Africa Morning Future
Guiding The Case 20 September Sep 2019 0730 20 September 2019

While the rest of the world is divided, Africa is witnessing the birth of the world's largest free trade area

It is called the African Continental Free Trade Area (AfCFTA). 54 countries, 1.2 billion people and a total GDP of 2.5 trillion dollars, this agreement will make Africa the largest free trade area on the planet

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While the global focus is on Brexit, the birth of the new government in Italy and the violent protests in Hong Kong, Africa is largely being ignored by the Western world. Yet the birth of the African Continental Free Trade Area (AfCFTA) in Niamey, in Niger on July 7th, is news that could affect everyone. With 54 countries (i.e. all minus one), 1.2 billion people and a total GDP of 2.5 trillion dollars, this agreement will make Africa the largest free trade area on the planet, with significant implications on a worldwide level.

So, what does this mean, and what does it entail? The establishment of a free trade area aims to emulate to a certain extent the structure of the European Union, where the ultimate objective would be the potential introduction of free movement, tariff-free trade and, perhaps, even a single currency. The AfCFTA would also provide for the establishment of a digital passport, thus allowing people to freely cross borders of different countries. With a transition period until 1 July 2020, when the area will effectively come into force, Ghana, one of the first countries to ratify the agreement, has been selected as the country to host its secretary, in charge of the practical implementation one year from now.

The country will make 10 million dollars available for the operation. Accra, furthermore, is also home to the AfroChampions Initiative, a private investment framework designed to finance the agreement. The aim is to pave the way for the start-up of the AfCFTA by removing tariffs, developing transport and connectivity networks, accessing energy at low prices and transitioning African economies to higher added value products.

Within fifty years the “Made in Africa” label could be just as well known as the "Made in China" label

The African continent is therefore positioning itself as an area of the world with enormous economic and structural potential. Already today, Africa is the world's youngest continent in terms of age and the second most populated. It is also rich in raw materials, such as copper, coltan, gold, cobalt, manganese and platinum, which are crucial to the global knowledge economy. It is already home to industrial and mining giants such as Sonatrach (hydrocarbons, Algeria), Steinhoff (mobile, South Africa), Sonangol (hydrocarbons, Angola), Eskom (electricity, South Africa), Sasol (chemistry, South Africa), Dangote Group (cement, Nigeria), as well as innovative startups, particularly in Nairobi, Cape Town, Johannesburg and Lagos.

According to some, Africa could become the new China and, according to Basil El-Baz, president of the Egyptian petrochemical group Carbon Holdings, within fifty years the “Made in Africa” label could be just as well known as the “Made in China” one.

It is well known, however, that the African potential has not yet been fully expressed on the world stage (just think of colonialism and neo-colonialism). Only the Chinese seem to have understood in recent years the importance of the continent to the global economy. And while it is true that, so far, they have taken advantage of it to make their own interests ahead of those of the African people, it is equally true that infrastructure investment has begun to push several countries, such as Ethiopia. International cooperation has also led to investments from France, the Netherlands, the United Kingdom and Italy, which, in addition to funds, have also provided knowledge and know-how. To date, Italian companies such as Calzedonia and Marzotto have chosen to open factories in countries undergoing increasing industrialization such as Morocco and Ethiopia, important ports such as Tangier and Djibouti and metropolises such as Nairobi and Addis Abeba, now experiencing an economic boom.

In terms of innovation, the M-Pesa case, launched thanks to the collaboration with Vodafone, which allows smartphone payments in a continent where bank branches are scarce and often too far to reach, is of great interest. A successful model, which is helping companies operate and open branches in other African countries. Digital commerce, which is currently growing at 40% annual rates in Africa, is a very valuable opportunity. Advantages would be diverse: in particular, according to Vera Songwe, Executive Secretary of the UN Economic Commission for Africa, «digital applications would help fill the credit gaps, stimulate women to become entrepreneurs and provide important market data, as well as environmental analyses, in real time».

The integration between economies of the different countries, which is the objective of the AfCFTA, is also good news for the European Union

The objective is ambitious: the integration between the economies of the different countries, the goal of the AfCFTA, is crucial for the economic development of the whole continent. And this is also good news for the European Union, who (particularly France, Germany, Spain and Italy, which alone account for almost 60% of all EU exports to Africa) trades assets for more than 168 billion euros with the continent. So what are the weaknesses? The agreement is still leaving some countries, such as Eritrea, out and only 27 of the signatory countries have ratified the agreement to date. There is still a lot of work to be done, in short, and there is a lot of investment needed. Particularly from the point of view of infrastructure: the whole of the African railway system, for example, is old and not widespread, the legacy of those who had built lines of connection only between colonies, while only a fifth of roads is paved. Poverty is still a problem: according to the World Bank, half of the population of 61 million people lives below the poverty line between Kenya, Mozambique and Uganda. Finally, corruption and inequalities are still an issue, and there are often profound cultural differences between countries, which could in some cases jeopardize the fluidity of trade.

Although many see it as a fragile agreement, which will take years before it can successfully develop, it is also true that, according to experts, the AfCFTA is a step in the right direction. According to the UN Economic Commission for Africa, because of the agreement African internal trade could increase by 50% and even double a decade after the implementation of the agreement. Considering that African countries now trade more with the rest of the world (with Europe they trade twice as much goods) than among themselves, this is a considerable opportunity. If the rest of the world can help Africa seize it, we will all benefit.

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