African States Create World's Largest Free Trade Zone

March 29, 2018

 

Businesses throughout Africa often face higher tariffs on the intracontinental exports than when they export outside of Africa. The African Continental Free Trade Area Agreement (AfCFTA) signed by 44 African countries on March 22 in Kigali, Rwanda, aims to put an end to the high tariffs opening borders for trade between the signatory states.

 

The agreement creates world's largest free trade area with a market of 1.2 billion people and a GDP of 2.5 trillion USD and growing. As a short-term goal, AfCFTA foresees elimination of the trade tariffs on 90 percent of goods, whereas the tariffs on remaining 10 percent of so-called "sensitive items" will be canceled at a later stage. This measure is expected to boost trade flows between the countries allowing domestic businesses to benefit from the growing African market while securing domestic employment.

 

Small and medium-sized enterprises (SMEs) accounting for 80 percent of the region's businesses are expected to benefit most, as such companies often struggle to establish themselves in the advanced markets overseas and are better equipped for the regional trade. Positive long-term outcomes anticipated by the Agreement parties include the eventual diversification of African exports currently dominated by the extractive commodities, the improvement of the regional value chains, and reduction of the continent's reliance on external resources. African agriculture and horticulture will benefit from shorter custom clearance times and enhanced logistics resulting from the Agreement's requirements.

 

While the Agreement marks an important step establishing the framework for the deepening of trade relations between African states, the process is far from complete. Phase 2 of the negotiations scheduled for late 2018 will focus on a number of important areas, including provisions as to investment, competition and Intellectual Property protection. Time will tell, if AfCFTA has a potential to establish an advanced single trade zone with free movement for goods and people across Africa, comparable to the Single European Market of the European Union.

 

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