In July 2019, during the AU summit, the number of signatories to the African Continental Free Trade Agreement (AfCFTA) agreement increased to 54 out of 55 after Nigeria and Benin signed, leaving Eritrea as the only country yet to get on board. Also, with 27 countries having ratified, the operational phase was launched with the agreement looking to take effect in June 2020.
Once the agreement takes effect, it will establish a single African market that will cause intra-regional trade in the continent to soar. According to the United Nations Conference on Trade and Development (UNCTAD), intra-African trade in 2017 stood at 17 percent. Compared to Europe and Asia, where intra-regional trade stood at 69 percent and 59 percent respectively, this is considerably low.
In increasing intra-African trade, African economies will be able to increase their economic growth. However, this will not be felt uniformly as some economies will reap more from the agreement. For instance, economies such as Algeria and Sudan will likely benefit the least. This is due to their political and security scenarios. Both countries have been facing protests, with Algeria even postponing their election after Abdelaziz Bouteflika tried to run for president for a fifth term. The uncertainty surrounding the political situation in the country undermines its ability to trade and benefit from a regional value chain.
In Sudan, protests have been on due to a deteriorating economy and rising living costs. Even though the protests caused the ouster of President Omar Hassan al-Bashir, transition to a new government will be lengthy. The uncertainty created is expected to cause a drop in foreign direct investment for the country thus decreasing their benefits from AfCFTA.
African countries that rely on resources such as Zambia and Chad might experience a decrease in their profits as other economies increase productivity. These countries will end up losing their comparative advantage as the developed economies that relied on their resources shift to other economies in the continent.
On the other hand, countries with a well-established manufacturing base and good international relations such as South Africa are expected to see more benefits. The agreement is set to reduce or completely remove tariffs which will benefit the country as it can grow its exports to African countries. Already the country exports and imports more to African nations. With little to no restrictions, South Africa will increase its imports from other African nations thus, reducing reliance on imports from Europe and Asia which are expensive.
There is need for policies, that will focus on the healthy competition without necessary limiting local businesses. In doing so, the continent will avoid future Brexit in the new bloc.
Additionally, at a time the country is facing a high unemployment rate, the free movement of people will create an opportunity, especially for the youth. The country is also expected to receive additional and quality FDI due to being a competitive exporter of goods. This will be crucial in supporting its development goals. Kenya is also another country that is bound to benefit well due to its large manufacturing base as well as improved transport infrastructure. As a result, more countries will look to enter into economic arrangements with it to benefit.
Rising economies such as Ethiopia and Rwanda are also expected to attain maximum benefits from the agreement. The countries have focused on making better relationships with other African countries and increasing investments. For instance, Rwanda is attracting more companies to its shores by having regulations that make it easy to open a business in the country. This is expected to attract major African countries to the country once the agreement is fully in effect.
Ethiopia is reforming its policies as well as increasing its generation of power; with these measures in place companies are expected to invest in the country in numbers. Also, being among the fastest-growing countries in the world, rising economies in the region are in a position to attract experts in various sectors to help them grow their industries and understand what the market needs. the countries also have an opportunity to identify new countries to export their products within the continent.
Smaller economies such as Ghana and Ivory Coast are expected to see benefits as they link up to the regional value chains. Due to the good business environment and the link-up, larger industries will look to smaller industries in these countries to source their supplies thus helping the industries grow. As a result of being open economies, these nations are also expecting major companies to penetrate their markets thus promoting economic growth.
At the end of the day, all African countries will benefit from the agreement, but it will not be equal. There is a need to ensure that no member country is left behind in terms of the benefits. Also, there is a need for policies, at the individual country level as well as a bloc, that will focus on the healthy competition without necessary limiting local businesses. In doing so, the continent will avoid future Brexit in the new bloc.