How does the AfCFTA impact Africa’s trading landscape?

A past meeting in Rwanda’s capital Kigali on the African Continental Free Trade Area (AfCFTA). FILE PHOTO | NMG

Business owners across Africa are the powerhouses who keep the continent moving and economically viable. In the past, it was not always easy to run a business that traded on a broader scale across the continent.

Although businesses could still get by via international exports or local trade, the difficulties around pan-African dealings represented a missed opportunity for many. In addition, it was also something that held Africa back from fulfilling its true economic potential. To address this, the AfCFTA was created – but what is it, and how does it impact the trading landscape in Africa?

What is the AfCFTA?

Standing for the African Continental Free Trade Area, it is a trading pact forming the largest free trade area globally. The arrangement was agreed upon in March 2018 in Kigali and was brokered by the African Union Commission. 54 African nations have now signed up for it – with only Eritrea opting out. The AfCFTA Secretariat, based in Ghana, covers the pact implementation.

It creates a single market across Africa for services and goods. This is primarily done by reducing tariffs among countries signed up for the agreement and making more significant efforts to facilitate cross-border trade. In addition, it also relies on continent-wide trade/service standards being enforced by signatory members.

What is the goal of the AfCFTA?

The overall goal of the AfCTA is to drive better economic integration across the continent, eliminate trade barriers between nations and drive economic prosperity around Africa. With estimates for the GDP of the AfCFTA being pegged at $3.4 trillion, you can see what a positive impact it could have when it reaches its full potential.

What impact does the AfCFTA have on the trading landscape of Africa?

Any business owner based in Africa knows that the trading landscape historically has not always been beneficial to making money. Expensive import taxes African countries often placed on each other and a patchwork of different regulations for the same goods/services made it easier to do business abroad!

The AfCFTA has changed all this and made a massive impact. Creating standard guidelines for services/goods is a case in point and has been an enormous bonus for many sectors. One good example is the online investing industry in Africa. This includes everything from those who invest in JSE top 40 companies in South Africa to people who invest money into FX in Egypt.

But what has a standardised approach brought to online investing in Africa? In simple terms, it sees the market better regulated by most countries and becoming a safer place to do business.

This makes it more attractive for foreign investors to put money into African markets and sees the financial sector around the continent get a significant lift. The increased success that easier trade around Africa brings to firms on the continent will also likely boost share prices and make for a more positive overall investing landscape.

Standard regulations also key for physical trade

Standardised trade regulations across Africa are crucial for safer physical goods or services. This is because everything will be produced or carried out to the same high standards across the continent – which was not always true in the past when every country did its own thing. For business owners, more standard regulations between countries should reduce trade paperwork and make for quicker trading times between nations.

How else could the AfCFTA influence trade in Africa?

The other significant benefit this agreement brings is the easier and more open trading landscape for business owners on the continent. Creating a single market focused on economic integration has been a long time coming and has made things a lot easier for businesses across Africa.

This opens the whole continent to African entrepreneurs and gives them a vast new audience to sell to. The net result is more revenue for African companies that they can use to grow with and create more jobs. With the AfCFTA expected to boost intra-African deals, this could be very powerful. 

In addition, this agreement enables wealth to be spread more evenly around the continent, giving all African countries a chance to boost their national economy. By facilitating easier and better trade, the AfCFTA enables business owners in countries that were not historic economic powerhouses to have a fairer chance of success.

AfCFTA: Economic benefits for Africa look promising

Although this agreement was signed in 2018, it is still very much in its infancy. Despite this, it offers some genuine benefits to trade in Africa and should come into its own as the years progress.