African Continental Free Trade Area

By Calvin Augustine

The auto-manufacturing sector has emerged as one of the sectors that stands to benefit from the historic African Continental Free Trade Area (AfCFTA) that holds the potential to revitalise the continent.

It is estimated that by 2035 Africa shall require five billion units of vehicles and our continent has the potential to manufacture both the finished products and automotive components.

Home-grown automotive components suppliers such as Batyi Automotive Component Supply, which manufactures vehicle components for the Ford Motor Company stands to benefit from the increased demand. Under AfCFTA companies such as Batyi will have access to a single market which is projected to grow to 1.7 billion people and $6.7 trillion in consumer and business spending by 2030.

The potential for business and trade under AfCFTA is nearly endless as 4,500 products have been identified for trade and this presents a raft of opportunities for our continent and her people. 

Trade under the agreement has now commenced and 47 countries have ratified their instruments of the AfCFTA agreement. Of these 46 have ratified and deposited their instruments of ratification. Seven countries have signed, but are yet to ratify and only one country is yet to sign.

As trade begins to ramp up more companies will move to take advantage of a massive single market.  Important enablers such as the protocols that make the market function, are in place, and a number of important policies including intellectual and property rights and competition and investment have been endorsed. 

In January 2024, South Africa sent its first shipment of products to other countries trading under the agreement. Speaking on this historic occasion President Cyril Ramaphosa said: 

“For South Africa, as with many other African countries, the start of preferential trade will create great opportunities for growth and development. Not only will it benefit our country’s producers, but it will also see a huge increase in traffic through our ports, our airports and our land-based border posts.”

One of the key objectives of the AfCFTA agreement is the promotion of industrial development through diversification and regional value chain development. The strategic sectors of agriculture and agro-processing, automotive, pharmaceuticals and transport and logistics have been singled out for their potential to increase intra-African trade, production and inclusivity.  

A further enabler has been ongoing work on implementing the pan African payment and settlement system, which will allow countries to trade in their own currencies, without worrying about exchange rates across countries.

The implementation of these mechanisms has set the stage for increased trade on the continent, which lags behind many other regional blocks in Europe, Asia and Latin America. AfCFTA is also essential to removing non-tariff barriers, which have hampered intra African trade. 

Despite these obstacles, the value proposition offered by AfCFTA could potentially dwarf all other markets. Speaking at the fifth South Africa Investment Conference in 2023, the Secretary General of the African Continental Free Trade Area Secretariat, Wamkele Mene said: “By 2050, the continent will be home to 2.5 billion people. The largest working force in the world by 2050 will be in Africa. At that point, estimates are that consumer spending and business spending in Africa will be in excess of $16 trillion.”

He further expanded on the unparalleled opportunity presented by AfCFTA. “This is an opportunity that our continent and our investors should not miss. It is of course expected that there will be challenges but I encourage everyone to look at Africa with a long-term view of investing and to see your returns in your investments,” he said. 

World Bank projections on AfCFTA reveal that it has the potential to lift 100 million people out of poverty, 60 million Africans out of abject poverty and the rest out of moderate poverty. It could also contribute about $450 million to Africa’s overall GDP and could potentially increase wages by close to 9 percent.

The operalisation of AfCFTA will take us closer to realising the vision of Agenda 2063: The Africa We Want - of economic integration for the benefit of our continent. It allows the continent to chart its own path where we can actively diversify our economies, foster regional value chains, and promote the export of home-grown products. By doing so we can grow trade and reduce our reliance on external markets. 

All that now remains is for business and enterprise to make use of this single market.  Small, micro and medium enterprises (SMMEs) stand to benefit massively from reduced trade barriers, which often hamper access to markets.

With AfCFTA trade now happening regional value chains in Africa will begin to take shape. In turn these will boost investment, job creation and ensure that we deliver on the promise of a better tomorrow for all. 

Calvin Augustine is Deputy Director: Communication Resource Centre at GCIS