Trade Officially Begins Under Largest Free Trade Area

Smyrna, DE – On January 1, 2021, African Union leaders and the people celebrated the official trading of the African Free Continental Trade Area (AfCFTA). The AfCFTA is the world’s largest trading area. According to AfCFTA Secretary-General; H.E Wamkele Mene, the AfCFTA launch is one of the signature projects of African Union founders. The Secretary-General touted the benefits Africans are expected to get from the AfCFTA but was quick to underscore the challenges that must be overcome for this experiment to succeed.

Since the founding of the Organization of Africa Unity (OAU) in 1963 now the African Union, the founding father of this continental body has embarked on loosening the shackles of colonial grip on the continent. They succeeded by gaining political independence but failed to gain economic independence. According to Secretary-General Mene, the AfCFTA is the last attempt by African leaders to free the continent from colonial domination.

The AfCFTA will be serving the continent’s 1.3 billion people. 54 of Africa’s 55 countries have signed the AfCFTA and 34 have ratified the agreement. Eritrea is the only African country that has not yet signed the document.

According to the World Bank, trade under this agreement has many benefits for Africans. The Bank noted that about 100 million Africans will be lifted out of poverty as the direct result of the AfCFTA. Other experts predict that women’s income will increase under this agreement because women are usually the ones who dominate cross-border trade on the continent. Further analysis points to the manufacturing sector bringing in close to $540b by the year 2023.

While the African free trading area is expected to be rewarding, it is important to stress that the challenges are equally many and will call for the patience of Africans and the political will of continental leaders to make the experiment a reality.

Africa is not a country but a continent with 55 countries, many different currencies, different customs and tariffs, and lack of infrastructure in many of these countries. That means to be successful, countries must harmonize their customs and tariff policies and improve their infrastructure.

Dr. Benedict Oramah, President of the Africa Export-Import Bank (Afreximbank), who also spoke during the launching ceremony on January 1, said that the bank is working with AfCFTA leaders and will be investing $40b in different areas to improve the capacity of countries where such are lacking.

Secretary-General Mene told his listening audience that he is under no illusion that launching a project on such a massive scale is going to be easy. He points out that it takes the European Union not years but many decades to get to where they are now, and Africans should not expect that things are going to be easy. Secretary Mene said that not because a problem is difficult, the continent should not make the effort. He notes that achieving the AfCFTA objectives are challenging but continent leaders cannot wave their hands and leave the problem to others. “We have to start somewhere, and we have to try.”

One of the issues that traders are expected to encounter is how to address the different currencies across this vast continent. According to officials, one way that they have agreed to deal with the problem of multiple currencies is that say a customer in Nigeria wants to purchase a cellphone in Rwanda, the Nigerian customer will pay for the cellphone in what they describe as his home currency and the seller in Rwanda will be receiving payment in Rwandan currency. AfCFTA officials noted that if this practice succeeds it will eliminate the hardship customers go through to look for, say change his local currency to United States Dollars or British pound, or French franc. This they say increases the price that the customers must pay to buy the cellphone.

Secretary Mene boasted that launching the AfCFTA is a big step in not just increasing Africa’s participation in the global economy but in a significant way, increasing intra-Africa trade. Today, many African countries ship raw materials to most western countries and get those same materials back at higher prices. They trade without any value-add initiatives but now under the new continental trade agreement African countries will trade more with each other and there is likely to be value-added since Africa manufacturing will improve at add value as finished products and not raw materials will be exported to the world. If it happens, there will be employment opportunities for Africans, especially for women and young people.

As indicated earlier, the issue of tariffs and customs policies across the vast continent is expected to be a big challenge for AfCFTA officials. However, Wamkele notes that close to 90% of the tariff will be eliminated as trading begins and continues. Although the Secretary-General was not specific as to how they will eliminate the 90% tariff, experts predict that the benefits of trading with each other will produce jobs in local communities that will by far exceed tariffs put in place by various countries.

Regional economy blocks that have their own trade agreement will have to play their part as the AfCFTA is off the ground. The Secretary-General said that everything is being done to integrate all these Regional blocks under the unified AfCFTA.

Secretary-General Mene acknowledges that the AfCFTA is a massive undertaking with many challenges, but implementing this project not only breaks one of the last colonial-era controls over the continent but also creates an avenue for improving Africans lives.  African leaders and people are excited about the AfCFTA launch and are hopeful that despite those challenges, this initiative, one of the key flagships of the African Union Agenda 2063 will bring economic improvement for the African people. African Union Chairman, South Africa President Cyril Ramaphosa, and Ghana President Nana Akufo-Addo pledged that leaders are as excited about the AfCFTA as the people are and will do all they can to ensure that barriers are removed, and any problems are expeditiously addressed.