All is set for the implementation of the African Continental Free Trade Area (AfCFTA) agreement on January 1, 2021. At a meeting to re-affirm the commencement date, African leaders on 5th December, called on African financial institutions to provide technical and financial support for its implementation.
“We call on women, youth, businesses, trade unions, civil society, cross border traders, the academia, the African Diaspora and other stakeholders to join us as governments in this historic endeavor of creating the Africa we want in line with the African Union Agenda 2063,” the leaders said in a declaration at the end of their 13th extraordinary summit of the member-states held virtually.
The main objective of the AfCFTA is to create a single continental market for goods and services, with free movement of business persons and investments, and thus pave the way for accelerating the establishment of the Customs Union.
The AfCFTA will bring together fifty-four African countries with a combined population of more than one billion people and a combined gross domestic product of more than US $3.4 trillion.
So far, the total number of ratifications approved by AU member states is 36. Africa’s largest economy, Nigeria, was initially reluctant to join the bloc for fear of exposing local industries to dumping by countries outside Africa. The rectification only came on 11th November 2020.
The AfCFTA has the potential to generate substantial economic benefits for African countries. These benefits include higher income arising from increased efficiency and productivity from improved resource allocation, higher cross-border investment flows, and technology transfers.
Despite the tremendous benefits that may come along with the implementation of the AfCTA, there are potential challenges that if not well handled can pose serious threats to the survival of the bloc.
Regional economic integration has historically been driven by a powerful manufacturing sector seeking to expand its markets. This is the case for Europe, the Far East, and North America, and is manifestly the case for economic globalization.
By contrast, regional integration among non-industrialized countries has had more modest achievements – from the Mercosur economic cooperation pact in Latin America to the historic alliance of independent frontline African states against Apartheid South Africa.
Sadly, most of the African economies are either emerging or developing, with huge infrastructural gaps and low industrialization.
“African countries will need to reduce other trade barriers by making more efficient their customs procedures, reducing their wide infrastructure gaps, and improving their business climates”.
IMF
Also, there is the likelihood of some member states based on certain occurrences, to decide to exit the AfCTA agreement. African leaders should also take a clue from the Brexit that happened when the UK left the European Union on 31st January 2020.
The widespread political instability across the African Continent will pose a serious challenge to the union. Trade barriers, lack of a common currency, and different political orientations may pose some threats to the bloc.
For the objectives of the AfCTA to be met, all member states should be committed to the terms of the agreement and act accordingly. Regional integration agreements need to ensure that recipients cannot deviate from the agreed-upon reforms.
At the same time, “policy measures should be taken to mitigate the differential impact of trade liberalization on certain groups as resources are reallocated in the economy and activities migrate to locations with comparatively lower costs”, the IMF said.
