The African Continental Free Trade Area (AfCFTA) was launched in May 2019 and the consequent agreement provides a framework for trade liberalization of goods and services once fully operational. The expectation is that the agreement will cover all 55 African countries on the continent, with a projected combined GDP of US$2.5 trillion and a population of around 1.3 billion. In terms of the size of the population, AfCFTA will be the largest free trade area in the global economy. In removing trade barriers and allowing the free movement of goods, services and people across Africa, the AfCFTA could help to increase combined consumer and business spending on the continent to $6.7 trillion by 2030. Intra-Africa trade has been historically low and exports were around 17% of total exports in 2017, compared with 68% in Europe and 59% in Asia, which is an indication of the vast potential.
It is against this background that AfCTA can be a Game Changer for the Continent and Namibia through the fulfillment of the continent’s economic potential by raising productivity and investment. This would in turn increase income levels by greater participation of the majority and reduce poverty. This should be supported by an enabling policy framework within the context of AfCTA and will hinges on the negotiations of the respective countries.
There will be challenges that need to be overcome to make way for easy and quick facilitation of people and goods on the continent because of the fragmentation. The economies of respective countries are at varying stages of development. The European Union (EU) experience teaches us to consider the scenarios around likely winners and losers. There is a need t to ensure shared prosperity on the continent, creating supportive policies, eliminating monopolies and stamping out uncompetitive behavior. Nigeria, Egypt and South Africa account for almost 50% of Africa’s cumulative GDP, while 6 island nations contribute to around 1%.
There are 7 countries that have populations of less than 1.5 million, and 3 have over 100 million. Africa comprises 16% of the world’s population but accounts for only 5% of global income. There are 27 African countries that accounts for 44.6% of the continent’s total population and are categorized as low-income countries. The remainder are distributed between lower-middle-income (18 countries, 45.9% of the population), upper-middle-income (8 countries, with 9.5 % of the population), and only 2 high-income countries ( Mauritius and Seychelles). There are 15 African countries which represent around 17% of the total African population and contribute to 7% of GDP, but are landlocked.
Unlike the rest of the world, Africa does not have an economy that acts as a fully functional trading hub. The location of Namibia and port access can create a gateway for the movement of goods on the continent especially to the landlocked countries. At the same time, it can push for forward integration in Global Value Chains (GVC) with the rest of the world. There is need for the continent to create a systemic global exporter that also imports value added goods from the rest of the continent. This would in turn provide a bridge for African countries to generate more downstream (backward) integration into GVCs and by doing so reap more gains from their participation in international trade.
There are several steps to be taken to boost intra-trade, such as fostering skills for entrepreneurship, consolidating the domestic market for competitiveness and providing more access to credit and capital. Namibia has a fully developed financial infrastructure that can also help facilitate further intraregional trade. This financial infrastructure should include complementing payment systems on the continent to further facilitate cross-border payments; creating swap arrangements across central banks and perhaps establish a multicurrency clearing center to reduce risks from trading in different national currencies. This should be accompanied by further strengthening and enhancing of regulatory framework within the Pan African Banks.
The AfCFTA could yield enormous economic benefits for Africa but trade blocs are vulnerable to collapse if member countries don’t address important issues beforehand.
The AfCTA is a Game-Changer and the opportunities must be seized.
Salomo Hei
Head of Research
High Economic Intelligence