What are the African Union and the African Continental Free Trade Area (AfCTA)?

The African Union is a continent-wide body consisting of 55 African member states. It was established in 2002 to end the lasting impact of colonialism, promote greater African unity, and make Africa a leader in the global economy.

The AfCTFA is the name given to the new trade agreement signed by 54/55 members of the African Union to create a single market for goods and services. Once up and running, the AfCFTA will be the world’s largest free trade area by number of countries, representing 1.3 billion citizens and $3-4 trillion in spending and investment power.

Eritrea is the last African nation yet to sign the agreement.

WHAT IS A FREE TRADE AREA? WHAT IS A SINGLE MARKET?

The purpose of both a free trade area and a single market is to increase trade between member countries by making it easier for them to trade with each other. A free trade area is a zone whose member states agree to remove tariffs (import and export taxes) and quotas on goods when they trade with one another. This is different from a single market, which goes further than a free trade area by removing other barriers to trade, such as differences in labour and environmental standards or safety regulations.

Despite its title, the AfCFTA is an agreement to create a single African market. Not only will the agreement remove 90% of tariffs on goods, it will also apply to services, introduce competition laws to prevent certain countries or businesses from having a monopoly (where a company or group have control over a market) and allow for the free movement of business people.

WHY IS IT RELEVANT?

Whilst African trade with other countries has grown rapidly, trade between African states has been decreasing. In 2017, only 17% of all African exports were to other African nations, compared with 68% in Europe and 59% in Asia. This means that Africa has a lot of economic potential within itself.

WHAT IS THE POTENTIAL IMPACT OF THE AfCFTA?

By simplifying trade between African countries, the AfCFTA could help Africa achieve its full economic potential. It would boost trade within the continent and develop new supply chains, as well as attracting long-term investment from countries outside the African Union.

However, free trade areas do not come without risks. Although trade can be a powerful driver of economic growth, its benefits are often not spread equally. It is important to remember that different African economies are at different stages of development. For example, there is a big difference between the Nigerian economy, the biggest in Africa, and the Liberian economy, which has been severely damaged by years of civil war.

In order to make this trade agreement a good deal for everyone, and not just Africa’s biggest economies, the creation of a single African market would need to be managed by supportive policies to protect the more vulnerable economies.

SELIN MILWARD

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