NAFTA, or the North American Free Trade Agreement, was signed into being in 1994. This formalized an agreement between the United States, Mexico, and Canada to eliminate tariffs between the three countries so that North American free trade could flourish. NAFTA, reports Quartz, has resulted in GDP increases, standardization and liberalization of markets, and more intellectual property rights. Though not without its shortcomings, it has been considered an overall success in uniting the interests of the North American continent.
AfCTFA, or African Continental Free Trade Area, seeks similar outcomes across Africa. This initiative, which has been signed by 55 countries from the African Union as well as 8 Regional Economic Countries so far, will create the world's largest free trade area. Specifically, AfCTFA's elimination of trade barriers will open up an intra-African market to 1.3 billion people, and is expected to lift overall GDP to approximately $3.4 trillion USD. In consequence, 30 million people will be able to leave poverty behind, and Africans in totality will see a 7% income boost by 2035.
Why was AfCTFA conceived in the first place? It was proposed as a leveraging opportunity, to bring the success of the fast-growing markets of countries like Egypt, Ethiopia, Kenya, South Africa, Botswana, Nigeria, Rwanda, Benin, and Morocco to the whole continent. Thanks to historically rigid trade borders between nations, these countries' individual explosions in GDP have occurred largely because of external trade with foreign countries. Their success has not benefited the pan-African landscape. AfCTFA plans to remedy this gap by encouraging trade within African nations, so that the continent can reap the financial benefits of its strongest players as well as invite smaller players to a bigger stage.
AfCTFA, on the ground, will transform customs clearance procedures, reduce cumbersome border restrictions, and smoothen administrative processes, so that Africans can travel more easily between nations. With these barriers to entry leveled, small- and medium-sized businesses can literally explore new horizons, beyond their own homes, to bring in more revenue. Since these businesses are responsible for 80% of African employment and 50% of its GDP, freedom of movement will give the whole continent opportunities to boost its economic prowess -- within its own borders.
Additionally, AfCTFA would remove 90% of the trade taxes that currently burden trade opportunities between African nations. African businesses have been voting with their feet by selling to markets outside of their own continent for years, because it's so much less expensive than working with their neighbors. With reduced trade taxes and more opportunities to work with other African nations instead of sending the bulk of their wares to Europe or the U.S., some estimates place African economic gain at nearly $1 billion USD, with 2 million jobs to be created. This change in financial incentive would have a major impact on African wealth at the macro- and micro-level.
Finally, AfCTFA lifts the curtain on major investment opportunities for Africans and foreigners. Though many African economies are small at the level of the individual, at the level of the continent, Africa is a power player. With a GDP of $2.5 trillion USD and 1.2 billion potential customers, it's a remarkably rich area for investors to consider. Uniting the African continent as one, especially with so many of the fastest-growing economies under its banner, creates major opportunities for investment, job-creation, and growth.
To facilitate the financing of this intra African trade, AFREXIM has taken the lead in designing and launching a platform called the Afreximbank Trade Finance Facility (AFTRAF) on to which 500 out od the continent's 600 regulated commercial banks have been onboarded. These banks will be provided with Trade Credit Confirmation lines. According to the President Oramah of AFRIEXIM, their goal is to grant an aggregate of 8 billion US dollars in Trade Confirmation lines to these African banks and ensure that every country on the Continent has at least one bank that has a dedicated credit line to support intra-African trade.
Additionally, Afreximbank in partnership with the African Union Commission and the AfCFTA Secretariat has launched the commercial operations of the Pan-African Payment and Settlement System (PAPSS). PAPSS is an innovative and groundbreaking initiative that now allows intra-African trade payments in African national currencies. This system is already up and running in some countries. Today a Ghanaian can buy a product from Nigeria and pay in Cedis. The Nigerian seller will receive Naira. Over time PAPSS will be rolled out all over Africa. According to Afriexim, PAPSS has the potential to save the continent at least 5 billion US dollars in transfer and settlement charges. With systems like PAPSS, the currencies of African countries should become more easily convertible and hence stronger.
Sign up for free AllAfrica Newsletters
Get the latest in African news delivered straight to your inbox
it is through pan-African settlement systems and trade facilities like PAPSS and AFTRAF, amongst others, that Africa can have full access to, and control of its capital, which will allow Africa to emerge from the shadows of the West, gain true financial independence and greatly enhance Africa's economic development.
Supported by the likes of Charles Adu Boahen, former Minister of State for Finance of Ghana, AfCTFA is a stable, scalable opportunity for the African continent. It reduces pointless trade friction between nations, enhances financial independence, allows for much more freedom of movement of both people and goods and capitalizes on Africa's abundance of resources -- and explosion of economic growth. African markets are currently characterized by a fragmented ecosystem with massive potential, and AfCTFA is the path to drawing these fragments together and unearthing that potential.
