AfCFTA: What’s in it for us?

05 January 2021 | Africa

The trading phase under the African Continental Free Trade Area (AfCFTA), signed by 54 of the 55 countries in Africa, came into effect on 1 January 2021.

Namibia is one of the countries set to benefit from the AfCFTA, particularly offering opportunities for economic diversification and value-chain development.

The AfCFTA is one of the flagship projects of the Africa Agenda 2063, a key initiative identified to accelerate Africa’s growth and development, aimed at boosting intra-African trade and the continent’s trading position in the global marketplace.

The agreement to establish the AfCFTA was signed by 44 African Union (AU) member states in March 2018 during the 10th extraordinary session of the AU summit held in Kigali, Rwanda. An extra five member states, including Namibia, signed the agreement during the 31st ordinary session of the AU summit in July 2018, which took place in Nouakchott, Mauritania.

The agreement was entered into force on 30 May 2019; Namibia is one of the countries that had already ratified the agreement, and the AfCFTA secretariat was officially opened in Accra, Ghana, on 17 August 2020.

The future is African

At the recently-held Africa Summit at Princeton University in the United States under the theme ‘The Future is African: Post-Covid Economic Recovery Reimagined’, Eunice Ajambo, an economist and development coordination officer at the United Nations in Namibia presented on the AfCFTA as a source of economic stimulus in the Covid-19 context, and its contribution to Sustainable Development Goals (SDGs).

She noted that the impetus for the AfCTA is founded on its potential to contribute to enhanced:

Economic growth: The AfCFTA is expected to be the largest free trade area since the formation of the World Trade Organisation. It will comprise an estimated market of 1.3 billion people across 55 African countries. The combined gross domestic product (GDP) of the region is expected to increase by an estimated 1% to 3% to US$3.4 trillion, from the estimated current US$2.6 trillion, stimulating welfare gains from trade.

Employment: The loss of jobs is one of the results of Covid-19, with economic downturns presenting uncertainty on the recovery of key sectors including tourism, retail and trade. At mid-point in 2020, estimates were that 34.3 million people would fall below the extreme poverty line in 2020, with 56% of this increase occurring in African countries, due to Covid-19. Yet, predictions are that employment is to increase by 1.2%, and with 30 million people being lifted out of extreme poverty by 2035 with an increase in incomes, as a result of implementation of the AfCFTA.

Fiscal space: African countries were already struggling with fiscal space, even before the Covid-19 pandemic, including through lower tax revenue to GDP ratio (17%) than other regions, alongside rising levels of indebtedness and high risk of debt distress. With the collapse in commodity prices due to Covid-19, the AfCFTA presents opportunities for new sources of revenue including through new sectors such as e-commerce.

Regulatory framework: The implementation of the AfCFTA includes a range of instruments and institutions, including the Protocol on Trade in Goods; the Protocol on Trade in Services; the Protocol on Dispute Settlement and the related Phase 2 negotiations on Intellectual Property Rights, Investment and Competition Policies. When established, these institutions will contribute to strengthening economic governance and the regulatory environment on the continent.

Private sector development: A core tenet of the AfCFTA is its commitment to broadening markets across the continent. Already 80% of African businesses are small- and medium-sized enterprises (SMEs). Moreover, informal businesses are a potential pipeline for formalisation as SMEs, lessening fragmentation in the sector and generating economies of scale.

As an accelerator, the implementation of the AfCFTA would directly contribute to SDGs on: No poverty; Affordable and clean energy; Decent work; Industry, innovation and infrastructure; Peace, justice and strong institutions; Partnerships for the global goals, and with spill-overs and hinged on the other SDGs.

Benefit to Namibia

The summit underscored the importance of technology, including digitalisation, e-commerce, cross-border digital trade as a driver and enabler of the SDGs and the related Principles for Digital Governance, and called for strong integration of SGD 13 on climate action in the national AfCFTA implementation strategies, and related negotiations at the regional level.

Namibia is one of the countries set to benefit from the AfCFTA, particularly offering opportunities for economic diversification and value-chain development and expansion as means to economic transformation.

Analysis indicates that Namibia is set to see its GDP increase by between 4.1% (or US$ 1.85 billion) and 4.2% (or US$ 1.93 billion). The country’s exports are to increase between 2.8% (or US$ 640 million) and 2.9% (or US$ 664 million) with the implementation of the AfCFTA.

Significant gains are to be expected in all main sectors, with strong potential to promote industrialisation in sectors including textiles, wearing apparel, leather, milk and dairy products, wood and paper, metals, chemicals, vehicle and transport, electronics and other machinery.

Over 85% of the gains in Namibia’s exports to the rest of Africa would be in industrial products; nearly 10% in agriculture and food; less than 5% in energy and mining.

Namibia’s exports would increase significantly towards all African sub-regions outside of the Southern African Customs Union, including the extension of value chains to countries such as Cameroon, Kenya, Rwanda, Senegal, Tunisia and Zimbabwe, offering opportunities to industrialise through regional integration and trade.

This article, by the United Nation’s office in Namibia, was originally published on 5 October 2020.

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