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AFRICA: AfCFTA, World’s Largest Free Trade Area, Activated on 30 May

The African Union announced on 1 May 2019, that it has set 30 May 2019 as the official date for activating the African Continental Free Trade Area (AfCFTA). The AfCFTA will create the world’s largest free trade zone by area, encompassing potentially 55 African countries merging into a single market of 1.2 billion people, with a combined GDP of US$2.5 trillion.

The announcement follows Sierra Leone and the Saharawi Arab Democratic Republic depositing their instruments of ratification with African Union officials in Addis Ababa on 29 April. This brings the number of countries that have done so to 22, the minimum required for activation of the Agreement. The other countries that have deposited their ratifications are Ghana, Kenya, Rwanda, Niger, Chad, the Republic of Congo, Djibouti, Guinea, eSwatini (formerly Swaziland), Mali, Mauritania, Namibia, South Africa, Uganda, Côte d'Ivoire, Senegal, Togo, Egypt, Ethiopia, and The Gambia. Zimbabwe has received parliamentary approval for ratification but has yet to deposit its ratification instruments.

The original AfCFTA agreement was signed in March 2018 in Kigali, Rwanda, by 44 African Union countries (now risen to 52), and commits to a phased reduction of at least 90% of tariffs on trade in goods and services between member countries; liberalising of the movement of labour and capital between member states; and laying the foundations for the ultimate establishment of a continent-wide customs union. The Agreement will also work to integrate the multiple and overlapping Regional Economic Communities (RECs), which member nations currently belong to, into the final free trade agreement.

The AfCFTA will have huge implications for foreign businesses trading with African countries in the new bloc. Kingsley Ighobor, Managing Editor at Africa Renewal, a United Nations publication, wrote that the Agreement will make African products much more competitive with many foreign imports by removing the “patchwork of trade regulations and tariffs that make intra-African commerce costly, time wasting and cumbersome. The shelves of Choithrams Supermarket in Freetown, Sierra Leone, boast a plethora of imported products, including toothpicks from China, toilet paper and milk from Holland, sugar from France, chocolates from Switzerland and matchboxes from Sweden. Yet many of these products are produced much closer — in Ghana, Morocco, Nigeria, South Africa, and other African countries with an industrial base.”

Foreign companies looking to source new supply lines will also benefit. Vera Songwe, Executive Secretary of the UN Economic Commission for Africa (ECA) said: “The types of exports that would gain most are those that are labour intensive, like manufacturing and agro-processing, rather than the capital-intensive fuels and minerals, which Africa tends to export.”

The ECA estimates that the Agreement could boost intra-African trade by as much as 52.3% by 2020. This will have a huge beneficial impact on job creation and consequent consumer spending power; and coupled with increased infrastructure investment and access to a new, massive market, should open up substantial new opportunities for foreign investors. According to a World Economic Forum (WEF) analysis, with restrictions lifted on foreign investments, investors will flock to the continent; and an inflow of foreign capital will also stimulate banking systems, leading to more investment and consumer lending.

Furthermore, the WEF stated that importing know-how will further boost African economies. It said in a statement: “Global companies have more expertise than domestic companies to develop local resources. That's especially true for businesses in the manufacturing sector. The AfCFTA will allow multinationals to partner with local firms to develop raw materials, training them in best practices and transferring technology in the process.”

Content provided by Picture: HKTDC Research
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