AfCFTA on track to lift 100 million Africans out of poverty by 2035
Thursday January 13 2022
The African Continental Free Trade Area is the world’s largest free trade area, and the largest trade organisation since the establishment of the World Trade Organisation, bringing together 54 countries of the African Union and eight regional economic communities to create a single market. It has a population of about 1.3 billion people and a combined GDP of about $3.4 trillion.
In addition to being a free trade area, the AfCFTA is a flagship project of the African Union (AU) Agenda 2063, Africa’s long-term development strategy for transforming the continent into a global powerhouse of the future.
The agreement establishing the AfCFTA was signed in Kigali, Rwanda, on March 21, 2018 by 44 AU member states. Ten more countries have since signed the pact. The AfCFTA Agreement entered into force on May 30, 2019, 30 days after the deposit of the 22nd instrument of ratification, as specified in its Article 23. Trading under the AfCFTA started on January 1, 2021.
The AfCFTA market comes with many opportunities, some of which are highlight in this article.
Consumer welfare gains: Consumers will have limitless choice of quality products at an affordable price. This is due to the fact that AfCFTA aims at eliminating import duties on products that are produced within Africa and thus satisfy the rules of origin. It also defines standards that shall apply to those products in order to ensure quality.
Attract investments: The size of the market will attract both African and foreign investors. The AfCFTA’s legal framework provides for a protocol that will set rules and regulations for investment facilitation and investor protection.
Job creation: The trade area will spur industrialisation through development of regional and continental value chains. The AfCFTA rules of origin provide for criteria that have to be fulfilled by a product in order to enjoy duty-free, quota-free preference in the market. These include products that are wholly obtained in that state party and products that have undergone substantial transformation in that country.
Eliminate poverty: The World Bank estimates that the AfCFTA could boost Africa’s GDP by 7 percent – almost $450 billion – by 2035, in part by reducing import tariffs, but more importantly by eliminating non-tariff barriers (NTBs). It should also deliver notable benefits in how income is distributed, potentially lifting some 30 million people out of extreme poverty and 68 million out of moderate poverty.
Income distribution: The AfCFTA will bridge salary gaps between men and women. The World Bank study revealed that African women will greatly benefit as they constitute the majority of those engaged in intra-African trade.
A growing manufacturing sector would provide new job opportunities, especially for women. The report estimates that compared with a business-as-usual scenario, implementing the agreement would lead to an almost 10 per cent increase in wages, with larger gains for unskilled workers and women.
Wages would grow slightly faster for women than for men as output expands in key traditionally female labour–intensive industries. According to World Bank estimates, by 2035, wages for women would increase by 10.5 per cent with respect to the baseline, compared with 9.9 per cent for men.
A large proportion of small-scale operators at border crossings tend to be female. Women assume a variety of roles in small-scale trade as border traders, transporters, processors, or vendors. Often, they face more severe impediments to trade than their male colleagues in the form of higher trade costs and more pervasive corruption, more limited access to price and market information, and more frequent harassment and abuse.
Elimination of non-tariff barriers:
Elimination of NTBs is critical to boosting intra-Africa trade and achieving the objectives of the AfCFTA. It will reduce the costs of trading across borders and ease the cross-border movement of goods. The bulk of the AfCFTA benefits will be realised if state parties efficiently manage and eliminate NTBs.
Annex 5 of the Protocol on Trade in Goods establishes a reporting, monitoring, and elimination mechanism where traders can file a complaint on a specific trade obstacle they have encountered during the process of moving goods and services across borders. The mechanism is available online at www.tradebarriers.africa
Private sector development:
To achieve the aspiration of AfCFTA and ensure that gains in economic growth are inclusive – of women, youth, and SMEs – and ultimately sustainable, real action is needed on the ground. The private sector, composed of traders, investors, and producers, is the engine of economic growth and main driver of job creation. In recognition of the central role of the private sector to deliver on the promises of the AfCFTA, an inclusive private sector strategy has been developed to identify the main barriers to trade and production in four initial priority value chains – agro-processing, automotive, pharmaceuticals, and transport and logistics.
These value chains were prioritised based on the relatively high level of import substitution today – an indicator of existing demand in local markets, and some level of existing exports – an indicator of the ability to produce these goods locally. Sectors identified for future waves include horticulture, textiles, financial services, telecommunications, and IT.
Women and youth inclusiveness:
The AfCFTA can provide a significant opportunity for women, giving them a head start towards increasing their economic empowerment. African leaders have signalled their willingness to create an enabling environment for women to fully exploit the trade opportunities offered by the AfCFTA.
The Assembly of the Heads of State and Government of the African Union thus committed “to broaden inclusiveness in the operation of the AfCFTA through interventions that support young Africans, women, and small and medium enterprises, as well as integrating informal cross-border traders into the formal economy by implementing the simplified trade regime”.
In line with the directives of African leaders, a protocol on women and youth in trade is being developed. It is expected to address the specific constraints and barriers women face when trading on the continent. The protocol will enable AfCFTA state parties to effectively address the constraints women in trade face and create an environment that allows women to utilise the agreement by accessing wider markets, improving their competitiveness and participating in regional value chains.
Article 3(g) of the AfCFTA provides that one of the general objectives is to “promote industrial development through diversification and regional value chain development, agricultural development and food security”. The agricultural sector is a key feature of African economies. It contributes more than 60 per cent of employment for the population and more than a third of total GDP.
In addition, Africa mainly exports traditional agricultural products such as cocoa, coffee, cotton, tea, and spices outside the continent; and imports food products like cereals, vegetable oils, dairy, fish, and meat products in order to meet food security requirements.
That said, boosting intra-Africa agricultural trade (and agro-processing development) is critical to achieving the aspirations of Agenda 2063 and the AfCFTA to create jobs, promote inclusive development, alleviate poverty, and secure food for Africans.
Prudence Sebahizi is the Chief Technical Adviser on AfCFTA