African Continental Free Trade Agreement (AfCFTA) May 30th Enactment
By Florizelle Liser, President and CEO, Corporate Council on Africa
Washington DC - May 31, 2019 - Phase one of the world’s largest free trade agreement went into effect yesterday! The African Continental Free Trade Agreement (AfCFTA) officially took effect on May 30. Phase one sets Africa on the road to rapidly increase its efficiency, trade diversification, and prosperity: businesses will benefit from lower transaction costs brought by tariff elimination on ninety percent of goods and mechanisms to streamline customs procedures; citizens, particularly youth, will benefit from increased employment opportunities; and investors will gain an expanding field of investment opportunities with high yield potential. As South Africa’s AfCFTA negotiator noted at CCA’s April Working Group Meeting on AfCFTA, the successful execution of the agreement reflects the enormous political will of African leaders to overcome the complexities of significant differences in their countries’ annual per capita incomes, languages, and legal systems in order to achieve African economic integration. The execution of AfCFTA has the potential to double Africa’s gross domestic product (GDP) to $2.5 trillion per year, and will set in motion significant improvements in competitiveness that will reshape global value chains.
The greater ease of doing business between African countries will translate to more, and safer, investment opportunities for international businesses. Under AfCFTA, intra-African trade is expected to grow by 52.3 percent by leveraging and integrating existing regional economic communities (RECs) across the continent. The elimination of tariffs and excessive customs procedures will enable the development of regional value chains, where smaller African countries can produce parts that are integrated and exported by company hubs based in larger countries. This development will grow manufacturing employment opportunities and stimulate the growth of critical ancillary service industries—including, telecommunications, finance, and logistics—that will support Africa’s competitiveness in the goods trade. Increased African regional and global trade will grow consumer demand which will spur increased foreign and domestic private investments across many sectors – for example in health, creative industries, and IT, and will benefit Africa’s small and medium-sized business community, similar to how the development of value chains spurred technological and investment advancement in the Asia-Pacific Economic Cooperation (APEC) community. Ultimately, AfCFTA has the potential to transform Africa by facilitating the development of nascent industries like manufacturing, diversifying exports and reducing dependence on volatile commodity markets, and providing investors with attractive opportunities to invest in infrastructure or innovative digital and green business solutions.
Unlocking the full potential of AfCFTA will require significant hard infrastructure investments in roads, ports, and airports, as well as soft infrastructure that will eliminate red tape and facilitate more efficient cross border procedures. Investors should be encouraged by the potential for significant returns on investments the creation of value chains and new business development can bring. The International Monetary Fund (IMF) estimates, under a successfully implemented AfCFTA, Africa will generate combined consumer and business spending of over $4 trillion and a significant increase in Africa’s overall ranking on the Global Competitiveness Index in the short and medium term. Furthermore, investors should be encouraged by the African Union’s estimation that African markets will grow twice as fast as the developed world through 2050.
Phase two of AfCFTA will begin in August 2019. Then, member states will shift their attention to developing subsidiary agreements on investor protection, competition policy, and intellectual property rights. Phase two will present challenges like phase one: integrating multiple legal frameworks and deciding what regulations to place on data protection and other innovative platforms. However, much like Phase One, we expect African leaders’ political commitment to maintain the blazing pace of negotiations we have observed in the last three and a half years. As African countries implement more and more of the AfCFTA provisions, the potential for growth across a $2.5 trillion integrated market of 1.2 billion people will expand. As Africa continues to transform itself, American companies will benefit from engaging African partners to capitalize on Africa’s emerging market and business opportunities.
“Advancing A Resilient and Sustainable U.S.-Africa Partnership” will be the theme of CCA’s 12th U.S.-Africa Business Summit to be held June 18-21 in Maputo, Mozambique. AfCFTA and the new U.S. Government (USG) “Prosper Africa” initiative are among the topics that more than a dozen African Heads of State, a Senior USG delegation, and hundreds of U.S. and African business executives will discuss at the Summit. Congratulations to Africa on the AfCFTA enactment and best of luck to Americans as we engage with African government and business leaders to reap its benefits!
About Corporate Council on Africa (CCA)
Corporate Council on Africa is the leading U.S. business association focused solely on connecting business interests between the United States and Africa. CCA uniquely represents a broad cross section of member companies from small and medium size businesses to multinationals as well as U.S. and African firms. Learn more at www.corporatecouncilonafrica.com
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