Computers General Knowledge

Africa Free Trade Agreement: Game changer for member countries

Africa has second largest population in the world. Its common perception is about poverty and hunger. A deep analysis of poverty in Africa reveals that the continent is rich with material sources but some segments of society are not after that particular materialistic glory. They prefer to lead a simple life. Growing up on farms and enjoying a simplistic lifestyle seems to be their major goals.

Back in September, 54 countries of Africa pledged to roll out the operational phase of Africa Free Trade Agreement. Its full name is, Africa Continental Free Trade Area (AfCFTA). After its proper implementation the agreement is bound to be the world’s largest free trade agreement at a regional level, as far as the number of countries is concerned.

What exactly is a Free Trade Agreement?

A Free Trade Agreement is meant to promote trade by ending the trade barriers between the member countries. It means opening a single market for all the member countries to purchase and sell their goods. It provides an extensive market which in turn is good for producers and merchants, as it helps them reach potential customers across the border. This African Free Trade Agreement would help 54 countries create a single market, hence it would prove to be a game changer as far as poverty in Africa is concerned. It would help in uplifting the lifestyle of the dwellers of those 54 countries which are signatories to the agreement.

How would Africa Continental Free Trade Agreement (AfCFTA) assure success and poverty reduction?

Poverty alleviation is the number one goal required by SDGs under the auspice of the United Nations. The governments all around the globe are developing mechanisms to achieve the targets required by SDGs by 2030. Free Trade Agreement in Africa would specifically contribute towards achievement of different SDGs. It would open new market for member countries as as a result would swell their respective foreign currency accounts. A strong economy would help governments spend on the common good of people, thus ensuring society security.

Supportive policies

The coalition of 54 countries would mean a supportive economy. The goods of each member country would be open to each other through the formulation of supportive policies. The controlled distribution of goods finding their way to the right market for consumption for mean optimisation of trade. Demand and supply in market is an important concept, the inclusion of the market of 54 countries would give enough room for scaling up and back the demand and supply.

Nullifying protectionism

Protectionism would be replaced with supportive policies to augment the trade potential. Protectionism and trade wars in the case of US and China has definitely made one thing clear to the world which is: protectionism and economic embargoes for a longer period can hurt the global and regional economy. Meanwhile, African Free Trade agreement actually is an attempt to end the trade barriers and remove the policy of protectionism.

Structural enhancments

Economic prosperity has different pillars, one of those are on ground structural enhancements, like roads, rails and bridges. Impediments regarding the lack of structure in Africa were reported by EU Observer, as one Addis Ababa resident, Rahel Heruy mentioned the business problems arising because of lack of clean water and bridge. She mentioned how some farmers were cut off from other regions because of the rivers and lack of bridges.

The Free Trade Agreement would ensure structural enhancements in Africa, specially in those 54 countries which are a signatory.

Reduction of bureaucratic hurdles

Bureaucracy in the shape of customs department would play an important role. Supportive policies alone wouldn’t be enough if the on ground realities across the borders of these 54 countries would not be made trade friendly. The bureaucratic red tape and a culture of non-supportive administrative actions would have to be reduced to make use of the single market concept across the borders of 54 countries.

Facts and Figures of African Continental Free Trade Agreement (AfCFTA):

A mathematical representation of data would better explain the opportunities yet to be availed because of the African Free Trade Agreement. UNCTAD has revealed that intra-Africa trade is only about 16.6% of Africa’s total exports. This gives a smart picture of the situation prevalent in the trade regime of the 55 countries in the African Union bloc. Eritrea has yet to sign the agreement of Free trade. The situation of exports in other regions is pretty different as it accounts for, 68.1% in Europe, 59.4% in Asia, and 55.0% in America.

The export products of various African countries follow the colonial pattern. Therefore, production is pretty important for the success of African Free Trade Agreement, what is produced should also be consumed in the other African countries to increment the intra-trade potential from 16.6% to more.

Focusing on three big economies of Africa to explore Free Trade Agreement’s potential

Top three economies of Africa and African Continental Free Trade Agreement (AfCFTA) Map Source: Google Maps, 2018 Data

The top export from Nigeria is mineral oil and fuel. It amounts to 77.8% of the total exports. India is the major purchaser of the Nigeria mined oil products. Netherlands and Spain come second to India in purchasing the exported commodity. Around 2.4% of the Nigerian exports account for Ships and boats. On the import side, Nigeria’s 29.7% import accounts for refined fuel products. Industrialisation is not a norm in Nigeria because of civil strife. Therefore, owing to the lack of industrialisation Nigeria having oil as its biggest contribution to export also has the same commodity, oil contributing to its imports.

South Africa exported goods of worth $94.4bn around the globe. 17.5 of these total export accounted for gems and precious metals. Vehicles export amount to 11% of the South African export. Mineral fuels like oils are also exported amounting to 10% of the total exports of South Africa. However, 18.2% of the total South African imports account for refined oil, 12.3% of imports are about machinery and computers.

Egypt’s economy is about $30.1 of exports while $64.1bn of imports, as of current data provided by OEC of year 2017. Crude petroleum and Gold accounts for the major share in export. As far as imports are concerned, electric equipments and petroleum products make up the greatest share.

Keeping in view, the major economies of Africa we can understand one thing. Most of the African countries are producing crude oil. Industrialization seems to be an answer, if Africa Free Trade Agreement is bound to succeed. South Africa produces cars; however, the internal consumption of South African cars seems less. South Africa sends majority of the manufactured cars to Germany, Belgium and Luxemberg. Industry runs on machinery and to power an industry fuel is an important component. The crude oil of Africa being not in its refined state can not find internal market.

Leave a Comment