Africa’s continental free trade ambition
Trade can boost Africa’s economic growth if cuts to tariffs, red tape and corruption are paired with investments in transportation.
In a nutshell
- Africa aspires to establish the world’s largest free trade zone
- The continent has enormous potential for economic growth
- AfCFTA’s future hinges on improving governance and logistics
The African Continental Free Trade Agreement (AfCFTA) represents an ambitious political vision and is arguably one of the most significant economic initiatives ever undertaken by the African Union. Encompassing 55 member states, AfCFTA aims to create the world’s largest free trade area, facilitating intra-African commerce and enhancing the continent’s global economic position. However, its successful implementation is predicated on member states overcoming numerous obstacles beyond mere political differences, economic vested interests and bureaucratic red tape. Political goodwill alone will not suffice to make Africa a united, affluent continent in the short- to mid-term future.
Facts & figures
How is AfCFTA supposed to work?
The project seeks to create a single market to boost intra-African trade and upgrade the continent’s position globally. Objectives include establishing a liberalized market, facilitating investment and capital movement, laying the groundwork for a Continental Customs Union, enhancing competitiveness, promoting industrial development and food security while expediting regional integration.
The free trade zone boasts a cumulative gross domestic product of about $3.4 trillion and some 1.3 billion people. AfCFTA officially entered into force on May 30, 2019, after sufficient ratifications were completed. Full implementation of the agreement, including reducing tariffs and eliminating red tape, will take years.
The first such obstacle is geographical barriers that complicate trade logistics and hinder the seamless movement of goods both across land borders and from inland to Atlantic and Indian Ocean ports.
Cost-effective water transport in Africa is limited
Africa is home to the largest number of landlocked countries in the world, and it has few navigable rivers connecting inland regions to the ocean. While the Nile, Congo, Niger and Zambezi rivers do provide some connectivity, they are often unsuitable for year-round navigation or only partially navigable. Consequently, transporting goods by river barges to seaports is frequently impractical. Barges are generally a more cost-effective mode of transport than trains, so African inland goods face an effective geographic tax on transportation. This situation places manufacturers in industrialized countries at a significant cost advantage in global markets.
Improving and investing in navigation systems could greatly boost the competitiveness of African enterprises.
While the biggest African rivers offer some navigability for the transport of goods, their effectiveness varies significantly due to gaps in infrastructure and seasonal conditions. Improving and investing in navigation systems could greatly enhance the rivers’ role in regional trade and transportation, and in turn boost the competitiveness of African enterprises.
Facts & figures
Main rivers and lakes of Africa
The Chongqing Guoyan Port in the central-north part of China provides a good example of the importance of investments into navigable waterways. The multi-modal inland hub significantly helps Chinese foreign trade despite being approximately 1,000 kilometers from the sea. Goods are efficiently transported by floating containers down the Yangtze River all the way to the South China Sea, where the goods then move to trains and ships, showcasing how effective waterway systems can facilitate trade from inland locations.
Insufficient rail network
Although rail is the next cheapest mode for transporting goods, most African cargo is still transported on poorly maintained roads due to inadequate rail networks. With the exception of Chinese-built transcontinental railways, most African railway lines are designed for specific projects, such as connecting mines to ports, rather than as part of a cohesive national or continental infrastructure plan. This results in limited rail cargo capacity.
Cross-border road transport in Africa is not only inherently more expensive than river transport but also susceptible to border delays and bribery.
In this context, the construction of the United States-funded 560 kilometer-long Lobito Corridor Railway, which runs from southern Democratic Republic of the Congo (DRC) through Zambia to the port of Lobito in Angola, is particularly significant. It will connect inland copper producers to the Atlantic, reducing transport costs to Western markets and facilitating rail cargo for producers in central and southern Africa. However, access to the Lobito Corridor will still rely on feeder roads rather than direct rail connections.
Intra-African trade
The 2024 trade report by African Export-Import Bank (Afreximbank) highlights that intra-African trade grew by 3.2 percent in 2023, reaching $192 billion, a total of 14.9 percent of all African trade. That is a slowdown from 10.4 percent growth in 2022 and it remains modest compared to intra-continental dynamics in regions like Asia and Europe. South Africa leads with a 21.4 percent share of intra-African trade, while the southern African region accounts for 41.1 percent of that total.
The report identifies the DRC as a key player in enhancing intra-African trade. Its copper exports bolster Zambia’s commerce, while South Africa stands out as the main supplier of mining machinery and pharmaceuticals to the DRC. In exchange, the DRC exports inorganic chemicals, precious metals, copper and vehicle parts to South Africa.
Other obstacles and AfCFTA’s institutional solutions
Cross-border road transport in Africa is not only inherently more expensive than river transport but also susceptible to border delays and bribery, effectively creating an unofficial toll on transported goods.
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Transportation poses a greater challenge for African trade than tariffs and duties, with border taxes also creating significant obstacles. Outside of South Africa and Egypt, numerous African countries rely heavily on border taxes for fiscal revenue. For example, in Uganda, border taxes account for approximately 25 percent of government revenues, while in South Africa, this figure is only 3.5 percent. To assist vulnerable states in transitioning to lower border taxes under AfCFTA, the AfCFTA Adjustment Fund has been established. Nevertheless, concerns about corruption remain.
International development finance institutions are addressing Africa’s trade finance gap by increasing lending and offering alternative financial products. Afreximbank plans to double its funding for intra-African trade to $40 billion by 2026, which will support the Adjustment Fund. Additionally, the Transaction Guarantee Instrument facilitates transactions in groups and sub-regions that typically face higher rejection rates. The Pan-African Payment and Settlement System provides a centralized platform for intra-African trade payments but requires improved digital networks across the continent. Furthermore, the Base Fund of the AfCFTA Adjustment Fund is designed to support countries and business activities within the AfCFTA trading framework.
While rail and digital infrastructure are the cornerstones of competitiveness, anti-corruption is essential for ensuring safety and security.
These developments highlight the growing focus on institutional development in Africa, largely driven by AfCFTA. The significance of institutions was underscored by the 2024 Nobel Prize winners in economics, Daron Acemoglu, Simon Johnson and James Robinson, who emphasized that “societal institutions are crucial for a country’s prosperity. Societies with weak rule of law and exploitative institutions fail to generate growth or positive change.”
AfCFTA also facilitates difficult discussions about trade. For example, while Moroccan and South African businesses are eager to engage in commerce and companies want to get on with trade, the South African government’s anti-Moroccan stance often hinders these efforts.
While rail and digital infrastructure are the cornerstones of competitiveness, anti-corruption is essential for ensuring safety and security. This makes institutions like the Commonwealth Africa Anti-Corruption Center vital for the success of AfCFTA. A recent presentation to Business Unity South Africa also highlighted key improvements needed to make Africa more competitive: regulatory reform, human capital development, infrastructure enhancement, safety and security measures and educational advancements.
The biggest advantage of AfCFTA is that it shines a light on the most formidable hurdles to African trade and competitiveness. Its real benefit lies in addressing these problems rather than merely reducing duties. As AfCFTA Secretary-General Wamkele Mene explained, “We are on the right track, but the track is very, very long. We are now focusing on competitiveness at last, thanks to AfCFTA. Smaller economies rely more on trade, so having a bigger market is a net good for everyone.”
Scenarios
Likely: AfCFTA works in the long term – for some
Smaller African nations are increasingly positioning themselves for increased trade by implementing regulatory reforms, investing in education and enhancing both rail and digital infrastructure. They are also strengthening institutions to combat corruption, improve safety and security while protecting property and intellectual rights. A prime example of such a country is Ivory Coast, which has emerged as a trade hub in West Africa by importing crude oil from Nigeria, refining it, and then exporting the refined products to neighboring countries like Burkina Faso, Ghana and Mali – its top trading partners. The success of trade champions such as Ivory Coast is expected to catalyze a broader shift toward trade-driven growth in the region over the next 50 years.
Unlikely: Africa’s quick economic miracle through trade
Free trade is enthusiastically embraced by all African countries seeking to maximize AfCFTA benefits. Governments roll up their sleeves to enhance economic competitiveness through essential reforms, institutional changes and well-targeted infrastructure development. The mercantile flywheel – a concept where increased trade leads to economic growth – gradually delivers on the promised gains. However, even in the most optimistic scenarios, such valiant efforts face challenges and may not be sufficient to propel the continent into sustained high growth over the next 15 years, as envisioned.
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