The AfCFTA: its potential benefits and impact on building African economic resilience

Joshua Mawerere Executive Director YALDA Uganda

This week Cyril Ramaphosa, President of South Africa, has been elected as the new chairperson of the African Union, the Union’s highest policy and decision-making body, for 2020. As such, he has the authority to influence the debate around several issues on the continent, including trade and security, and many African countries are keen for him to foster the successful formation of the African Continental Free Trade Area (AfCFTA).

The AfCFTA was established in 2018 with the aim to create a single market for goods, services, facilitated by movement of persons to deepen the economic integration of the African continent, under the Pan African Vision of “An integrated, prosperous and peaceful Africa. Consolidating Africa into one trade area provides great opportunities for entrepreneurs, businesses and consumers across the continent and the chance to support sustainable development in the world’s least developed region.

Africa is a diverse continent fragmented in 54 independent sovereign states, which are organized in Trade Blocks and associate under the African Union as Members. African trade in comparison to world trade is still very low at less than three percent: this is because commodities and natural resources still dominate Africa’s export basket and the continent’s participation in the global value chain has remained minimal. Insecurity and border conflicts in some parts of Central Africa (DR. Congo), West Africa (Bokoharum in Nigeria), and East Africa (Somalia) are among the factors contributing to low internal African and external trade. Africa trades less within itself and more with third countries increasing our balance of payment and rising trade dependence on foreign markets. The formation of the AfCFTA is an attempt to reverse this trend by progressively eliminating tariffs on intra-African trade, making it easier for African businesses to trade within the continent and cater to and benefit from the growing African market.

The agreement is expected to: create a liberalised market for goods and services through successive rounds of negotiations; contribute to the movement of capital and persons and facilitate investments; lay the foundation for the establishment of a Continental Customs Union; enhance the competitiveness of the members’ economies and promote industrial development through diversification and regional value chain development, agricultural development and food security. And in the long run, it will help promote and attain sustainable and inclusive socio-economic development, gender equality and structural transformation across the continent.

But what does that mean for the entrepreneurs? The AfCFTA agreement has the potential to become a game changer and bring some great opportunities for entrepreneurs, such as:

• Improving the intra-African trade landscape and export structure;
• Creating a sound global economic impact;
• Developing better policy frameworks;
• Fostering specialisation and boosting industrialisation;
• Strengthening regional and inter-state cooperation;
• Increasing employment and investment opportunities, as well as technological development;
• Providing the opportunity to harness Africa’s population dividend.

However, for young people to benefit equitably, these aspects must be addressed and improved across the content: access to information, access to education, and access to capital. Without these three elements, youth will be inactive in the AfCFTA and Africa will not achieve population dividend, where a country’s working-age population grows larger relative to the young dependent population.

Similar to any other trade block, AfCFTA is likely to encounter some challenges. For example, the implementation is complex and poses significant adjustments costs for member countries; it is also hard to ensure broad-based gains for all Member States. Moreover, in some countries, weak infrastructures, low technological uptake and conflicts will threaten the implementation of the agreement. Finally, there’s a general fear of losing control and sense loss of identity across segments of the population.

These challenges will require the African Union’s Chairperson Cyril Ramaphosa to work closely with other political heads and the secretariat to negotiate best terms for a single market. 

Despite these possible challenges, it’s important to note that the benefits for the continent will surpass the risks if the trade agreement is successful: Africa will be more self-sustainable if it increases trade with itself and creates value addition systems for its products. There is no doubt that AfCFTA is the biggest trade area since the inception of WTO and if it works out will spring immerse development on the African continent.

YALDA Uganda is leading a session on the benefits of the African Continental Free Trade Area for young entrepreneurs at YBI’s Africa Community of Practice workshop held in Kampala, Uganda.