AFCFTA: MANUFACTURER’S TRUMP CARD TO INTRA AFRICAN TRADE
By RICHARD ZULUT
THE Africa Continental Free Trade Area (AfCFTA) is a free trade area that was established under the African Continental Free Trade Agreement involving fifty-four (54) of the fifty-five (55) African Union (AU) nations.
It was founded in 2018, with trade commencing on 1st January 2021. Zambia signed the AfCFTA agreement on 10th February 2019 and on 5th February 2021 Zambia submitted the instruments of its ratification of the AfCFTA agreement to the African Union Commission.
Africa is not new to establishing Regional Economic Communities (RECs). For example, Africa has, the Southern African Development Community (SADC) in the southern region, the East African Community (EAC) in East Africa and the Common Market for Eastern and Southern Africa (COMESA) which encompasses member states from southern Africa through to the northern part of Africa.
Much as these trading blocs have strengthened trade among member states, they also poised a problem of overlapping membership.
One country could be a member of two or more RECs which had different procedures or protocols. The problem of overlapping membership coupled with small fragmented markets, which each REC represented, and other challenges associated with production have contributed to poor intra-African trade among African economies.
The AfCFTA seeks to address the above challenges and spur intra-African trade. The Agreement will streamline trade among the different RECs and provide for coherence in terms of Africa’s trade with the rest of the world.
The International Trade Centre (ITC) in its publication titled A business guide to the Africa Continental Free Trade Area Agreement highlighted that the implementation of the AfCFTA will lead to the removal of many tariff and non-tariff barriers (NTBs) to trade among member states. Removal of trade restrictions creates one big market for each member state, thereby allowing firms in member states to produce with economies of scale.
Therefore, the ITC concludes that the removal of trade restrictions will stimulate an increase in industrial production as well as increase trade in agriculture among member states. The increase in industrial production and agriculture trade is envisaged to cause a substantial increase in employment and real wages in Africa.
The World Trade Organisation (WTO) states that the AfCFTA will create the largest free trade area in the world with an estimated population of 1.3 billion and combined GDP of US$ 2.1 trillion.
Such a huge market comes with the benefit of allowing firms to diversify their production into products that require economies of scale. Also, the fact that each member state will be fighting for a share of this huge market, the AfCFTA is likely to stimulate increased competition among firms in member states. Therefore, the AfCFTA is likely to positively influence innovation across Africa.
The importance of product innovation cannot be overemphasised. A 2016 paper by Abraham Osei titled Product innovation and SMEs performance in the manufacturing sector of Ghana finds that product innovation improves performance of SMEs by over 28%.
The huge market provided by the AfCFTA will also makes it conducive to establish continental value chains. One country or a group can supply raw materials while the other can specialise in the production of intermediate products and the others in finished products.
The creation of continental value chains will not only increase intra-African trade but also increase the probability of integrating Africa in more sophisticated global value chains.
While the AfCFTA presents many benefits to the manufacturing sectors in Africa, some of which have been highlighted above, member countries need to position themselves well to benefit from the opportunities under the AfCFTA.
For example, most African countries are characterised by little investments in research, technology and education, resulting in huge skill gaps which negatively affect the growth of the manufacturing sectors.
The problem is exacerbated by the huge deficit in economic infrastructure which makes trade difficult. Therefore, member states need to put in place solid measures to address the above challenges if they are to rip the benefits of joining the AfCFTA.
In conclusion, the AfCFTA has created a huge market for member states, which are characterised by small markets. The AfCFTA has the potential to transform Africa into an industrialised continent due to the many benefits it has for the growth of the manufacturing sectors.
However, to fully utilise the opportunities created by the AfCFTA, member states need to put in place measures to address the specific national challenges that hinder the development of the manufacturing sectors and trade in their respective countries.
