The African Continental Free Trade Area (AfCFTA) will come into force on May 30, making it the world’s largest free trade agreement by population since 1995’s creation of the World Trade Organization.
The latest two ratifications -Sierra Leone and the Sahrawi Republic, were received by the African Union (AU) on April 29.
All but three of Africa’s 55 countries have signed up, creating a free trade area that covers more than a billion people and a collective GDP of over $2 trillion, and includes most of Africa’s largest economies, including South Africa and Egypt. If hold-outs, Benin, Eritrea, and Nigeria, Africa’s largest economy, join in, that’s a total of 1.2 billion people and $2.3 trillion in GDP.
A mere 17% of African countries’ exports go to other African countries -in comparison with intra-regional trade levels of 59% in Asia and 69% in Europe. That means the continent doesn’t feature much in the way of cross-border value chains.
Once the AfCFTA comes into effect, the signatories will need to drop 90% of their tariffs for imports from other African states. According to the United Nations, this could boost intra-African trade by 52.3% and once countries drop their remaining tariffs, which they will be allowed to maintain for a decade in order to protect key industries, the U.N. says intra-African trade will double.
Nigeria remains the biggest absence in the new trade area -and a large one, too, as the country accounts for a sixth of Africa’s GDP. It originally pulled out of talks because, per President Muhammadu Buhari, the agreement could “undermine local manufacturers and entrepreneurs, or lead to Nigeria becoming a dumping ground for finished goods”. Nigerian manufacturers backed Buhari’s protectionist stance.
Over time, if all goes to plan, the AfCFTA will also lead to new trade agreements with countries outside Africa -but this time with Africa maintaining a united front, much as the European Union does today.
AfCFTA has been a flagship project of the African Union’s “Agenda 2063” development vision for five years. The proposal was approved in 2012 and the members started working on a draft in 2015. In March 2018, the leaders of 44 African countries endorsed the agreement in Rwanda. Participants are reportedly weighing the possibility of using a common currency.