The African Continental Free Trade Area – What should we expect?

  • There is currently much excitement and discussion around the African Continental Free Trade Area (AfCFTA) – and quite rightly. The significance of the AfCFTA cannot be overstated: it will be the world’s largest free trade area since the establishment of the World Trade Organisation (WTO).  With a target market exceeding 1.5 billion people and an estimated 4 trillion dollars in investments and consumer spending, the agreement presents a real opportunity for African businesses. Many on the continent look to the AfCFTA as having the potential to propel growth and shape the future of the continent in years to come. Whilst discussions have focused on opportunity – it is now time for businesses to begin to adequately forecast and understand what a fully implemented agreement will look like.

    From a legal perspective – still much remains unknown. But there are trends we expect to see over the coming months and years as the agreement is enacted, including key changes expected to take place as early as July this year. What we know so far seems to indicate that transparency is one of the key principles underpinning the AfCFTA. Member states will be publicly required to make available all laws and regulations relating to trade matters covered by the agreement. And this transparency will be key to ensuring success and encouraging intra-regional trade. Businesses should also be prepared for an overhaul of regulations over the coming years. In the medium term, these will relate specifically to tariffs, bilateral trade and cross-border initiatives. Longer term, as the agreement progresses, there is likely to be a swathe of regulations introduced which improve the ease of doing business more generally. This movement is expected from countries notorious for their unfavourable regulatory and business environments. With the enactment of the agreement – they will be forced to review policies and streamline processes in order to remain competitive.

    There are currently massive legal and regulatory inconsistencies across the continent, a problem we at Afriwise are directly addressing through our platform. The agreement also aims to tackle this, as it specifically outlines that there will be “cooperation in all trade-related areas including investment, intellectual property rights and competition policy”. The fact that there will be a single set of substantive rules for intra-African trade will ensure for greater legal certainty and will undoubtedly increase trade. The harmonisation at the regional level is also expected to have an impact at the national level longer-term.  As countries see the added benefit of uniformity in the way they interface with the private sector, there could be a trend for countries to better align domestic policies with that of their neighbours.

    This positive trend towards greater harmonisation is also likely to be coupled with the introduction of new laws as countries prioritise areas of concern under the agreement. In particular, we expect to see notable movement by countries to introduce laws and frameworks around Intellectual Property and competition. Currently, across Africa, laws and frameworks do not protect or encourage innovation and policymakers are increasingly trying to promote greater use of IP rights. Member states will need to start prioritising IP to ensure innovation and competitiveness; otherwise it will significantly hinder the full potential of the AfCFTA. Additionally, whilst some African States such as Kenya, Zambia and South Africa are implementing and enforcing competition laws, a significant number are not introducing meaningful change. The implementation of the agreement is likely to encourage the states lagging behind to begin making plans. This will have important implications for foreign and local businesses operating in Africa.

    Overall, we see the AfCFTA and what has been set out so far as promising to provide significant levels of legal certainty to businesses, while improving transparency and allowing for a more predictable trading environment. It is certainly an exciting opportunity for international investors - who will see the benefits of a single market with reduced cross border barriers. Yet, while there are undoubtedly shifts on the horizon, we should be realistic about timeframes. Some solutions will take years, particularly given the lack of financial capacity of many countries. For now, we must be aware of the potential of future changes and monitor progress.

    When significant changes do unfold, Afriwise will add an AfCFTA section to our platform to ease the process of understanding regulatory and legal changes. Please get in touch if you are interested in being notified when we have added this capability: