Africa is poised to transform its economy — if the latest trade deal becomes successful.
African leaders have announced that the long-talked-about continental free-trade zone is now a reality. The African Continental Free Trade Area (AfCFTA) will see the 55 member states of the African Union working as a single economic unit that’s expected to turn the continent into a $3.4 trillion export economy.
The announcement was made in Niamey, Niger, on Sunday during a gathering by African Union leaders and member states. It’s the culmination of talks spanning four years on how African countries can best work together to boost intra-African trade.
At the moment, intra-African trade is low compared to the continent’s exports with Asia and Europe. In 2017, regional trade accounted for 17% of exports compared to 59% in Asia and 69% in Europe.
Meanwhile, trade makes up a significant amount of business on the continent, with at least $450 billion spent on exports and $490 billion on imports.
Speaking at the summit in Niger, the chairperson of the African Union (and president of Egypt), Abdel Fattah el-Sisi said this deal is a make or break moment for Africa. “The eyes of the world are turned towards Africa,” he said.
He added: “The success of the AfCFTA will be the real test to achieve the economic growth that will turn our people’s dream of welfare and quality of life into a reality.”
As a start to implementing the agreement, the 55 member states will remove export taxes on some goods, which is expected to increase trade by 15% to 25%. The International Monetary Fund (IMF) estimates that the output will double if long-standing challenges to intra-African trade are addressed — in particular ease of movement between borders and upgrading infrastructure, which needs an investment of at least $300 billion by next year.
In a report released in June, the IMF said the trade agreement “will amplify the potential for economic transformation” around the continent.
However, the report added, African leaders need to commit to action that will make the deal a success, with the report noting: “Beyond tariffs, distance appears to be a greater barrier to intraregional trade in Africa than in other regions of the world.
Even so, the IMF says the AfCFTA, which is the largest since the creation of the World Trade Organization in 1994, has the potential to impact Africa in ways that the continent is yet to experience.
“Once operational, the AfCFTA will establish a market of 1.2 billion people with a combined GDP of US$2.5 trillion. This could be an economic game-changer,” the report stated. “It will also attract foreign direct investment and facilitate the development of regional supply chains, which have been key engines of economic transformation in other regions.”
Source: Global Citizen