide unprecedented infrastructures opportunities, reduce rigid regulations for cross-border transfers, and renew funding and liquidity. Moreover, as more businesses will be encouraged to set up their operations in the continent, more funding will be attracted, and liquidity will be managed better.
The agreement can overcome differences between the different levels of integration reached through the diverse Regional Economic Communities (RECs) within the African continent. For example, Côte d’Ivoire, Kenya, Morocco, Senegal and South Africa have already been successful regional trading hubs. Still, the new challenge for Africa is to create a more unified economic market (Source). While the AfCFTA could represent an excellent opportunity for the African continent, the effects on practice are still unclear.
One hundred days after the agreement commenced, the benefits for trade in goods seemed bright, as African companies and people are starting to benefit from this pact. The AfCFTA Secretary-General Wamkele Mene showed her optimism in an interview, declaring that intra-African trade has the opportunity to increase and drive economic development after COVID-19. Africa could become a unified market with 1.2 billion people with a potential increasing GDP to unlock (Source). In fact, the AfCFTA is expected to contribute to poverty alleviation in Africa. According to the World Bank, full implementation of the Agreement could lift 67.9 million people out of moderate poverty by 2035 (Source).
The trade in technology services facilitated by the agreement is one of the areas from which Africa can benefit the most. While trade in services is mainly focused on information technology and financial sectors at the global level, services traded between African countries are mainly connected to the transportation sector. Therefore, if trade liberalisation has a broad focus, not only limited to goods, the welfare of African countries may significantly improve (Source).
The expansion of the service sector in African economies is mostly slowed down by non-tariff barriers such as poor infrastructure, diverging national regulatory policies and market access restriction. The challenge for the AfCFTA is in its implementation phase, more than in the negotiation one. Liberalising services means alleviating the complex regulations and policies that countries have and guaranteeing a common ground of commitment for very diverse countries (Source).
For example, easing the complexity of regulations on mobile payment companies and remittance service providers among African countries would raise financial inclusion and development. In fact, fragmented regulation across Africa is often seen as a major issue by remittance service providers, and it is one of the major elements that drive remittance prices to high levels. Therefore, one expectation for the implementation phase is that African governments define common strategies to reduce the cost of sending money considerably. Sub-Saharan Africa is, in fact, the region with the largest number of people living in poverty but the most expensive one to receive and send remittances, with an average cost of 8.7%.
Last but not least, the AfCFTA could contribute to improving the telecommunication sector and internet connectivity that would facilitate the transactions within Africa (Source).
In other words, the harmonisation of regulation and the digital infrastructures across countries is the next major step for facilitating remittances in Africa. The AfCFTA has the potential of coming as a solution to reduce the gap between the rigid borders of sovereign states (the border posts, currencies, and passports) and the daily life of Africans that go beyond borders.