Africa's free trade area has a slow take off

The African Continental Free Trade Area (AfCFTA) celebrates its first anniversary on January 1, 2022.

With exception of Eritrea, all African countries are signatories to the agreement.

Over time, ratifying counties pledge to eliminate import tariffs on 97% of goods traded between African states.

Many hope this will increase trade between African countries, which will in turn boost manufacturing and create jobs, bringing more prosperity and social equality to those on the continent.

African nations currently trade more internationally than with each other. Intra-African trade accounts for 17% of African exports, which is low compared to 59% for Asia and 68% for Europe, according to the World Economic Forum.

But AfCFTA wants to do more than just boost trade in goods — its scope includes services, investment, intellectual property rights and competition policy, although these aspects are still under negotiation.

The continental body aims to achieve these dreams by 2064.

But since Africa officially started trading under AfCFTA in January 2021, the practical impacts of the agreement have been minimal, said Matthias Boddenberg, head of the German Chamber of Commerce and Industry for Southern Africa. 

Disruptions of global supply chains due to coronavirus restrictions in 2020 limited AfCFTA's potential, Boddenberg said.

"Manufacturers in neighboring Botswana couldn't supply wiring harnesses for the auto industry in South Africa because borders were closed," he said, giving an example. 

Tanzanian economist Gabriel Mwang'omda, however, believes the free trade area is a learning curve for the continent.

He argued that Africa's vastness makes it impossible for AfCFTA to be fruitful within a year.

"This was expected that we are going to start slow," Mwang'omda told DW.

A rough start

In the pre-pandemic era, African trade in goods and services amounted to around 3% of global exports and imports.

In 2019, African countries recorded exports of $462 billion (€407 billion) and imports of $569 billion in merchandise trade. This constituted a fall of 3% on average compared to 2018.

The World Trade Organization (WTO) and the International Monetary Fund in their October 2020 global trade forecasts downgraded Africa's economic growth by –8.0% and 3.0% respectively. 

The World Bank also confirmed it with –3.3% in 2020.

This slump pushed the region into its first recession in 25 years, driving up to 40 million people into extreme poverty across the continent and erasing at least five years of progress in fighting poverty, according to the WTO.

AfCFTA began its operation against the backdrop of these economic forecasts.

Other issues also slowed down the uptake of trade opportunities under the agreement.

According to Boddenberg, African companies, especially those in smaller countries, weren't sufficiently informed about what the agreement's benefits.

"If the African Union was to conduct direct marketing campaigns to companies, it could boost intra-African trade," he told DW. 

For Mwang'omda, the trade deal does not have the necessary full backing despite the fact that almost all countries are signatories to it.

"The political will is not 100% and not every country is committed to implementing this free trade area agreement," he said.

Digital boost

There are high hopes that all 54 signatory countries will grow together to form a single market.

Although the COVID pandemic delayed the start of the free trade zone, economists said the pandemic also had some benefits: The lockdown to curb the spread of the virus forced many companies to go digital and start using online solutions to reach employees, customers and clients.

The extent to which companies have benefited from economic growth and new jobs across national borders will only become apparent later.

Promoting free trade in Africa necessiates more than the AfCFTA agreement, experts said. 

The continent needs to construct vital infrastructure such as roads, bridges, rail and air routes to make intra-African trade easier.

"It is still more expensive to fly from Tanzania to DR Congo, than from Tanzania to China, Dubai or India," said Tanzanian economist Gabriel Mwang'omda. "A Kenyan trader will prefer to buy sugar all the way from Brazil than from neighboring Uganda." 

"This tells you that bad infrastructure is hindering the smooth implementation of the free trade area," Mwang'omda added.

There are other hurdles, such as long waiting times at border crossings, corruption and excessive bureaucracy.

But ongoing negotiations to shape the agreement are taking place behind closed doors and it is impossible for non-state actors to see how they are developing.

Another big challenge is that little data is available on trade in Africa, according to Alastair Tempest, managing director of the South African industry association Ecommerce Forum Africa.

Regional economic blocs

There are currently eight regional economic blocs recognized by the African Union, including the East African Economic Community (EAC), the Economic Community of West African States (ECOWAS) and the Common Market for Eastern and Southern Africa (COMESA). 

Alastair Tempest said he thinks these blocks will use the African-wide trade deal for their own benefit.

"What is certain is that some of the regional economic communities will promote the development of trade within their own borders with new regional value chains," he said.

But Tanzanian economist Mwang'omda isn't so optimistic. He believes the many issues between AfCFTA and the current regional economic blocs poses a major hurdle to free trade across the continent.

Edited by: Kate Hairsine and Keith Walker