Africa's Economic Potential: A Closer Look at the AfCFTA

Africa has a total of 17.9% of the global population, 3% of GDP, and 2.5% of total global exports. To increase the trade and profits of globalization, The African Union (AU) introduced the African Continental Free Trade Area (AfCFTA) in 2012. The 55 nations that make up the African Union (AU) and the eight RECs came together to form the AfCFTA, the largest free trade area in the world, to establish a common market for the continent. A unified continental market for products and services in Africa is established by the African Continental Free Trade Area (AfCFTA). It also seeks to lessen trade-related issues including disparate regulatory frameworks across African nations. Twenty-four more nations will be joining the seven included in the free-trade project's experimental phase, known as the Guided Trade Initiative, which started in October 2022. AfCFTA seeks to stimulate industrialization and economic expansion in Africa by lowering trade, investment, and mobility restrictions. According to the latest statistics, the intra-African trade reached $192 billion with a 7.2% increase in 2023. Let’s gain insights into the AfCFTA agreement in detail with this article.

What is the African Continental Free Trade Area (AfCFTA)?

The African Free Trade Agreement (AfCFTA) is a bold initiative that seeks to cast off price lists on 90% of goods traded within Africa, create a continental customs union, and promote nearby financial integration. By fostering closer financial cooperation amongst African nations, the agreement's objectives are to promote sustainable improvement, create jobs, and decrease poverty across the continent.

What are the Key Features of the African Free Trade Agreement?

• Tariff Reductions: One of the primary goals of the AfCFTA agreement is to seriously lessen price lists on intra-African trade, making it simpler and more value-effective for corporations to trade within the continent.
• Customs Union: The settlement additionally aims to establish a continental customs union, for you to streamline customs approaches and facilitate the motion of products across African borders.
• Rules of Origin: The AfCFTA agreement includes policies of beginning provisions, which determine the standards for determining in which a product is made and make certain that the most effective goods produced inside Africa enjoy the trade agreement's preferential treatment.
• Dispute Settlement Mechanism: To ensure the effective implementation of the settlement, the AfCFTA consists of a dispute settlement mechanism to cope with any trade-related disputes amongst member nations.

The Acceleration of AfCFTA towards AU Agenda 2063

In line with AU Agenda 2063, the AfCFTA will employ trade laws to establish a unified market throughout the continent and encourage industrial expansion as a catalyst for sustained development to realize the vision of the "Africa we want." On March 21, 2018, the agreement was made available for signatures, after the AU Commission and member states had several interactions between 2012 and 2018. 24 member states ratified the AfCFTA, and it became effective on May 30, 2019. The speeding up of the AfCFTA was designated as the AU's 2023 subject to facilitate its implementation.

Priorities and Advantages of the African Free Trade Agreement

Africa exports a disproportionate number of primary goods, and its economy is highly dependent on trade with other regions of the globe. Additionally, the majority of manufactured exports are resource-based products whose prices fluctuate on a worldwide scale. Africa thus contributes mostly to upstream production, which is defined by the provision of primary items, in global value chains. The AfCFTA will play a crucial role in Africa's industrialization and structural transformation by promoting intra-African trade and regional value chains. This might potentially reduce the continent's susceptibility to external shocks, improve export diversification, and bolster economic performance. Through the creation of regional value chains under the AfCFTA, member nations can boost their exports of manufactured goods with high-added value, diversify their export markets, and become more globally competitive.

• To establish Africa as a powerful worldwide force, AfCFTA will also significantly increase the continent's part of global trade and change economies.
• According to an earlier World Bank analysis, the AfCFTA may boost GDP by 1.4% to 2.7%, boost foreign direct investment by 111% to 159%, and double intra-African trade by 2035.
• By 2035, there may be a 7%–9% increase in real income, which would bring the number of people who are in severe poverty down to 45 million.

Implementation difficulties of the African Free Trade Agreement

The size, degree of development, and economic activity diversification of African nations differ. For example, as of 2022, the populations of Nigeria, Ethiopia, and Egypt passed $100 million, whilst those of Comoros, Cabo Verde, São Tomé and Principe, and Seychelles had been much less than 1,000,000. In a similar vein, some states have considerably more economies than others. The GDPs of the Gambia, South Sudan, Seychelles, Guinea Bissau, Comoros, and São Tomé and Principe are less than $2 billion, even as those of Nigeria, South Africa, and Egypt are above $300 billion. Therefore, just like another free change settlement, the AfCFTA does not always ensure that the welfare of all states will be enhanced right away. Some states might initially have to pay for it. Because of this, there will probably be winners and losers from the AfCFTA, and the diversity of African nations will be a significant barrier to participation and collaboration throughout implementation.

AfCFTA Initiations and Outcomes in 2023

• One of the accomplishments of the AfCFTA agreement is the adjustment fund, which was established in March 2023 to make up for lost revenue. 
• The fund is anticipated to assist the business sector in adjusting to the new trade conditions brought about by the AfCFTA. 
• However, new concerns include defining the national origin of goods and setting the requirements for local production or value-added before re-exporting an item. 
• Specific tariff lines were agreed upon at the AfCFTA Council of Ministers' 12th meeting in December 2023, as well as at the 2nd and 3rd special sessions. 
• The condition was that the percentage of non-originating materials utilized must not surpass 60%. 
• To draw in additional investment, this rule will guarantee that large and major industrial activity receive the benefits of the AfCFTA. The council decided to outlaw the sale of used products.

What are Africa's biggest exports?

According to the latest African trade statistics, Africa's total exports accounted for $600.70 billion in 2023. The biggest exports of Africa in 2023 include:

1. Mineral fuels, mineral oils (HS Code 27): $237.65 billion (39.56%)
2. Natural or cultured pearls, precious stones, and metals (HS Code 71): $57.69 billion (9.6%)
3. Ores, slag, and ash (HS Code 26): $36.29 billion (6.04%)
4. Copper and articles thereof (HS Code 74): $29.33 billion (4.88%)
5. Vehicles (HS Code 87): $22.21 billion (3.7%)
6. Electrical machinery and equipment (HS Code 85): $18.57 billion (3.09%)
7. Edible fruit and nuts; peel of citrus fruit or melons (HS Code 08): $12.74 billion (2.12%)
8. Iron and steel (HS Code 72): $12.45 billion (2.07%)
9. Fertilizers (HS Code 31): $11.75 billion (1.96%)
10. Inorganic chemicals (HS Code 28): $11.41 billion (1.9%)

Who are the Major exporters from Africa?

South Africa is the biggest exporter in Africa with exports worth $110.66 billion in 2023. Africa makes up a total of 2.6% of the global export share. Africa's top 10 export partners in 2023 include:

1. South Africa: $110.66 billion (0.5%)
2. Nigeria: $60.65 billion (0.3%)
3. Algeria: $56.81 billion (0.2%)
4. Morocco: $42.47 billion (0.2%)
5. Egypt: $42.05 billion (0.2%)
6. Angola: $37.46 billion (0.2%)
7. Libya: $33.69 billion (0.1%)
8. Congo: $28.51 billion (0.1%)
9. Tunisia: $20.03 billion (0.1%)
10. Ivory Coast: $18.35 billion (0.1%)

Africa’s Export Trade Trends in the Last 10 Years

The $100 million AfCFTA Fish Project to Benefit Women in Six African Countries

A four-year fisheries initiative has been started by the African Continental Free Trade Area (AfCFTA. The program's objectives are to increase commerce in fish and fish products by $100 million and create over 240,000 employees by 2028. The initiative aims to address the systemic issues that young people and women in the fishing industry confront. It will boost supply chain connections, promote market and financial accessibility, offer training, create digital solutions, streamline trade laws, guarantee standard compliance, and ease access to international markets. It is the result of the AfCFTA Secretariat's partnership with the Mastercard Foundation, which started with the creation of the private sector strategy for the AfCFTA.

Conclusion

The African Continental Free Trade Area (AfCFTA) agreement represents a full-size milestone in Africa's quest for monetary integration and regional cooperation. While the settlement faces demanding situations and criticisms, its capacity to reinforce intra-African trade, pressure monetary boom, and reduce poverty makes it a crucial initiative for the future of the continent. By addressing implementation demanding situations, selling inclusivity, and fostering closer economic cooperation amongst member nations, the AfCFTA agreement can convert Africa's monetary panorama and position the continent as a global trade powerhouse.

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