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The African Continental Free Trade Area agreement – a catalyst for industrial opportunities

The African Continental Free Trade Area agreement will ultimately boost trade and industrialization across Africa, while addressing the negative impact of the COVID-19 pandemic.

The African Continental Free Trade Area agreement (AfCFTA) will constitute the world’s largest free trade area, consolidating an integrated market of 1.3 billion consumers with a combined gross domestic product (GDP) of approximately $3.4 trillion.

The objective is to realise a continent-wide single market for goods and services with free movement of business, persons and investments. The agreement will ultimately boost trade and industrialization across the continent, while addressing the negative impact of the COVID-19 pandemic. As such, the trade deal has been prioritised amongst continental policymakers and affiliates in support of the process.

The AfCFTA seeks to promote intra-African trade by lowering tariff and non-tariff barriers. If successfully executed, the agreement is set to assist in mitigating the constraint of tariff escalation and narrow domestic markets, facilitating economies of scale and promoting nations to prioritise more value-added products, thereby diversifying exports away from commodities.

Further, the AfCFTA is expected to attract foreign direct investment, particularly in the manufacturing sector, resulting in higher productivity and value addition in the continent which is instrumental in creating more and better jobs, and broader welfare benefits, thus further enlarging the market.

Notably, among the fundamental aims 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.” Productive AfCFTA effectuation, enhanced national ownership and alignment with Agenda 2063, will enable nations to realise the goals denoted by the trade deal. Agenda 2063 intends to create “strong, united, and influential global player and partner,” empowering African nations to enhance their global standing on quality-of-life measures and accelerate inclusive growth, through industrialization, import substitution, and employment.

The AfCFTA and Agenda 2063 collectively strive to rescind Africa’s untimely deindustrialization and capitalise on the myriad of industrial opportunities that abound, namely in software, industrial and business machinery, auto components, chemicals, agro-processing, and clothing and footwear subsectors, among others.

As manufacturing is critical for overall economic development and poverty alleviation, the industry has gained prominence. A robust industrial sector can provide well-paid jobs for many unskilled workers, increase average household incomes, stimulate domestic demand, secure economies against external shocks, and foster innovation and diversification.

The Way Forward

The AfCFTA assures a virtuous cycle of opportunities for manufacturers and various other market players. With trade and investment stimulation, enhanced value addition and productivity growth, more and better jobs will be created through social inclusion, and consequently further enlarged markets.

However, to realise the maximum possible benefits, African nations need to refine business legislation, invest in human capital, infrastructure, transport corridors and logistics and other necessary enablers, all while improving access to credit for export-oriented manufacturing entities. Furthermore, political leaders need to demonstrate commitment to ensuring that industrial policies are established and congruous at both national and regional levels.

Comprising a pivotal theme at this year’s Manufacturing Indaba conference is the AfCFTA’s immense potential to convert Africa into the next big manufacturing hub, eliminating global reliance on Chinese manufacturing and furthering global economic competition. The event provides a rare opportunity for African manufacturers and governments to observe and partake in thought-provoking debates to not only develop but maintain a sustainable and lucrative export sector in Africa.

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