Could the Launch of African Continental Free Trade Area (AfCFTA) Deal Usher in a New Economic Era?

Posted by: on Jul 29, 2019 | No Comments

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Brexit has been grabbing the headlines and all our attention. There’s a lot being said practically every day about the repercussions of ending free movement of labor. And, there are speculations around restrictions to the flow of goods and capital.

While the world is busy watching UK sever its ties with the EU, in a separate part of the world, 55 African economies came together to launch the African Continental Free Trade Area (AfCFTA) deal in Niger on July 7. This continental free trade zone is estimated to create a $3.4 trillion economic bloc that will unite more than 1.3 billion people, according to an article published by Reuters . This effort is expected to usher in an era of economic progress in the region.

This deal could be a major game changer for Africa. For centuries, this continent has been a source of human capital and raw materials for major world economies. But it hasn’t been able to use these resources to its best advantage due to severe internal unrests.

Finally, after 17 years of negotiations, leaders in the continent have decided to make Africa a market for foreign manufacturers rather than just being a source of resources. The deal is set to come into effect in July next year, making the AfCFTA region the single largest market in the world.

In an ideal scenario, the entire world should come together to act like one single market and free trade zone. In the absence of this, it’s good to see regions realizing the benefits of free trade.

Benefits of the AfCFTA Deal

Poverty rates in Africa have declined over the past decade, with the percentage of Africans below the poverty line going down from 56% in 1990 to 43% in 2012, according to a World Bank report. While this may seem great, the total number of poor people has increased, due to rapid expansion in population. Also, this reduction has been slow in more fragile countries, where rural areas continue to remain undeveloped.

The deal brings the highly fragmented continent together for a common purpose – economic development through mutual understanding. In the long term, the free market is expected to balance out everyone’s interest for common good, even if every nation comes with its individual trade interests to the table.

A common market with reduced trade barriers and a unified digital payments system will attract foreign investments. This in turn will lead to industrialization and increased manufacturing activities, resulting in job creation. So, millions of impoverished people in Africa will likely gain new sources of livelihood with the free market system.

The African Union (AU) expects the deal to boost intra-African trade by 60% till 2022, according to an article by The Chronical.

In order to ease movement and trade, the African Union (AU) has launched a single air transport market, which will reduce travel costs for people across the continent. Apart from cheap airline tickets, the union is also toying with the idea of creating an “African Union Passport” to boost connectivity and facilitate business activities.

Is it an Over-Ambitious Idea?

Right now, only a few African countries have good manufacturing capacities. Countries like Malawi, Mozambique and Niger lack technology and infrastructure. Initially such regions may feel overwhelmed with other brands competitive with local producers. However, such challenges will make them stronger. Opening up the economies will attract investment, which will boost technology and production capabilities.

Currently, there are significant deterrents to trade in the continent, like lack of a unified customs duty structure, corruption, bureaucracy and lengthy wait times at borders. These will need to be tackled if a single-market system needs to be established. The greatest risk would be regional instability, as some of these regions are prone to violence and civil wars.

Nevertheless, the free market system will provide greater purpose and help address these problems. Improved infrastructure and industry will result in job creation, which in turn will improve the quality of life in the African continent.

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