After years of negotiations, the African Continental Free Trade
Area is finally here and is almost becoming a reality.
This trade area will create what will arguably be one of the biggest free-trade areas in the world – considering that Africa has a population of over 1.2 billion people and a combined Gross Domestic Product (GDP) of 3 trillion Dollars.
Apart from reducing the cost of some goods, the African Continental Free Trade Area will also create business opportunities and jobs across the continent.
The new trade area took effect on January 1, 2021, in which 41 African states – who had submitted plans to reduce tariffs and/or taxes on imported goods – were able to trade under the new rules.
Implementation of the new trade area may take time, as it will be done in phases. Tariffs on 90% of goods will be removed within 10 years and take more time for the remaining percentage.
Effects of the African Continental Free Trade Area are however yet to start being felt – but it is expected that in the near future – prices of imports among African countries will drastically drop as taxes will be either reduced or totally removed.
BBC notes that one classic example of how the African Continental Free Trade Area will be of benefit is the fact that currently, according to the African Trade Observatory, oranges imported from South Africa for sale in a supermarket in Kenya attract a 25% tariff, but if Kenya removes this tax, and all the required processes are ready, the price of those oranges should significantly fall.
"With greater competition, we should see prices come down for services like telecoms, business services and finance," BBC quotes Andrew Mold, the head of regional integration and the AfCFTA cluster at Uneca.
The trade area will also make a big difference for traders exporting goods within the continent as the taxes will also drop. As at today, it is cheaper to ship an item from like Ghana to the United States as compared to when the same item is shipped to Uganda because of high taxes which will eventually be lowered or removed under the African Continental Free Trade Area.
Trade between African countries has been very low and the new trade area is hoping to boost it.
According to UN trade agency, Unctad, between 2015 and 2017, only 2 per cent of trade was among African countries while trade between African countries and the US stood at 47% in the same period, 61% (Asia), 67% (Europe) and 7 per cent for Oceania.
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For example, the BBC points out that, despite Kenya being a major flower exporter in Africa, Nigerians do more business with the Netherlands – where they get their flowers. It is the same case for palm oil where the one being used in Kenya mainly comes from Malaysia, even though Nigeria too has the product – under the African Continental Free Trade Area – more Kenyan flowers will find their way to Nigeria, and more oil palm from Nigerian will be exported to Kenya – at a far cheaper cost.
The journey to fully implement the trade area has started off with 34 countries have already ratified it – and committed to removing tariffs on 90 per cent of products within five years.
"All this is part and parcel of a gradual harmonisation of
African trade and investment policies to facilitate much greater levels of
intra-African trade and investment," Mold of the Uneca told the BBC.
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