Owing to the low level of intra-African trade which averages less than $100 billion per annum and the negligible contribution of Africa to global trade which is less than 3% of the global trade annually, it became necessary for African countries to actively seek ways in which to increase trade within the region and also increase Africa’s share of global trade with the ultimate goal of boosting income levels across the continent while also lifting millions of Africans out of poverty. It was in line with these objectives that AfCFTA was established as a platform to achieve the goals.
The African Continental Free Trade Area (AfCFTA) is a free trade area established in 2018 based on the African Continental Free Trade Agreement to create a single continental market for goods and services in Africa. It aims to reduce trading, logistics, and regulatory problems that inhibit trading between African countries to boost intra-African trade and create wealth for Africans.
The AfCFTA agreement has 43 parties and 11 signatories thus making it the world’s largest Free-Trade Area by number of member states after the World Trade Organization. Amongst the goals and objectives of AfCFTA are to:
- Create a single liberalized African market
- Reduce barriers to capital and labour across the continent
- Facilitate trade and investment
- Develop regional infrastructure
- Establish a continental customs union
- Increase socio-economic development
- Reduce poverty
- Make Africa more competitive in the global economy
Before the establishment of AfCFTA, trade between neighboring African countries (except francophone countries that use CFA) were settled using the dollar or euro which in itself created a barrier for trade within the region but with the coming of AfCFTA, in conjunction with the African Union (AU) and Afrexim bank have launched a Pan-African Payment and Settlement System (PAPSS) which has been adopted by the AU as the payment and settlement platform to fast track the implementation the Free Trade Agreement.
The cause of the low level of intra-African trade and use of foreign currencies for trade settlements in Africa can be traced back to the colonial era when the colonialists ensured that all material and human resources were harnessed to produce goods that were in high demand in Europe while ignoring local trade. They also ensured that all the infrastructure built was targeted at serving this purpose and as a result of this no rail networks were built to link various African countries. Instead, all the rail networks across Africa were designed to move goods from the hinterland to port cities for onward shipment to Europe.
While trading with countries outside the continent ensured a certain level of income for African countries, the reality was that they were being left with the short end of the stick as they were exporting mostly raw goods/primary products with little or no value added while those they sold to would process the goods and sold it for multiple times the cost they bought the goods from African countries thereby creating wealth for themselves while the African producers continue to struggle with poverty.
While the full implementation of AfCFTA would likely take a while due to the need to harmonize different trade regulations and laws amongst member countries to facilitate free trade within the region, Africa’s richest man Aliko Dangote has already set the ball rolling to boost intra-African trade as his market focus is not just his home country of Nigeria but the African continent as a whole. Apart from having established cement factories in ten other African countries while he exports to many more, he revealed at the recently concluded Afrixem bank annual meeting that his refinery and petrochemical companies are now exporting fertilizers and aviation fuel to other African countries with his goal being to ensure that all our fuel and fertilizer needs are met within the continent while encouraging other African entrepreneurs to follow suit.
He also announced that with the completion of the refinery and petrochemical projects, his focus will now be on the steel industry where his goal is to ensure that all steel requirements within the continent are met from within the continent as opposed to importing from outside the continent in his bid to ensure that Africa becomes more self-sufficient even as he builds his business empire.
With the implementation of the AfCFTA agreement which would smoothen out the way to enhance more intra-African trade, several more entrepreneurs can now follow in the footsteps of Aliko Dangote to help boost intra-African trade while also creating wealth for themselves and lift millions of Africans out of poverty in the process.
Oshobi, a management consultant, development economist, and author writes from Lagos, Nigeria.