As the global economy is in turmoil due to the COVID-19 pandemic, the creation of the vast African Continental Free Trade Area (AfCFTA) regional market is a major opportunity to help African countries diversify their exports, accelerate growth, and attract foreign direct investment.
All countries in Africa except for Eritrea have signed the AfCFTA agreement, thereby creating the largest free trade area in the world. The agreement connected 55 countries and 1.3 billion people. The combined gross domestic product (GDP) of AfCFTA economies is valued at US$3.4 trillion.
The continental trade agreement will significantly boost African trade, particularly intraregional trade in manufacturing. By 2035, the volume of total exports would increase by almost 29 percent relative to business as usual. Intracontinental exports would increase by more than 81 percent, while exports to non-African countries would rise by 19 percent. This would create new opportunities for African manufacturers and workers.
Based on World Bank research findings, with the implementation of AfCFTA manufacturing exports will dominate the export picture for Africa. Of the US$2.5 trillion in exports projected in 2035 for Africa, US$823 billion are in manufactures; US$690 billion in natural resources; US$191 billion in agriculture; and the remaining US$256 billion in services. Of the total growth in exports of US$560 billion, the increase in exports of manufactures represents some US$506 billion—an increase of US$220 billion within Africa and US$286 billion with the rest of the world (Source: world bank).
The biggest expansion of exports to regional partners will be in energy-intensive manufacturing; chemical, rubber, and plastic products; and processed food products.
Notably, one of the key objectives of the AfCFTA is to “enhance competitiveness at the industry and enterprise level through exploiting opportunities for scale production, continental market access and better reallocation of resources”.
A robust manufacturing industry under AfCFTA will provide well-paid jobs for large numbers of low-skilled workers, increase average household incomes, boost domestic demand, stabilize economies against external shocks, and contribute to innovation and diversification.
Investors, on the other hand, should consider where manufacturing inputs can be sourced locally to reduce costs related to transport, import tariffs, and exchange rate fluctuations.
Africa has many of the necessary resources to build its manufacturing potential, and successful integration will make the African continent the primary beneficiary of its industrial development.
Sources: World Bank, Brooking Institute.
The African Continental Free Trade Area (AfCFTA) is scheduled to take-off on 1st January 2021.
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