Why Africa's Free Trade Area Offers So Much Promise: Combining Forces Will Create More Opportunity, Employment

By Signe, Landry | International Trade Forum, April-June 2018 | Go to article overview

Why Africa's Free Trade Area Offers So Much Promise: Combining Forces Will Create More Opportunity, Employment


Signe, Landry, International Trade Forum


African leaders earlier this year signed a framework establishing the African Continental Free Trade Area, the largest free trade agreement since the creation of the World Trade Organization.

The free trade area aims to create a single market for goods and services in Africa. By 2030 the market size is expected to include 1.7 billion people with over $6.7 trillion of cumulative consumer and business spending --if all African countries have joined the free trade area by then. Ten countries including Nigeria, the continent's largest economy by GDP, have yet to sign up.

The goal is to create a single continental market with free movement of business people and investments.

The agreement has the potential to deliver a great deal for countries on the continent. The hope is that the trade deal will trigger a virtuous cycle of more intra-African trade. This in turn will drive the structural transformation of economies--the transition from low-productivity and labour-intensive activities to higher productivity industrial and service activities--which will produce better paid-jobs and make an impact on poverty.

However, signing the agreement is only the beginning. For it to come into force, 22 countries must ratify it. Their national legislative bodies must approve and sanction the framework formally, showing full commitment to its implementation.

Niger President Issoufou Mahamadou, who has been championing the process, aims to have the ratification process completed by January 2019.

CAUSE AND EFFECT

Some studies have shown that by creating a pan-African market, intra-Africa trade could increase by about 52% by 2022. Better market access creates economies of scale. Combined with appropriate industrial policies, this contributes to a diversified industrial sector and growth in manufacturing value added.

Manufacturing represents only about 10% of total GDP in Africa on average. This falls well below other developing regions. A successful continental free trade area could reduce this gap. A bigger manufacturing sector will mean more well-paid jobs, especially for young people. This in turn will help poverty alleviation.

Industrial development, and with it more jobs, is desperately needed in Africa. Industry represents one-quarter to one-third of total job creation in other regions of the world. A young person in Africa is twice as likely to be unemployed when he or she becomes an adult. This is a particularly stressful situation given that over 70% of sub-Saharan Africa's population is below the age of 30.

In addition, 70% of Africa's youth live on less than $2 per day.

The continental free trade area is expected to offer substantial opportunities for industrialization, diversification and high-skilled employment in Africa.

The single continental market will offer the opportunity to accelerate the manufacture and intra-African trade of value-added products, moving from commodity-based economies and exports to economic diversification and high-value exports.

Still, to increase the impact of the trade deal, industrial policies must be put in place. These must focus on productivity, competition, diversification and economic complexity.

In other words, governments must create enabling conditions to ensure that productivity is raised to international competitiveness standards. The goals must be to make certain products manufactured in African countries are competitively traded on the continent and abroad and to diversify the range and sophistication of products and services. …

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