5 things about the African Continental Free Trade Agreement

On Wednesday, forty-four member states of the African Union signed the African Continental Free Trade Agreement at the AU Summit in Kigali, Rwanda. The agreement aims to create a single continental market for goods and services, with free movement of people and capital, paving way for the establishment of a customs union.

Trade between African countries accounts for only about 15% of the total trade in Africa, according to the African Export-Import Bank, compared to 19% in Latin America, 51% in Asia, and 72% for Europe. It amounted to about $170bn in 2017.

Wednesday’s treaty aims to improve that figure. The Economic Commission for Africa projects that it could increase intra-African trade by 52% by 2022 by eliminating import duties.

If all 55 member states of the African Union endorse the agreement, it will create a market of 1.2 billion people and a gross domestic product of $2.5 trillion.

1. It is the biggest trade agreement in this millennium
The African Continental Free Trade Agreement is the biggest trade agreement since the World Trade Organisation was set up in 1995 when all the 55 participating countries are considered.

The decision to establish an African trade area was adopted in Addis Ababa, Ethiopia, in January 2012 during the 18th Ordinary Session of the Assembly of Heads of State and Government of the African Union.

2. Eleven countries, including Africa’s biggest economies, are still holding out on signing
So far, forty-four countries have signed the agreement. However, two of the biggest economies on the continent – Nigeria and South Africa – want to make more consultations before signing, even though they have endorsed the project.

While South Africa’s Cyril Ramaphosa attended the African Union Summit in Kigali and signed the Kigali declaration of the establishment of the agreement, Nigeria’s president Mohammed Buhari did not attend.

Mr Ramaphosa said he will sign once the necessary legal processes are done. In Nigeria, meanwhile, business leaders and unions have voiced opposition to the agreement.

In the East African bloc, Tanzania and Burundi have not signed. Uganda’s Yoweri Museveni did not attend the summit, but Sam Kutesa, the foreign minister, signed on his behalf.

3. At least twenty-two countries must ratify
Each individual country will have to ratify the legal framework for the free trade area through their national processes.

The African Union has not agreed on the number of countries that need to ratify the agreement before it comes into force, but at least 22 countries might have to ratify before AfCFTA can be fully implemented.

4. AfCFTA will cut tariffs to almost zero, expected to boost intra-African trade by 52% by 2022
The free trade agreement will progressively cut tariffs on about 90% of the goods moving across the free trade area from the current average of 6.1% to negligible amounts.

The agreement will also tackle movement of business persons, infrastructure and delays at borders that frustrate trade within the continent. It is expected to boost intra-African trade by 52 percent by 2022, and to double trade if non-tariff barriers are also reduced.

5. Agreement to pave way for customs union and an African economic community
According to AU Commission chairperson Moussa Faki Mahamat, the free trade area will come into full force by the end of this year. Within the next four years, the AU expects to establish a customs union and an African economic community by 2028.