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Apr 27, 2021

Impact of AfCFTA on businesses across Africa


The African Continental Free Trade Area (AfCFTA) agreement has created the largest free trade area in the world measured by the number of countries participating. The pact connects 1.3 billion people across 55 countries with a combined gross domestic product (GDP) valued at US$3.4 trillion. It has the potential to lift 30 million people out of extreme poverty.

Trading within the African Continental Free Trade Area (AfCFTA) kicked off on January 1, 2021. 

The AfCFTA was established by the African Continental Free Trade Agreement signed in March 2018 by 44 AU countries. Over time, other AU countries signed on as the official start of trading under the provisions of the agreement approached. 

The AfCTFA is projected to create opportunities and boost the African economy. By facilitating this intra-African trade area, the international community expects sustainable growth and increased economic development.

Impact of AfCFTA on businesses across Africa

  1. Creation of a Single Market

The initiative’s main objective is to create a single market for goods and services to increase trading among African nations. Some of the duties of the AfCFTA includes the implementation of protocols to eliminate trade barriers, cooperate with member states on investment and competition policies. 

  1. Expected Economic Boost and Trade Diversity

United Nations Economic Commission for Africa (UNECA) estimates that the AfCFTA will boost intra-African trade by 52.3% once import duties and non-tariff barriers are eliminated. 

The AfCFTA will cover a GDP of $2.5 trillion of the market. The trade initiative will also diversify intra-African trade as it would encourage more industrial goods as opposed to extractive goods and natural resources. 

3. Protection of  Women Traders

According to United Nations Economic Commission for Africa (UNECA) and the African Trade Policy Centre, women are estimated to account for around 70% of informal cross-border traders. Informal trading can make women vulnerable to harassment and violence. With the reduced tariffs, it will be more affordable for women to trade through formal channels where they don’t have to put themselves at risk.

4. Rapid growth of Small and Medium-Sized Businesses

The elimination of import duties opens up trading activities to small businesses in the  African markets. Small and medium-sized businesses make up 80% of the region’s businesses. Increased trading also facilitates small business products to be traded and boost the overall economy of the region.

  1. Settling Trade Disputes. 

Multilateral trading systems are bound to cause disputes.  The AfCFTA has the Dispute Settlement Mechanism in place for such occasions which offers mediated consultations between disputing parties. However, the mechanism is only available to state parties, not private enterprises.

  1. Facilitation of  Industrialization in the region

 With the successful implementation of this new trade initiative, there is potential for Africa’s manufacturing sector to double in size from $500 billion in 2015 to $1 trillion in 2025, creating 14 million stable jobs.

  1. Contributing to Sustainable Growth

The United Nations 2030 Agenda for Sustainable Development includes some of the goals that the AfCFTA contributes to. For example, Goal 8 of the Agenda is decent work and economic growth and Goal 9 is the promotion of industry. The AfCFTA initiative also contributes to Goal 17 of the Agenda as it reduces the continent’s reliance on external resources, encouraging independent financing and development.

The establishment of the AfCFTA marks a key milestone for Africa’s continental trade system. The size of the trade area presents promising economic development and sustainable growth that reaches all market sectors and participants. Additionally, the timing of the initiative is expected to contribute to the alleviation of the pandemic’s economic damages.

– Malala Raharisoa Lin