African Continental Free Trade Area and Global Relocation: What You Should Know
In April 2019, Gambia chose to ratify the African Continental Free Trade Area (AfCFTA) agreement. As a result, the bill to create the AfCFTA has reached the minimum number of ratifications needed to go into effect. The agreement was signed by 44 African countries in 2018 in their effort to remove barriers to trade between members of the African Union.
What is the African Union?
The African Union is a group of member nations that make up the countries of the African Continent. Currently, the African Union has 55 member states. It is the successor organization to the former Organization of African Unity, following the OAU’s dissolution in 2002.
What is the Vision of the African Union?
The vision of the African Union is that of “An integrated, prosperous and peaceful Africa, driven by its own citizens and representing a dynamic force in global arena.” To this end, the African Continental Free Trade Area agreement will provide several benefits for member nations, including:
- Removal of barriers to intra-African trade
- Reduction of trade regulations
- Elimination of import quotas
- Tariff-free movements of goods, people, and services across the African Continent
- Possible future cooperation in areas such as:
- customs union
- common market
- single currency
How Does the African Continental Free Trade Area fit in the Global Market?
The AfCFTA is the world’s largest free trade area by number of countries. It represents a single market of 55 countries with over 1.2 billion people. The area’s combined Gross Domestic Product (GDP) is $2.5 trillion. The United Nations Economic Commission for Africa (UNECA) estimates that intra-African trade will increase by over 50% through 2020 under the AfCFTA.
Additionally, UNECA believes that Africa’s past growth, while impressive, has been largely due to the expansion of extractive exports and price growth in commodities. This type of growth does not support the economic transformation the continent needs to develop and maintain long-term growth that is sustainable.
However, UNECA notes that growth in intra-African trade has helped promote the continent’s industrial exports. It is this growth that shows how the AfCFTA can help the member nations. By removing tariffs and barriers to intra-African trade, the AfCFTA will contribute to the economic reformation of Africa. Member nations will benefit from more productive industrial and export sectors, as well as investment increases in their local economies.
What Does This Mean?
The emergence of African Continental Free Trade Area will provide extensive opportunities for economic expansion, foreign investment, and export growth throughout the African continent. Africa is hoping to achieve the same success that the European Union and its free trade agreement has accomplishes. The AfCFTA may help create tens of thousands of jobs, further reducing unemployment across the continent.
Trade will increase between member nations. The continent will move from being a raw material producer to being a viable, industrialized, and valuable global trading partner. The citizens of Africa will benefit, as will employers in the member nations.
What Should Employers do to Leverage the African Continental Free Trade Area?
Companies should examine the opportunities that Africa presents for investment and corporate growth. Specifically, the AfCFTA will provide a number of benefits for companies located in the member nations. The UNECA believes companies located within the African continent will benefit by gaining access to:
- Lower-cost inputs and intermediary goods sourced from other African countries
- A bigger variety of locally sourced inputs and intermediary goods
- Improved access to imported inputs and intermediary goods
- Larger markets for their products within the AfCFTA
With access to lower cost inputs for production and a larger market, companies can grow and gain economies of scale to produce goods while remaining competitive.
GMS’ team of global relocation experts has helped thousands of our clients learn about opportunities for global expansion. Our team can help your company understand how to leverage the launch of the African Continental Free Trade Area as it applies to future corporate growth and initiatives.
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