Towards global economic integration in Africa

On the eve of the annual celebration of Africa Day (25 May), we wish to shed more light on the theme chosen by the African Union for the year 2023, in this case the “Acceleration of the implementation of the AfCFTA (African Continental Free Trade Area)”. A subject that is close to the heart of European investors, eager to get started in Africa and find new business opportunities.

Creation context

The crises of recent years, such as Covid-19 and the war in Ukraine, have confirmed the excessive dependence of the African continent on the rest of the world in terms of importations. Therefore, there is an urgent need for increased production and trade in Africa, which could be achieved by focusing on the private sector. This is one of the expressed priorities of AfCFTA, alongside the free intercontinental movement of goods and people, which will lead to global economic integration in Africa.

Major objectives

Regional integration in Africa is considered a priority by many political leaders and economic actors on the continent. With the signing of the agreement in January 2021 by all African countries, creating the Continental Free Trade Area (AfCFTA), the challenge now is to gradually establish a continental market for goods and services and to lay the foundations for a continental customs union.

Many on the continent see the AfCFTA as a blueprint for investment, economic diversification and job creation that will shape Africa’s future, help achieve the Sustainable Development Goals by 2030 (SDGs), strengthen the competitiveness of local economies, consolidate the progress made towards the achievement of the African Union (AU) Agenda 2063 and facilitate the creation of an “African Union-European Union” free trade area in the long term. With a combined GDP of over $2.5 trillion and a population of 1.3 billion, most of whom are under the age of 30, African countries stand to gain from intra-regional trade in Africa which, according to the World Bank, could lift 30 million people out of extreme poverty.

In this context, a project to reduce customs tariffs on 96 products in the countries already involved has been set up. This is a guided trade initiative that will soon be adopted by additional African countries.

The list of products will also extend to the service sector, such as financial services, where great efforts are being made to facilitate banking exchanges: we will be able to have the direct conversion of two African currencies, a pan-African system which will considerably reduce the cost of money transfer.

Entrepreneurs are also expecting AfCFTA to bring down prices and transport times for goods, which will greatly contribute to strengthening food security in Africa, which is endangered by inflationary pressure caused by the current geopolitical climate. According to Wamkele Mene, Secretary General of AfCFTA, “intracontinental trade in agricultural products could increase by 574% by 2030 if the customs tariffs associated with it are eliminated”.

Involvement of multinationals, youth and women

According to economists and specialists in international trade, the realisation of the largest free trade area in the world can also be achieved thanks to the involvement of large African multinationals, which produce and export throughout the continent. It is the weight and contribution of these African actors that can give a boost to intra-African trade, and thus accelerate the process of regional and continental integration.

Also, and unlike traditional trade agreements which focus on trade in goods, services and intellectual property rights, the AfCFTA has a broader objective by adopting an equal opportunities’ approach, which includes achieving socio-economic inclusiveness, initiates a structural transformation of States Parties and involves young people and women in the effort to industrialise Africa. Since, from the outset, African leaders demanded a protocol on women and young traders.

Funds and foreign investments

Along with the funds of the African Development Bank (AfDB), as well as the adjustment funds of Afreximbank, serving as economic support to the States Parties, the European Union also intends to allocate funds to the AfCFTA, which will aim to support intercontinental economic integration and encourage foreign investment in Africa (particularly European investment). This initiative is expected to lead to a significant increase in intra-African trade, as well as trade between Africa and Europe, essentially benefiting from a set of cooperation protocols on investment, intellectual property rights and competition policy, in harmony with the protocols adopted in Europe.

The Investment Protocol of the African Continental Free Trade Agreement, which will have a comprehensive information system (e-Tariff book, dedicated website, Rules of Origin manual, online monitoring, etc.), providing policymakers, importers, exporters, retailers and investors with up-to-date data in real time, will help to regulate investments, and influence the ability of governments to spell out the types of arrangements they plan to undertake when foreign companies invest in their country.

Examples of such investment provisions, with the primary objective of protecting investors against arbitrary expropriation or nationalisation, include the opening of markets, non-discrimination of foreign investors towards local companies, establishment right, Investor-State Dispute Settlement (ISDS) procedures, pre-establishment provisions and expropriation rules.

It should also be noted that the existing Regional Economic Communities (RECs) in Africa have their own ISDS approaches, which will favourably inspire the adaptation of the majority of AfCFTA Member States to the new provisions aimed mainly at encouraging foreign investors attracted to Africa, and guarantee them a favourable business environment.