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Africa Set to Become Largest Free Trade Zone in the World

November 26, 2018

Thanks to the March 2018 signing of the African Continental Free Trade Agreement AfCTA in Kigali, Rwanda, Africa will soon become home to the largest free trade area in the world.

African handcrafted goods featured at a local market. Goods like these, largely crafted by women, should substantially increase in sales when the African Continental Free Trade Agreement (AfCTA) goes into effect.

The agreement will bring 55 countries together in a network allowing free trade between the various countries on the continent. Those 55 countries represent a single market with over 1.2 billion people and a total Gross Development Product of $2.5 trillion.

The AfCTA creates a tariff-free zone that allows local business and intra-Africa trade to grow like never before. As part of the arrangements when member nations sign, they must agree to remove tariffs on a minimum of 90% of the products produced in their countries.

This is a big step for the continent, as it will bring down customs barriers between the countries. It will also eliminate one of the stranger aspects of African business, that sometimes it is easier to source goods such as sugar from France, chocolates from Switzerland, toilet paper and milk from Holland, and toothpicks from China, despite that all these goods are readily available closer to home in Africa.

As Vera Songwe, executive secretary of the UN Economic Commission for Africa (ECA) said in a recent interview, “The types of exports that would gain most [under the agreement] are those that are labor intensive, like manufacturing and agro-processing, rather than the capital-intensive fuels and minerals, which Africa tends to export.”

As to who will benefit most from the business increase, Africa’s youth, who are often involved in some of the newer business categories, and African woman, who account for 70% of informal cross-border trading, are two groups who will likely see immediate sales increases and higher profits after AfCTA is fully operational.

After the initial 44 countries signed up for AfCTA in March, five more were added to the list during an African Union summit in Mauritania in June. More are coming soon, attracted by the many upsides for being part of this free trade region.

One catch in the process is that just committing to become part of AfCTA is not enough. Each country which wants to become part of AfCTA must submit instruments of ratification in order to become part of it, and the AfCTA will not even go into effect until a minimum of 22 countries have signed up and submitted their ratification instruments. As of July 2018, only Chad, Eswatini (formerly known as Swaziland), Ghana, Niger and Rwanda – six countries in all – had submitted such instruments.

Those ratifications are expected to come fast, despite the initial sluggishness in their receipt. With the ECA estimating that intra-African trade should increase by 52.3% by 2020 when the continent if fully signed up to AfCTA, there is a lot of new business, jobs, and profit at stake for all. Consumers will also benefit as cross-border costs and even international shipping fees will no longer be part of the cost of many goods sold within the continent of Africa.

Copyright: North America Procurement Council Inc., PBC