On 21st March, at a sitting in Rwanda, 44 African countries appended their signatures to formalize an agreement for an African Continental Free Trade Area (AfCFTA) in a move that will see the African countries implement free trade policies among the member’s states.
The deal that was first agreed on in 2012, with negotiations starting in 2015, will lead to a 90% reduction in tariffs on goods among the member states. The remaining 10% tariff will only be on “sensitive goods” as identified by the member states. This is a step that, if successful, will lead to increased trade between African countries like seen between nations on other continents.
But even in the face of making good use of a large market comprising of a GDP of 2.5 Trillion US dollars and a population of 1.2 billion, there are some challenges the trading bloc will face when implementing the African Continental Free Trade Area.
African Continental Free Trade Area: The Challenges
Nigeria which is one of the biggest economies on the continent with a population of over 15 million people, pulled out at the last minute citing further consultations among stakeholders like trade unions and the business community. This means that the deal will be missing a big deal from Nigeria’s market share. Other than Nigeria, there are other countries which are yet to sign the pact for it to become a truly continental entity.
The fact that every member state must ratify the deal through their respective parliaments means that it might take a long time before the African Continental Free Trade Area gets realized. Some blocs, like the European Union, took almost half a decade before becoming active. Even if the prospects of replicating this in Africa is low, it will still be years before all the African countries pass the bill.
Another concern for the trading bloc is the level of trade among the member countries. This has been the major hurdle in the formation of several trade blocs where smaller economies believe that they will get fewer advantages compared to bigger economies. The discrepancy is due to the difference in the level of production by the different member countries.
The Nature of African Trade
African trade is mostly characterized by importing finished goods from China and the West while exporting raw materials to these very countries. This means that the trading bloc will still be marred with identical goods, and the external trade that is set to be reduced will not be manageable. This, therefore, implies that the member states need to improve the infrastructure to enable high quality and quantity productions for the African market.
The merger among the African countries will lead to competition among them, which the member states must be ready to address. The countries will need to work to ensure they provide skilled labor even in the face of the increased competition. In all likelihood, there is the possibility of a decrease in employment as the markets will be changing to accommodate the newfound competition. This means that governments of the member countries must work to ensure they provide and build reliable social policies in case of unemployment.
Even in as much as there seem to be several challenges the African countries must beat in order to realize the African Continental Free Trade Area, there are hopes that in the end, it will be a reality. Just like it has been a possibility on other continents, Africa will eventually emerge as a single trading bloc.