Report By: Kweku Bolton
The African Continental Free Trade Area (AfCFTA), established in 2018, is the world’s largest free trade area. It unites the 55 countries of the African Union (AU) and eight Regional Economic Communities (RECs) to create a single market for the continent. The headquarters is located in Ghana. The AfCFTA aims to create a single continental market for goods and services, facilitating the free movement of businesspersons and investments, enhancing competitiveness, and boosting sustainable development across Africa. This ambitious initiative has the potential to transform African economies and business environments by boosting intra-African trade and fostering regional and local value chains. Total intra-African trade within the African Continental Free Trade Area (AfCFTA) has exhibited steady growth. Over the past year, trade volumes between African nations surged by 15%, underscoring the increasing significance of regional economic cooperation. Key sectors driving this trade expansion include agriculture, manufacturing, and services.
At the AfCFTA business forum in Accra, in 2024, where many African countries showcased their business activities and products, the AfCFTA Secretary-General, Mr. Wamkele Mene, urged African leaders to embrace innovative technology and digitalisation for economic growth. He calls for robust policies, sustainable practices, and international cooperation to safeguard Africa’s environment and livelihoods. In the context of trading and business transformation aimed at improving the African economy, Kenyan President Dr. William Samoei Ruto, during his visit to the AfCFTA secretariat, acknowledged the significant impact of exchange rate fluctuations on trading. Dr. William Samoei Ruto anticipates the adoption of a single currency as a catalyst for transformative business across the African continent.
Economic Impact:
Trade Facilitation: AfCFTA has significantly reduced trade barriers, such as tariffs and non-tariff barriers, among member countries. This has led to an increase in intra-African trade, which is expected to grow by $50 billion to $70 billion by 2040. The agreement covers policy areas such as trade facilitation, services, and regulatory measures, which have led to growth in sectors like services, manufacturing, and natural resources.
Income and Poverty Reduction: The implementation of AfCFTA is projected to lift 30 million people out of extreme poverty and raise the incomes of 68 million others who live on less than $5.50 per day. Trade facilitation measures alone are expected to drive $292 billion of the $450 billion in potential income gains. The combined GDP of AfCFTA member countries is valued at $3.4 trillion, and the agreement has the potential to boost economic growth by creating a vast regional market.
GDP Growth: The agreement has the potential to boost economic growth by creating a vast regional market. This market can help African countries diversify their exports, accelerate growth, and attract foreign direct investment. A World Bank report highlights that implementing AfCFTA would help usher in the kinds of deep reforms necessary to enhance long-term growth in African countries.
Business Environment:
Market Access: AfCFTA provides businesses with access to a population of 1.7 billion people and combined business and consumer spending reaching $6.7 trillion by 2030. This creates new business dynamics and opportunities for investors. The agreement connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at $3.4 trillion.
Cross-Border Payments: The efficiency of cross-border payment systems has improved, driven by technological advancements and increased digital adoption. This has facilitated trade and investment by making payments more reliable and convenient. According to research conducted by Cellulant, cross-border payments in Africa are primarily driven by individuals, micro and small businesses (MSMEs), and small to medium-sized traders. These payments cater to various purposes, including e-commerce, border trade, SMB exports, remittances, gig payments, and supply chains.
Sectoral Growth: The agreement covers policy areas such as trade facilitation, services, and regulatory measures, which have led to growth in sectors like services, manufacturing, and natural resources. This has created employment opportunities and increased incomes for Africans. It is projected that full implementation of AfCFTA would reshape markets and economies across the region and boost output in the services, manufacturing, and natural resources sectors, according to the World Bank.
Challenges and Future Prospects
Policy Reforms: Achieving the full potential of AfCFTA requires important policy reforms and trade facilitation measures. Governments need to reduce trade costs and design policies to increase workforce readiness. Creating a continent-wide market will require a determined effort to reduce all trade costs.
Implementation: Full implementation of AfCFTA will require a determined effort to overcome bureaucratic challenges and ensure efficient cross-border transactions. The agreement aims to reduce tariffs among member countries and cover policy areas such as trade facilitation and services, as well as regulatory measures such as sanitary standards and technical barriers to trade.
Global Integration: AfCFTA positions Africa as a leader on the global trade agenda, demonstrating its potential to reshape markets and economies across the region. The agreement is designed to guide policymakers in implementing policies that can maximise the agreement’s potential gains while minimising risks.
Eventually, the African Continental Free Trade Area (AfCFTA) has brought transformative change to African economies and business environments. By reducing trade barriers, boosting intra-African trade, and fostering regional value chains, AfCFTA has created new opportunities for businesses and investors. However, achieving its full potential will require continued efforts in policy reforms and trade facilitation.
