The African Continental Free Trade Area (ACFTA) is scheduled to enter its first transaction on the 1st January 2021 as agreed in July this year. The trade pact allowing all 54 African Union member countries to remove all trade barriers is scheduled to be the largest trade deal since the establishment of the WTO in 1994. The agreement was legally agreed last year with delays in the implementation due to the COVID-19 pandemic. This will commence on the Virtual Trade Diplomacy platform with companies from over 20 countries already registered.
A Long Time Coming
Africa has an estimated market of 1.2 billion people and a combined gross domestic product of $2.5 trillion. The latest statistics show intra Africa trade accounts for 15% of the value of the region’s transactions, compared to Europe (70%) and Asia (58%) our level of integration is substandard. Currently logistics accounts for an average 40-60% above the global average cost of trade, with 70% of all delays being due to goods being held at ports (largely due to heavy import duties and subsequent corruption at the borders). Another major factor is Africa’s poor infrastructure (poor railway networks) which has a significant impact on intra Africa trade. It is estimated the ACFTA will incentivise a race to develop such key infrastructure with South African rail operator Transnet recently making investments in Ghana and Nigeria. The deal forces each member to reduce further barriers like streamlining customs procedures, reducing their wide infrastructure gaps, and improving their business climates with an estimated 33% growth in regional GDP expected.
The COVID Risk
The first trade was initially scheduled to have been formalised on the 1st July 2020, this was then postponed in March this year as the majority of the world went into lockdown. There have been calls for further postponement due to fears of a second wave of the virus, most African countries are scheduled to hit their peak infection rate between August and September. Despite this the African Union is insistent that the deal will no longer be deterred by the COVID-19 pandemic, with Secretary of the ACFTA Wamkile Mene stating in a Bloomberg Interview:
“If the pandemic continues into 2021, we will develop the necessary public-health protocols to continue and to push on with the implementation of the African Continental Free Trade Area,”
African Unity?
55 AU recognised countries have agreed to join the Union so far, with 28 countries ratifying the agreement. Nigeria, the continent’s largest economy, is yet to ratify the deal due to concerns over trans shipment from countries yet to ratify the deal and are unlikely to (such as Eritrea). The ACFTA brings about more than just increased trade, it will likely empower entrepreneurs around the continent to empower themselves by opening wider opportunities. It is believed the deal could increase consumer and business sending to $6.7 trillion by 2030. The continent is predicted to go into a recession from with a pre-pandemic forecast of 5.1% scheduled to reduce to -1.6% (IMF GDP forecast). With Zambian manufacturing becoming the fastest growing industry in the country, our regional position allows for increased prosperity in the hands of entrepreneurs. Looking forward this could be the agreement that launches an Pan African industrial revolution.