Client Alerts

African Union States sign the African Continental Free Trade Area

Volterra Fietta Client Alert
3 April 2018

On 21 March 2018, 44 African countries signed the African Continental Free Trade Area (“AfCFTA” or “Zlec”) in Kigali, Rwanda.

The AfCFTA is a free trade agreement advanced by the African Union (“AU”) that will create the largest free trade area in the world after the formation of the World Trade Organisation.  The AfCFTA is one of the flagship projects of the AU Agenda 2063, which is a long-term development program urging for closer African integration by facilitating the flow of goods and people throughout the continent.

What’s next?

Currently, the AfCFTA is undergoing the process of ratification in the national parliaments of its 44 signatories.  The AfCFTA will enter into force after the depositing of the required number of ratification instruments and the passing of a certain amount of time.

There are ten remaining AU member States which have not signed the agreement yet.  The list includes Nigeria, Africa’s largest economy and most populous country.  The AU will hold another conference in July, where more countries may proceed with signing the agreement.

Impact of the AfCFTA

The AfCFTA aims to create a single African market for goods and services, with free movement of business persons and investments, by liberalising trade and making it easier for African businesses to trade within the continent.  The AU projects that the AfCFTA will have a significant impact on trade relations between its signatories and that it will increase the level of intra-African trade by 60% by 2022.

The agreement aims to gradually eliminate tariff barriers between the member States, which, as the AU reports, face higher tariffs when they export within Africa than when they export to the rest of the world.  In addition, it aims to eliminate non-tariff barriers and contains provisions that will ease doing business across borders.  These include provisions on the liberalisation of trade in services, the recognition of technical and sanitary standards, transit facilitation and customs cooperation.

The AfCFTA is accompanied by complementary structures, such as the African Business Council to represent the private sector and a Trade Observatory that will monitor and evaluate compliance.  The agreement also contains the Protocol on Rules and Procedures for Settlement of Disputes, which includes a Dispute Settlement Body.

Overall, the agreement is designed to benefit Africa’s industrial exports.  Enhancing industrialisation will be an important step towards diversifying the continent’s export base and achieving more balanced and sustainable trade.  The AU is cognisant of the fact that industrialised countries will be better placed to take advantage of the AfCFTA opportunities.  However, it considers that the agreement has created a framework that may accommodate and benefit all the diverse economies of its members States.  Less-industrialised countries may benefit, for example, through development measures and policies accompanying the AfCFTA or by linking their economies to the supply chain of industrialised counties.