A man sits outside the office building of the African Continental Free Trade Area (AfCFTA) Secretariat in Accra, capital of Ghana, Aug. 17, 2020. (Ghana Presidency/Handout via Xinhua)NAIROBI, Jan. 1 (Xinhua) -- Trading under the African Continental Free Trade Area (AfCFTA) begins Friday, making it the world's largest free trade area in terms of participating member states after the formation of the World Trade Organization.
"It is the start of a new era of trade between African countries," said South African President Cyril Ramaphosa late on Thursday in his New Year message when commenting on the AfCFTA commencement on Jan. 1, 2021.
HUGE POTENTIAL
Data from the World Bank shows that the trade bloc, which has so far garnered 54 signatories, covers a total population of over 1.2 billion with a collective gross domestic product of 3.4 trillion U.S. dollars.
One of the banes of African economic development has long been the low rate of intra-African trade, which currently stands at 16-18 percent of Africa's total trade, much lower than the percentage numbers in Europe and Asia, according to Atah Pine, a columnist at news outlet Modern Ghana.
The AfCFTA has the potential to boost intra-Africa trade by some 52 percent by 2022, according to the United Nations Economic Commission for Africa (UNECA).
Experts have expressed their belief that the AfCFTA provides a tremendous opportunity for businesses already established in Africa or are looking to enter the market to optimize their operational structure.
BENEFITS TO AFRICA
The AfCFTA's initial objective is to foster intra-African trade by improving market access through the phasing out of tariffs, removal of trade barriers, harmonization of customs laws and practices, and bolstering cooperation and capability building.
African countries could rake in 20 billion dollars yearly by simply tackling non-tariff barriers that slow the movement of goods, according to the United Nations Conference on Trade and Development.
The African Union is aiming for a gradual liberalization that would eventually pave the way for a customs union and regional integration fostering the free movement of people and capital.
The AfCFTA is expected to cement the kind of unity that is a prerequisite for Agenda 2063, a master plan for transforming Africa into a global powerhouse of the future, according to Costantinos Bt. Costantinos, a professor of public policy at Addis Ababa University in Ethiopia.
Increased intra-African trade will also help lift the post-COVID-19 pandemic woes of African economies, allowing free and unhindered trade in health products across the continent.
"The manufacturing sector and the sectors that export to other African countries will benefit most likely," said Jannie Rossouw, head of School of Economic and Business Sciences at the University of the Witwatersrand in South Africa.
By 2050, the African economy could reach 29 trillion dollars, as the AfCFTA eliminates tariffs on 90 percent of goods produced on the continent, tackles non-tariff barriers to trade and guarantees the free movement of people.
"Removal of trade barriers will attract foreign direct investments, as investors would want to invest in a place that has favorable trade policies. This means more employment opportunities for local populations," said Dale Mudenda, an international trade expert at the University of Zambia.
"The AfCFTA will increase Africa's negotiating power and its ability to bargain for better trade arrangements," said Euston Chiputa, an economic historian at the University of Zambia.
CHALLENGES LIE AHEAD
Despite tremendous advantages the agreement will provide to Africa, analysts have pointed out that regional conflicts, the pandemic and other forms of crises, as well as insufficient infrastructure will create challenges for a smoothly functioning AfCFTA.
"If COVID-19 pandemic, unrest in some regions and natural disasters persist, these will affect the smooth operation of AfCFTA, because they would disrupt trade and other economic activities taking place in Africa and as well as between Africa and the rest of the World," said Teddy Kaberuka, a Rwandan economic analyst.
Dawie Roodt, an economist at South Africa-based financial services company Efficient Group, said infrastructure was a major stumbling block to the trade agreement.
Political leadership would be required to deal with challenges to enable smooth trade, Roodt added.
Facing various kinds of challenges, relevant parties have voiced the importance of implementing well the AfCFTA.
"The AfCFTA agreement should be made to work as it is the continent's only path to sustainable development," said David Luke, coordinator of the UNECA African Trade Policy Center.
"Let's not underestimate the importance of the AfCFTA," said Luke, emphasizing that "there's no plan B, we have to make the AfCFTA work."
CHINA-AFRICA TRADE POTENTIAL
On the same day as trading under the AfCFTA began, the China-Mauritius Free Trade Agreement, the first free trade agreement that China has signed with an African country, also entered into force.
Meanwhile, African leaders and businesses are eying greater potential of trade with China.
"The AfCFTA implementation will further tap business opportunities that China is enjoying with Africa," said Jacob Makambwe, Secretary General of the Southern Africa Cross Border Traders' Association in Zambia.
Dina Mufti, spokesman for the Ethiopian Foreign Ministry, said that Ethiopia is keen on attracting more Chinese investments despite the fact that Chinese firms are already the largest investors in Ethiopia.
"Africa needs to learn from other global trading blocs, which grew their economies through partnerships. Those partnerships bring technology, fiscal capital, people, and knowledge," Yoofi Grant, chief executive of the Ghana Investment Promotion Center, told Xinhua.
"Although partnerships need to be broad and global in nature, a partnership with China, in particular, is critical, looking at the role of Chinese investments in bridging the infrastructure gap on the continent," said Grant, adding that "we see a lot of roads, railways, and bridge projects in Africa financed by the Chinese."
"Africa is set to attract more investors for partnership after the end of the pandemic," said Grant.