AFRICAN CONTINENTAL FREE TRADE AREA
The AfCFTA Agreement
The African Continental Free Trade Agreement (AfCFTA) is one of the flagship projects of the Agenda 2063: The Africa We Want, the African Union’s long-term development strategy for transforming the continent into a global powerhouse. It is a landmark initiative aimed at creating a single market for goods and services across the African continent. It seeks to promote intra-African trade by eliminating tariffs on most goods, facilitating the movement of capital and people, fostering economic integration, and enhancing competitiveness. The AfCFTA Agreement was signed on 21st March 2018, entered into force on 30 May 2019, and had the operational phase launched on 7th July 2019. The overarching vision of the AfCFTA is to ‘create a single liberalized market for goods and services, facilitated by movement of persons to deepen the economic integration of the African continent.
Relevance of AfCFTA
According to UNCTAD’s Economic Development in Africa Report 2019, intra-African exports made up 16.6 -18% of all exports in 2017 compared to 68.1% in Europe, 59.4% in Asia, 55% in America, and 7% in Oceania. AfCFTA is seen as a crucial step toward deepening Africa’s integration, fostering economic integration, sustainable development, and shared prosperity across the African continent.
What are the objectives of the AfCFTA?
- Create a liberalized market for goods and services through successive rounds of negotiations
- Contribute to the movement of capital and natural persons and facilitate investments, building on the initiatives and developments in the State Parties and RECs
- Promote and attain sustainable and inclusive socio-economic development, gender equality, and structural transformation of the State Parties
- Enhance the competitiveness of the economies of State Parties within the continent and the global market
- Promote industrial development through diversification and regional value chain development, agricultural development, and food security.
- Resolve the challenges of multiple and overlapping memberships and expedite the regional and continental integration processes.
Scope of AfCFTA
The AfCFTA Agreement covers the protocols and their annexes. The Implementation of the Agreement comprises:
Phase I
- Protocol on Trade in Goods
- Protocol on Trade in Services
- Protocol on Rules and Procedures on the Settlement of Disputes
Phase II
- Protocol on Competition Policy
- Protocol on Investment
- Protocol on Intellectual Property Rights
- Protocol on Women and Youth in Trade
- Protocol on Digital Trade
AfCFTA Guided Trade Initiative
The AfCFTA Guided Trade Initiative (GTI) was launched on 7th October 2022 as a solution-based approach to kickstarting commercially meaningful trade under the AfCFTA preferences. At the launch, there were 7 participating countries, namely; Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, and Tanzania, with over 100 potential trades under the AfCFTA preferences in goods such as coffee, ceramic tiles, dried fruits, tea, and processed meat among others.
The overall objectives of the Initiative were to:
- Demonstrate the efficiency of the legal framework of the AfCFTA instruments;
- Obtain feedback on the effectiveness of the legal and institutional national systems in the participating countries;
- Test the readiness of the private sector to participate in trade under the AfCFTA; and
- Identify possible future interventions to increase intra-African trade and maximize the benefits of the AfCFTA.
AfCFTA Operational Instruments
1. Rules of Origin
The Rules of Origin are the criteria needed to determine the national source of a product. Their importance is derived from the fact that duties and restrictions in several cases depend upon the source of imports. Rules of Origin (RoO) are legal provisions that are used to determine the nationality of a product in the context of international trade. Thus, the AfCFTA RoO is a regime governing the conditions under which a product or service can be traded duty-free across the region.
More information on the RoO https://au-afcfta.org/trade-areas/goods/
2. Schedules of Tariff Concessions
Under the TiG protocol, Member States committed to remove tariffs on 90% of all goods traded among themselves in equal annual reductions toward a zero tariff. For Least Developed Countries (LDCs) this reduction is spread over 10 years; for non-LDCs, the reduction occurs over 5 years. The remaining 10 percent of goods are further divided into 7% representing ‘sensitive products’ which are to be liberalized over 10 and 13 years for non-LDCs and LDCs respectively, while 3% of goods are excluded from tariff liberalization altogether.
The AfCFTA e-Tariff Book is available online at etariff.au-afcfta.org
3. The Pan-African Payment and Settlement System (PAPSS)
PAPSS is a cross-border, financial market infrastructure enabling payment transactions across Africa in local currencies. The PAPSS effectively eliminates Africa’s financial borders, formalizes and integrates Africa’s payment systems, and saves the continent around US$5 billion in currency conversion each year.
How PAPSS works
1. An originator issues a payment instruction in their local currency to their bank or payment service provider.
2. The payment instruction is sent to PAPSS.
3. PAPSS carries out all necessary validation checks on the payment instructions.
4. The payment instruction is forwarded to the beneficiary’s bank or payment service provider.
5. The beneficiary’s bank clears the funds to the beneficiary in their local currency.
Bloom Bank Africa Gambia Limited is the first Gambia’s Financial Sector to integrate the Pan-African Payment and Settlement System (PAPSS).
PAPSS website: https://papss.com/
4. Non-tariff barriers (NTBs)
NTBs are anything that distorts trade other than tariffs. The elimination of NTBs is critical to boosting intra-Africa trade and achieving the objectives of the AfCFTA. It will reduce the costs of trading across borders and ease the cross-border movement of goods. The bulk of the AfCFTA benefits will be realized if State Parties efficiently manage and eliminate NTBs.
Annex 5 of the Protocol on Trade in Goods establishes a reporting, monitoring, and elimination mechanism where traders can file a complaint on a specific trade obstacle they have encountered during the process of moving goods and services across borders. The tool enables Member States to report NTBs encountered when trading on the continent.
The mechanism is available online at https://www.tradebarriers.africa/
5. African Trade Observatory (ATO)
The Africa Trade Observatory is an online trade portal that will provide entrepreneurs, policymakers, and other stakeholders with up-to-date and reliable trade data and statistics as well as information about exporters and importers in countries. Information and other relevant data will be furnished to the Observatory by member states.
The tool is available online at https://ato.africa/en
How the AfCFTA creates opportunities for businesses in The Gambia
The African Continental Free Trade Area (AfCFTA) presents significant opportunities for businesses in The Gambia. Here are key ways the AfCFTA benefits Gambian businesses:
Access to a Larger Market
The AfCFTA creates a single market of over 1.3 billion people across 55 African countries, enabling Gambian businesses to expand beyond their national borders and tap into new customer bases across Africa.
Trade Facilitation
With the reduction and elimination of tariffs on goods and services, Gambian businesses can trade at lower costs, making their products and services more competitive in other African markets. This allows for easier export and import processes, especially for small and medium enterprises (SMEs).
Encouraging Diversification
AfCFTA provides incentives for businesses to diversify their products and services to meet demands in different African markets. Gambian businesses can venture into new sectors or value-added production for export.
Increased Investment Opportunities
The improved business environment, trade infrastructure, and regulatory frameworks under AfCFTA are likely to attract foreign direct investment (FDI) into The Gambia. This can boost sectors like manufacturing, agriculture, and services, creating more opportunities for local businesses.
Improved Regional Value Chains
AfCFTA promotes the integration of regional value chains, allowing Gambian businesses to collaborate with partners across the continent. This fosters innovation, improves efficiency, and enhances productivity through shared resources.
Encouraging Innovation and Competitiveness
As businesses in The Gambia face increased competition from other African firms, they will be incentivized to improve their products, services, and business practices. This can lead to innovation and improved quality, making Gambian businesses more competitive in global markets.
Job Creation and Economic Growth
With the expanding trade and investment, AfCFTA is expected to spur economic growth in The Gambia. This growth, in turn, can lead to the creation of jobs in various sectors, contributing to poverty reduction and improved living standards.
Generally, the AfCFTA agreement provides several advantages to Gambian and African MSMEs, which are crucial given their significance to the country’s and continent’s economy as up to 80% of firms and up to 40% of the national GDP.
These advantages for MSMEs include:
- fostering specialization and accelerating industrialization;
- expanding employment and investment opportunities;
- advancing technological development;
- enabling African-owned businesses to enter new markets, broaden their clientele, and develop new goods and services;
- bridging the manufacturing gap;
- providing more opportunities for MSMEs to generate more well-paying jobs, particularly for young people;
- boosting investments that provide cash to Indigenous companies; streamlining the process of importing raw materials from other African nations;
- and allowing MSMEs to establish assembly companies in other African nations to provide more affordable production methods.
