Free Trade Agreements in Africa: Opportunities, Challenges and Policy Recommendation

Overview

Free trade agreements (FTAs) are a powerful tool for promoting economic growth and development, by reducing barriers to trade and encouraging investment and innovation. In recent years, Africa has seen a surge in FTAs, as countries on the continent seek to expand their economic opportunities and enhance their global competitiveness. However, the impact of FTAs on economic growth in Africa is a complex and contested issue, with both potential benefits and challenges to consider.

Africa is a continent significantly endowed with rich and natural scarce resources, dynamic cultures and traditions as well as morally tailored people, rich lands in addition to different animal species. Africa is a continent like any other that first started with trade as an exchange of barter, and then over time embraced the evolution of commercial activities with the exchange of a monetary piece or instrument to facilitate delivery of resources in all areas of the continent. As time went by and trade increased in the continent to exporting to other nations within and outside, the need for the establishment of some major economic organizations rose in order to improve growth and facilitate trade in Africa and other continents.

The free trade agreement is a pact or treaty between two or more nations to facilitate imports and exports as well as develop trade and investments in cooperating areas while cutting off all normal international trade restrictions, barriers, costs and difficulties which in the ordinary course may have hindered the trade activities across the countries. Africa has several free trade agreements (FTAs) that aim to promote trade and economic integration within the continent. These agreements among others include: East African Community (EAC) Common Market which came into effect in 2010, Southern African Development Community (SADC) Free Trade Area established in 2008, Economic Community of West African States (ECOWAS) Trade Liberalization Scheme (ETLS) established in 1979, Common Market for Eastern and Southern Africa (COMESA) established in 2000, African Continental Free Trade Area (AfCFTA) signed in 2018 and which came into effect in January 2021.

Free Trade Agreements in Africa was adopted in 2018 by the Africa Union in the quest for international economic organizations which brought about the establishment of the first African Continental Free Trade Area (AfCFTA) located in Kigali, Rwanda to act as a potential to increase trade and investments in Africa in addition to executing all objectives of a Free Trade Agreement (FTA) and expanding opportunities for all Africans. As at February 2023, 46 of the 54 signatories (85.2%) have deposited their instruments of AfCFTA ratification.

According to the agreement establishing the African Continental Free Trade Area, inclusive of its 15 general and specific objectives, the AfCFTA has been able to achieve its subsections (b),(e),(g)of its general objectives and has successfully implemented all its specific objectives. The agreement has since its establishment, significantly reduced tariff costs, fostered manufacturing and exports of goods and resources, increased employment opportunities and incomes. The AfCFTA has promoted an increase in member and non-members exports.

Challenges of Implementing FTAs in Africa

As much as Free Trade Agreements unanimously act as a stepping stone towards trade liberalization and economic growth improvement, it should also be acknowledged that no integration or formation is perfect, it is certain to have loopholes that may lead to the need for a thorough restructuring and revisit of procedures of achieving it objectives by the governing bodies.

Free trade agreements (FTAs) in Africa have the potential to create significant opportunities for economic growth and development. However, FTAs face several challenges that impede their effectiveness and success. One of the major challenges is the inadequate infrastructure in many African countries. This includes poor road networks, insufficient power supply, and limited connectivity, which hinder the smooth flow of goods and services, making it difficult for countries to fully take advantage of the opportunities presented by free trade agreements.

Another challenge facing FTAs in Africa is the wide disparity in economic development among African countries. While some countries have advanced manufacturing and agricultural industries, others are highly dependent on primary commodities. This disparity makes it difficult for some countries to compete with others, limiting the benefits of free trade. Additionally, non-tariff barriers such as technical regulations, product standards, and licensing requirements can hinder trade and investment flows, making it difficult for countries to fully realize the benefits of free trade agreements.

Political instability and conflict also pose significant challenges to FTAs in Africa. Disruptions in trade flows and investment can make it difficult for countries to take advantage of the opportunities presented by free trade agreements. Weak institutional frameworks, inadequate legal and regulatory systems, and a lack of funding for implementing free trade agreements are additional challenges that must be addressed.

The problems of insufficient trade data availability, health control coordination at the border, business survey facilities and a laydown of adequate provisions of policies has restrained some business investors in Africa and made successful foreign entrant compete intensely with domestic industries which have led to loss of jobs due to heavy labour practices and an increase in cost of living of the Africans.

FTAs Benefits and Future Outcomes

Prior to the free trade area in Africa, there was low intercontinental trade within Africa and most nations therein focused largely on ruling its people, producing enough for their use while also maintaining peace and harmony in the region. However, all these have tremendously improved since the establishment of the AfCFTA and these nations have seen the brighter side of economic integration and harmonization with the following highlighted impacts enacted on the growth of Africa;

• Increase in the revenue generated from exports and trade rose to about 70 percent in major African countries inclusive of Kenya and Uganda.
• The agreement has hugely reduced the hurdles involved in intercontinental transactions and has as such greatly influenced a highly interpersonal social relationship between Africans.
• Africa being highly endowed in some of the worlds’ most scarce resources now has an avenue to sell at any economically beneficial price its excesses after production and processes while retaining a sufficient amount for its people.
• Reduction of import quotas and establishments of peaceful trade area settings.
• In many respects, attained a historic milestone towards trade liberalization.

With respect to all the outlined accomplishments, the AfCFTA is currently planning an expansion on the agreement which would, if successful, further harmonize policies on investments, competition, ecommerce and intellectual property rights. It should be noted that if the AfCFTA goals are fully realized, 50 million people could escape extreme poverty by 2035, and real income could rise by 9 percent.

Policy Recommendations and Lessons for Future FTAs in Africa

In 2018, prior to the establishment of a Free Trade Agreement in Africa, the Africa Union heads of state adopted two key instruments- African Continental Free Trade Area (AfCFTA) agreement and a Free Movement Protocol relating to free movements of persons, rights of residence and right of establishment. But while Africa is on track to achieve free trade and liberalization achieving the objectives of the first instrument, the free movement of people is lagging. The policies of free trade agreements should be restructured to strengthen businesses, cut down tariffs and border costs, prioritize trade facilitation measures, address non-tariff barriers, engage with the private sector, build technical capacity, foster regional integration, address concerns of smaller economies, and promote social and environmental standards. These measures would promote greater market access, reduce the cost and time associated with moving goods and services across borders, protect the interests of smaller economies, and ensure that trade is conducted in a sustainable and responsible manner. Future lessons should be to strategically plan, analyze, implement other agreements, as well as reviewing the costs, benefits and unavoidable setbacks.

Conclusion

Free Trade Agreements (FTAs) have the potential to drive economic growth and development in Africa by promoting greater trade, investment, and regional integration. FTAs in Africa have historically focused on reducing tariffs, but future agreements should also address non-tariff barriers, engage with the private sector, build technical capacity, foster regional integration, address concerns of smaller economies, and promote social and environmental standards. These measures would promote greater market access, reduce the cost and time associated with moving goods and services across borders, protect the interests of smaller economies, and ensure that trade is conducted in a sustainable and responsible manner. By adopting these policy recommendations, FTAs in Africa can support increased trade and economic growth on the continent.

References

African Union Commission. (2019). Key policy recommendations for enhancing intra-African trade. Retrieved from https://au.int/en/newsevents/20190912/key-policy-recommendations-enhancing-intra-african-trade

African Union. (2023). African Continental Free Trade Area (AfCFTA). Retrieved from https://au.int/en/ti/cfta/about

United Nations Economic Commission for Africa. (2018). Assessing regional integration in Africa VII: Innovation, competitiveness and regional integration. Retrieved from https://www.uneca.org/publications/assessing-regional-integration-africa-vii-innovation-competitiveness-and-regional

World Economic Forum. (2019). 5 challenges facing Africa’s free trade area. Retrieved from https://www.weforum.org/agenda/2019/03/5-challenges-facing-africas-free-trade-area/