The commencement of the African Continental Free Trade Area (AfCFTA) agreement was announced on January 1, 2021. The AfCFTA seeks to increase intra-African trade through the liberalisation of tariffs on up to 97 percent of the goods and services produced within the continent, and the elimination of non-tariff barriers that impede trade among African countries.
The overarching objective of the agreement is to fast-track the structural transformation of African economies through trade-driven industrialisation in an effort to increase the prosperity of Africans. The rationale behind the AfCFTA is that integrating African countries into a single market will strengthen the investment case for scaling up the production of goods and services within the continent and eventually shift African economies away from the export of low-value commodities to higher-value manufactured goods.
The agreement has benefitted from high political will. It has been signed by 54 African Union member states and has been ratified by 46 of them. Negotiation delays have prevented the full launch of trading under the AfCFTA. However, an interim arrangement called the “Guided Trade Initiative” was kicked off in October 2022. The initiative currently consists of eight countries trading a limited number of goods with the objective of testing the provisions of the AfCFTA, but also maintaining the momentum around the agreement. Meanwhile, preparations are ongoing to ensure the readiness of AfCFTA member states, African regional economic communities, and the continental structures and mechanisms to implement the agreement.
Nigeria is Africa’s largest country by population and economic size, and it has signed and ratified the AfCFTA agreement. There has however been some resistance within the country to the continental free trade agenda, and this contributed to the delay in signing the agreement. According to TradeMap, in 2021, over 85 percent of Nigeria’s export basket was linked to its production of oil and gas.
Inadequate infrastructure such as power supply and transport and communication networks reduces the competitiveness of Nigerian manufacturers. This is coupled with a tough regulatory environment and poor trade facilitation provisions that make exporting goods from Nigeria more difficult. The implication of this is that Nigeria is entering the AfCFTA primarily as a consumer market, making it difficult for its exporters to benefit from the AfCFTA. China, on the other hand, is argued to be one of Africa’s major trading partners that is well positioned to benefit from the AfCFTA due to Africa’s dependence on its exports, its capital and its expertise.