What is the current Trade Outlook in Africa?

Estimated read time 3 min read

By Samkelo Mchunu

Can Africa’s New Free Trade Treaty Boost Business on the Continent?

African countries that have long traded with others outside the continent are now shipping goods to each other. 

In the spotlight during the two-day high-level meeting starting on February 17 is a treaty that the African Union (AU) says will revolutionize trade on a continent where country-to-country trade levels are dismal, with most imports coming from countries like China.

Ratified by a majority of African countries, the African Continental Free Trade Area (AfCFTA) agreement will merge 55 economies into a single, competitive mega market of more than a billion people, making it one of the biggest free trade areas in the world.

The AfCFTA: A Transformative Agreement

First agreed upon in July 2019, the AfCFTA is a key pillar of the AU’s 50-year strategy to boost Africa’s economic growth. Its primary aims are to deepen economic integration in Africa by increasing the easy, cheap flow of goods and services between countries, boosting cross-country investments, removing trade barriers, and advancing open visa policies. The AU also wants to leverage the plan to increase local manufacturing and fight for more influence in global trade where Africa currently contributes only 3 percent.

All 55 AU member states have signed the agreement – save for Eritrea – and will be represented through the eight recognized regional economic blocs, including the South African Development Community (SADC) and the Economic Community of West African States (ECOWAS). The treaty became operational in January 2021. 

Combined, the agreement represents a united African market of 1.3 billion people that is worth about $3 trillion – approximately the gross domestic product (GDP) of India.

Promises and Prospects

The AU plans to reduce or eliminate tariffs on 90 percent of products and earn Africa an additional $450 billion in revenues by 2035. If the agreement goes according to plan, the AU estimates Africa’s economy will expand to $29 trillion by 2050.

The AfCFTA is expected to boost revenue and lift 30 million of Africa’s extremely poor from poverty. However, despite the big buzz around the treaty, real action has been delayed, moving back potential benefits and casting doubts on the AU’s capacity to properly pull off the plan.

Current Trade Outlook

African governments have often created trade barriers to protect their markets from regional competition. At present, intra-continental trade tariffs mean that it is 6.1 percent more expensive to import goods from within Africa than to import from outside the continent. Due to that markup, countries barely trade with each other, with total intra-African exports hovering at about 14 percent of total African trade, compared with 55 percent in Asia, 49 percent in North America, and 63 percent in the European Union.

Meanwhile, one-fifth of sub-Saharan Africa’s raw materials like crude oil, metal, and copper are exported to China, the region’s single biggest trade partner. China is also one of the biggest exporters to Africa, meaning it is easier to find “Made in China” goods than “Made in Africa” products in markets across the continent.

Moving Forward

The AfCFTA holds significant promise for transforming Africa’s trade landscape. The focus now shifts to how effectively African nations can implement the treaty’s provisions and overcome the hurdles that have historically hindered intra-African trade. As the AU continues to push forward with this ambitious plan, the continent watches closely, hopeful for a future of enhanced economic integration and prosperity

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