Africa’s New Free Trade Area: 5 Reasons why it is a game changer
Africa currently accounts for only 2% of global trade. And only 17% of African exports are intra-continental which is low when compared to 59% and 68% for Asia and Europe respectively. Launched on the 1st of January, the African Continental Free Trade Area (AfCFTA) has been poised to be the game changer that will see the continent harness its full potential.
This pact is going to create the largest Free Trade Area in the world measured by the number of countries participating. AfCFTA will connect 1.3 billion people across 55 countries with a combined GDP valued at $3.4 trillion.
The aim of the agreement is to reduce all trade barriers, costs and to enable Africa to integrate further into global chains.
Here are 6 reasons why the AfCFTA is a game changer,
- The AfCFTA will reduce poverty.
A recent report by the World Bank stated that the pact will boost regional income by 7% ($450billion), increase wage growth for women, and also lift 30 million people out of extreme poverty by 2035. It also mentioned that the wages pf both Skilled and unskilled workers will be boosted by 10.3% for skilled workers and 9.8% for unskilled workers.
- Positive economic outcomes will be many and varied.
It has been estimated that the agreement will increase Africa’s exports by $560 billion, mostly in manufacturing. Exports between countries would also increase by 81% while the increase to countries outside the continent would be 19%. Markets and economies across the African continent will be reshaped, which will lead to the expansion of key sectors thereby making these countries to compete globally.
- Women will benefit from the Agreement.
According to the Economic Commission of Africa, 70% of informal cross-border traders in Africa are made up of women. As AfCFTA clearly focuses on improving lives of African especially women, the tariff reductions will enable informal women traders to operate through formal channels thereby reducing harassment, violence, confiscation of goods and even imprisonment.
It will be close the gender income gap and give SMEs the opportunities to access new markets.
- Trade Integrity
The agreement will promote good governance across Africa and Globally through the concept of “Trade Integrity” which is defined as international trade transaction that are legitimate, properly priced and transparent. This will ensure the legitimacy of trade among African countries and with the rest of the world.
- It will cushion the effect of Covid-19.
The African Development Bank Group’s African Economic Outlook (AEO) 2020 supplement estimates that Africa could suffer GDP losses in 2020 between $145.5 billion (baseline) and $189.7 billion (worst case), from the pre-COVID-19 GDP estimates.
AfCFTA offers a short-term opportunity for countries to rebuild and cushion the effect of the pandemic. In the longer-term, the pact will strengthen the continent’s resilience to future shocks.
Reference: World Economic Forum