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Harnessing Africa’s Free Trade Agenda

5 July 2023
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Overview

  • This is the first part in a series of articles on the African Continental Free Trade Area (AfCFTA).
  • The AfCFTA agreement has the potential to be a landmark initiative that can transform the trade and investment landscape of the African continent.
  • With its ambitious vision of fostering intra-African trade and boosting economic growth, the AfCFTA aims to propel economic development by promoting trade liberalisation, facilitating regional integration, and enhancing cooperation among African nations.
  • The AfCFTA architecture comprises the treaty and its protocols. To operationalise the protocols, there are various annexes and schedules, which set out the mechanics and tools to facilitate cross-border trade and investment.

This is the first in a series of articles on the African Continental Free Trade Area (AfCFTA) agreement. The aim of the series is to unpack the agreement’s various protocols and related matters and highlight:

  • key opportunities and potential inhibitors for business to consider in undertaking a regional growth strategy;
  • the roles of legal advisors in navigating the AfCFTA institutions and member states in supporting a regional trade or investment strategy; and
  • avenues for the private sector to influence the trajectory of the implementation of the AfCFTA instruments.

Member States that have signed the AfCFTA agreement have a combined population of 1.3 billion people with a GDP of USD 3.4 trillion. However, foreign direct investment (FDI) into Africa and intra-regional trade have generally been minimal. This is largely as a result of small and fragmented markets, disparate regulations, low consumption demand, ineffective trade and investment facilitation instruments, inhibited competition law enforcement with respect to conduct affecting trade across the continent, and non-tariff barriers.

African governments have committed to ameliorating these challenges, thereby improving the continent’s internal and external investment climate. The AfCFTA agreement and its corresponding operative instruments (the protocols) are concrete initiatives in this regard.

Impact on the internal market

The World Bank Group estimates income potential gains of USD 450 billion dollars. Most of this will be achieved through trade and investment facilitation by easing border crossing and replacing regulatory obstacles with optimal regulatory regimes to effectively manage cross-border trade and mergers and acquisitions, among others.  This is ultimately aimed at making it easier for African businesses to integrate regionally and tap into global and regional supply chains.

Impact on foreign direct investment

African governments estimate that global FDI inflows will increase by over 110%, and levels of FDI to increase by at least 50%.  Key sectors and value chains in this equation include rubber and plastics, processed foods, wood and paper products, air-transport, hospitality, chemicals, and pharmaceuticals. The energy, communications, banking, and transport sectors are other focus sectors.

Enablers of benefits under AfCFTA

Key to achieving the benefits identified above is the confidence of the private sector in the AfCFTA architecture and institutions. This will be determined by, inter alia, the effectiveness of legal frameworks governing market entry and conduct, the credibility and capacity of the institutions supporting the AfCFTA’s implementation and, importantly, access to justice and dispute resolution mechanisms before courts or tribunals. Minimising information asymmetry among member states and compliance costs to business will be a key litmus test.

The operational architecture

The AfCFTA architecture comprises the treaty and its protocols. To operationalise the protocols, there are various annexes and schedules that set out how cross-border trade and investment will occur. The protocols already in place include:

  • Protocol on Trade in Goods
  • Protocol on Trade in Services
  • Protocol on Rules and Procedure on the Settlement of Disputes
  • Investment Protocol
  • Competition Protocol