The African Continental Free Trade Agreement (AfCTA), a plan to boost intra-Africa trade by removing tariff barriers, came into force on 30th May 2019, with Nigeria and two other countries missing.
Fifty-two (52) African countries ratified the trade agreement while three – Nigeria, Benin and Eritrea – are yet to sign. Nigeria’s exclusion looms large considering that it is the largest market in Africa and given its role during initial negotiations. Indeed, Nigeria was considered to host the AfCTA secretariat until a late withdrawal. From our observation, lobbying and concerns by the private sector, notably manufacturers, have caused delay in approval. We note that there is still the opportunity for Nigeria to join the trade bloc. Securing a seat at the stable ensures that Nigerians can influence negotiations and protect national interests. While the agreement is not a silver bullet, due to structural barriers to trade, we see many benefits.
But there is still a lot of work to be done around the standards and processes of the agreement. The full implementation of the agreement could extend into the medium-term, but we believe it is a good foundation for the future.
The AfCTA would lead to the removal of tariffs on 90.0 per cent of goods and liberalisation of services while tariff on 10.0 per cent of traded goods is expected to be phased in later. The trade bloc offers a potential market of over 1.2 billion people and a GDP size of $3.0 trillion. According to UNCTAD, there is the potential for intra-African trade to rise to 15.5 per cent as a share of total African trade by 2022 compared with 10.2 per cent from 2010.
The AfCTA plans to ease non-tariff barriers to trade on the continent, such as the reduction of red tape (which improves the time to export and import), removal of quotas & licenses, and easing of rules of origin, among others. Also, it is expected that the agreement would lead to cheaper consumer goods prices which will drive improved wellbeing and promote access to cheaper intermediate goods for the industrial sector. There is also the case for economies of scale as firms try to sell to the bigger African market, leading to increased efficiency.
