Intra-Regional Economic Integration: The African Continental Free Trade Area Initiative

Introduction

Over the past century, African countries have created several regional economic integration arrangements. The overriding objective of these arrangements is the promotion of intraregional trade to achieve faster economic growth and reduce poverty (UNCTAD, 2020). The African Continental Free Trade Area (AfCFTA) is the most ambitious initiative in this vein (Figure 1). Past regional integration arrangements have delivered less than was originally envisaged, but they have contributed to a significant expansion of intra-African trade. Despite these integration arrangements, African intraregional trade trails that of other regions, and Africa’s insertion into global value chains (GVCs) is still dominated by its exports of raw materials. As a result, past integration efforts have been considered as underperforming (De Melo and Tsikata 2015; Hailu, 2014). Several reasons have been advanced for this underperformance, including lack of complementary domestic reforms to improve domestic supply responses and a low level of implementation of the arrangements, owing partly to the absence of strong institutional frameworks supporting them (WTO, 2020). Still, these arrangements have facilitated a large expansion of intra-African trade in the last couple of decades. The AfCFTA could affect income distribution, unemployment, and fiscal revenue, especially in the short term; however, the benefits of the AfCFTA would outweigh the costs. To mitigate these potential adjustment costs, policymakers would need to implement a complementary set of measures to strengthen the social protection framework, increase labor market flexibility, and mobilize domestic revenues. Africa lacks a continent-wide trading hub (AfDB, 2019; Vanzetti et al., 2018). Given the shift in international trade from goods to services, for the AfCFTA to have a transformative effect on member countries, it would need to spur the development of the nascent supply chain on the continent (AfDB, 2019).

Thus, the African Continental Free Trade Area (AfCFTA) is a trade agreement among African Union (AU) member states aimed at creating a single market for goods and services in Africa. The African Continental Free Trade Area (AfCFTA) is a major initiative of the African Union (AU) to create an integrated African market with the potential to increase economic growth and reduce poverty in Africa (UNCTAD, 2021). It is the largest free trade agreement ever concluded on the continent. The AfCFTA was launched in 2018 and is expected to enter into force in 2021. The agreement has the potential to create the largest free-trade area in the world, with more than 1.2 billion people and a combined GDP of over US$3 trillion (Abrego et al., 2020).The AfCFTA is a result of decades of regional integration efforts on the continent, which began in the 1960s. The early efforts focused on creating regional economic communities, such as the Economic Community of West African States (ECOWAS), the East African Community (EAC), and the Southern African Development Community (SADC) (TRALAC, 2019). These regional economic communities helped to create a framework for regional trade and investment, and many of them have grown to become powerful economic blocs (Albert, 2019).However, these regional economic blocs remained largely isolated from each other, and intra-African trade remained low. This was due to a number of factors, including tariffs and non-tariff barriers, lack of infrastructure, and lack of access to finance (TRALAC, 2018). The AfCFTA seeks to address these issues by creating a single market for goods, services, and investments in Africa, with the aim of increasing intra-African trade by up to 50 percent (PWC, 2023).