NEWS

Africa is Charting a New Path Towards a Single Continental Market, and it's Going to be an Economic Revolution

March 22, 2018

Accra, 22 March 2018 - On March 21st, the Continental Free Trade Agreement (CFTA) was executed by 44 African countries. It will make Africa the world's largest free-trade area in terms of member states. The United Nations Economic Commission for Africa (UNECA) calculates that the CFTA could increase intra-African trade by as much as $35 billion per year, or 52 percent above the baseline, by 2022. Imports from outside of the continent would decrease by $10 billion per year, and agricultural and industrial exports would increase by $4 billion (7%) and $21 billion (5%) above the baseline, respectively.  


 

 

The African Union will enhance free movement of goods and a single air transport market on the continent.

 

​As posted on their website at the following link, below is an overview on the AfCFTA: 

"The main objectives of the AfCFTA are to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Customs Union. It will also expand intra-African trade through better harmonization and coordination of trade liberalization and facilitation and instruments across the RECs and across Africa in general. The CFTA is also expected to enhance competitiveness at the industry and enterprise level through exploitation of opportunities for scale production, continental market access and better reallocation of resources.

 


The AfCFTA by the Numbers:

  • 55 countries

  • More than 1.2 billion people

  • Over US$2.5 trillion in total GDP

  • 52% ($35 billion) increase in intra-African trade by 2022

  • 6% increase in African exports


Some of the benefits of the AfCFTA include:

  • Boosting industrialization: Currently, some 82% of African countries’ exports go to other continents; they consist mostly of commodities. By contrast, over half of intra-African trade is in manufactured products. Supporters of the deal argue that it will create larger, more competitive markets, helping to ignite Africa’s stalled industrialisation.

  • Speeding up transport times: Research also shows that the largest gains come not from reducing tariffs, but from cutting non-tariff barriers and transport times. That will come as no surprise to drivers in the long lines of lorries queuing at a typical African border post. The World Bank estimates that it takes three-and-a-half weeks for a container of car parts to pass Congolese customs.

  • Dynamic market: The AfCFTA offers economies of scale and the chance to create regional value chains. It will offer a tremendous boost to job creation by creating new job opportunities at a time when renewed efforts are required to meet the needs of the Africa’s youth and fully harness the demographic dividend.

  • Attractive destination for FDI: An enlarged continental market fostered by the AfCFTA will attract more foreign direct investment (FDI) to support African infrastructure development, increase productivity, and support diversification and transformation. Africa needs sustained investments rates of 25% of GDP and above to achieve 7% annual growth rate. Average investment rate over the past 2 decades has been about 18%. Larger markets are needed to attract larger investments rates.


Boosting intra-African trade:

  • The World Trade Organization estimates that intra-African trade in 2012 was about 12%. Today, intra-African trade is approximately 16%. This is in stark contrast to much higher rates of intra-regional trade in more developed regions of the world: 70% in Europe, 54% in North America, and 51% in ASEAN.

  • United Nations Economic Commission for Africa (UNECA) estimates that the AfCFTA could increase intra-African trade by $35 billion, or 52% above the baseline, by 2022.

  • It further estimates that agricultural and industrial exports would increase by $4 billion (7%) and $21 billion (5%) above the baseline, respectively.


Increasing exports:

  • Africa’s share of global trade is only about 3%

  • UNECA estimates that in conjunction with ongoing initiatives, such as trade facilitation measures to reduce time and cost of trading, the AfCFTA would help increase Africa’s export volumes to the rest of the world by 6%.


Improving Africa’s political position via-a-vis the rest of the world:

  • UNECA has shown that the establishment of the AfCFTA will better position the African continent to negotiate in the multilateral trading system


As well as:

  • Increased food security through reduction of the rate of protection on trade in agricultural produce among African countries

  • Increased competitiveness of Africa’s industrial products through harnessing the economies of scale of a large continental market of about one billion people

  • Increased rate of diversification and transformation of Africa’s economy and the continent’s ability to supply its import needs from its own resources

  • Better allocation of resources, improved competition and reduced price differentials among African countries.

  • Growth of intra-industry trade and the development of geographically-based specialization in Africa

  • Reduced vulnerability of Africa to external trade shocks, and

  • Enhanced participation of Africa in global trade and reduced dependence of the continent on aid and external borrowing."


About African Union (AU)
The African Union (AU) is a continental union consisting of all 55 countries on the African continent, extending slightly into Asia via the Sinai Peninsula in Egypt. It was established on 26 May 2001 in Addis Ababa, Ethiopia, and launched on 9 July 2002 in South Africa with the aim of replacing the Organisation of African Unity (OAU) established on 25 May 1963 in Addis Ababa, with 32 signatory governments. The most important decisions of the AU are made by the Assembly of the African Union, a semi-annual meeting of the heads of state and government of its member states. The AU's secretariat, the African Union Commission, is based in Addis Ababa.
 

About KDHI
KDHI is a leading Agribusiness development firm that trains farmers, merges foreign and local capital, and secures off-take agreements to drive agriculture production in Sub-Saharan Africa and exponentially increase yields through data-driven processes. We work with our investors and strategic partners to bring world-renowned expertise to the countries in which we operate in order to catalyze greater food security for families, better health and nutrition, increased income, greater access to basic social services and increased productivity, as well as generating taxes of all kinds beneficial to the state (export revenue, agricultural equipment, etc.).

 

References

https://au.int/en/pressreleases/20180319/note-editors-african-union-will-enhance-free-movement-and-single-air

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