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The African Continental Free Trade Area (AfCFTA) is a free trade area encompassing most of Africa. It was established in 2018 by the African Continental Free Trade Agreement, which has 43 parties and another 11 signatories, making it the largest free-trade area by a number of member states, after the World Trade Organization, and the largest in population and geographic size, spanning 1.3 billion people across the world’s second-largest continent.
The Agreement establishes a single market for goods and services across 54 countries, allows for the free movement of business travelers and investments, and creates a unified customs union to streamline trade on the continent.
According to UNCTAD, Intra-African exports were 16.6% of total exports in 2017, compared with 68.1% in Europe, 59.4% in Asia, 55% in America, and 7% in Oceania. Intra-African trade, defined as the average of intra-African exports and imports, was around 2% during the period 2015–17.
Trade across the African continent has long been limited as governments have often erected trade barriers to defend their markets from regional competition, making it more expensive for countries to trade with near neighbors than countries much further afield. This also affected the amount of trade within Africa as seen in the stats above, bringing about the need for AfCFTA. The aim is to enable the free flow of goods and services across the continent and boost the trading position of Africa in the global market.
Benefits of AfCFTA
- The AfCFTA promises broader and deeper economic integration and would attract investment, boost trade, provide better jobs, reduce poverty, and increase shared prosperity in Africa.
- Africa could see foreign direct investment (FDI) increase by between 111 percent and 159 percent under the AfCFTA.
- Inflows of FDI attracted by the AfCFTA would bring jobs and expertise, build local capacity, and forge connections that can help African companies join regional and global value chains.
- The AfCFTA can bring higher-paid, better-quality jobs, with women seeing the biggest wage gains.
- Wages would rise by 11.2 percent for women and 9.8 percent for men by 2035, albeit with regional variations depending on the industries that expand the most in specific countries.
- If AfCFTA’s goals are fully realized, 50 million people could escape extreme poverty by 2035, and real income could rise by 9 percent.
- Under deep integration, Africa’s exports to the rest of the world would go up by 32 percent by 2035, and intra-African exports would grow by 109 percent, led by manufactured goods.
Ghana And AfCFTA
Ghana was part of the first country to ratify the AfCFTA agreement, depositing their ratification on 10 May 2018. To further express their support and commitment to AfCFTA the parliament of Ghana approved the establishment of the AfCFTA secretariat in its capital, Accra.
The African Continental Free Trade Area (AfCFTA), aims to liberalise not just trade in goods, but also in services, and to facilitate intra-Africa investment. It will also create the necessary frameworks and capacity to enable and facilitate intra-Africa trade in services by addressing the challenges that inhibit such trade. The AfCFTA is also anticipated to be a “game-changer” in enhancing intra-Africa trade.
AfCFTA Impact On Cross-Border Payments
AfCFTA has a positive impact on cross-border payments such that, since 15% of trade is carried out within African countries, AfCFTA will increase the number of trades within African countries, thereby also increasing the need for cross-border payments.
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The World Bank Trade Publication