Africa hosts the world’s largest free trade area
The purpose of the free trade agreement is to increase trade between the countries of Africa and to diversify production.
The African Continental Free Trade Agreement (AfCFTA) entered into force at the beginning of 2021. The agreement between 54 Member States of the African Union opened a free trade area of 1.3 billion consumers. The number of the participating countries makes the new free trade area the largest of its kind in the world.
The single market was created in order to increase trade between the countries of the continent. Currently, intra-African trade accounts for only 17 per cent of the countries’ total exports, while the corresponding figure in Europe is 69 per cent.
“Previously, African countries developed their trade through the Regional Economic Communities (RECs), but by establishing the AfCFTA they took a more ambitious step. A continent-wide free trade agreement is a part of an effort to promote mutual cooperation within the continent, people’s mobility, economic growth, development, wellbeing and peace,” says Director Pasi-Heikki Vaaranmaa from the Trade Policy Unit of the Ministry for Foreign Affairs.
The key objectives include promoting industrial development and diversifying production and exports.
The agreement will eliminate tariffs on 90 per cent of intra-regional trade flows, allowing the poorest countries to do the same in twice as long time as the rest of the countries. It has been estimated that the agreement could boost Africa’s income by as much as EUR 365 billion by 2035 and benefit the rest of the world by EUR 62 billion.
“In a world plagued by protectionism, African countries want to promote business and remove barriers to trade, which is of a symbolic importance, too. The practical benefits of the agreement will depend on how it is implemented, and this will involve also challenges. A free trade agreement is not the only means to improve the business environment,” says Vaaranmaa.
In the first phase, the AfCFTA will cover trade in goods, trade in services, and the dispute settlement rules and procedures. The Protocols on Investment, Competition and Intellectual Property Rights will enter into force by summer 2021.
Economic recovery, returning to the growth track and escaping poverty are particularly critical issues now that the countries are trying to cope with the effects of the COVID-19 pandemic. During the COVID-19 crisis, falling oil prices in particular led to a downturn in many economies that rely on trade in raw materials.
“At first, the benefits of the free trade area will be limited to the African countries. The continent’s economic growth and integration will open business opportunities for others, too, of course, including Finnish companies. In the long term, the EU and African countries will be able to establish more equal trade relations based on the AfCFTA,” Vaaranmaa says.
The European Union and the EU Member States have supported African free trade and integration for years. In 2019, the EU supported the implementation of the AfCFTA by approximately EUR 32 million. Economic development in Africa is supported also through investments. Finland is preparing an Africa strategy, which is expected to help to deepen the relations with the countries of the continent.
The first Secretary General of the AfCFTA Secretariat is Wamkele Mene from South Africa. The Secretariat was officially opened in Accra, Ghana, in August 2020, and offices will be set up in other Member States later.