What is AfCFTA & its Economic impact?
Modeled after the European Economic Block, the African version may bring in the much-needed prosperity to the region
Free Trade has been a hallmark of rapid economic development that we have seen in the last quarter of a century. North American Free Trade Agreement (NAFTA — now called USMCA) & European Economic Union (EU) have created two of the biggest trading zones in the World. These trade partnerships have more or less shown how joint economic prosperity can be achieved with such initiatives.
Another proposed trade agreement that didn't come through in its original shape was Trans-Pacific Partnership Agreement (TPP, signed Feb. 04, 2016) involving Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States. The U.S withdrew leaving the rest of the countries to ratify a new agreement on December 30th, 2018— Comprehensive and Progressive Agreement for Trans-Pacific Partnership came into effect with the remaining 11 members.
Recent Trade wars between the U.S & its trading partners especially China, and U.K’s pullout from the EU under Brexit have certainly been big setbacks to the Free trade revolution. The long term benefits of such partnerships, however, far outweigh the negatives that have been projected by these populist anti-trade sentiments. Ask a fractured & economically deprived continent like Africa with varying regulations and tariffs.
To this end, the region’s 55 countries have been working on a plan to create the world’s largest trading block. Dubbed as African Continental Free Trade Area (or AfCFTA) it can really create an opportunity to harness the region’s immense economic potential. With 44 African nations onboard AfCFTA, half of that number was needed to ratify the agreement in principle. With Gambia becoming the 22nd nation to ratify AfCFTA earlier this year, the wheels have been set in motion to make it into a reality.
Let’s look at some of the facts & numbers to make sense of it all (infographic above).
➤ Nigeria, South Africa & Egypt are the three biggest economies of the region, accounting for more than 50% of $2.3 trillion worth of the continent’s GDP.
➤ Nigeria, the biggest economy of Africa by far has not signed or ratified the agreement with most of the Sub-Saharan economies on board, including South Africa & Egypt. Benin & Eritrea are the only other abstainers in the block.
➤ Looking at the potential, only 10% of Nigeria’s annual trade takes place with its African neighbors. A major drawback for a country with such geographic, economic & strategic importance. Compare this with the intra-continental trade in Europe & Asia at 69% and 59% respectively.
➤ The five-year process which began in 2015 will finally see the implementation of the agreement in 2020.
The non-committal nature of the largest economy of Nigeria towards AfCFTA is a blow towards the credibility & eventual success of the agreement. The tenth most Oil-rich country in the World & the most affluent one in Africa has lots of economic potential with its capital Lagos on track to become the World’s largest city in the coming decades. Fierce opposition from the Labor unions in the country, however, is not helping the case.
It remains to be seen whether Nigeria would be willing to counter this pressure and opt for collective economic cooperation or decide to take a solitary path. Whatever the case, poverty-stricken Africa remains at economic crossroads.