AfCFTA Friday #1: What is the AfCFTA and Why Does It Matter?

Introducing the African Continental Free Trade Area Segment

Scene at most ports in Africa—tons of manufactured goods from China

The African Continental Free Trade Area (AfCFTA) is an understanding between all African countries to lower trade barriers and create a Free Trade Area that spans the entire continent.

The objective is to unite Africa’s small national economies into a powerful continental economy that can lift Africans out of poverty and raise their living standards.

The seed for an economically united Africa—anchored by trade—was planted long before some African countries gained independence.

In 1963, Kwame Nkrumah spearheaded the creation of the Organization of African Unity (OAU). At the founding ceremony in Addis, attended by the leaders of 31 independent African countries, Nkrumah had this to say.

It is only by uniting our productive capacity and the resultant production that we can amass capital. And once we start, the momentum will increase. With capital controlled by our own banks, harnessed by our own true industrial and agricultural development, we shall make our advance.

Kwame's dream did not materialize then. But in 2012, long after the OAU had been renamed into the African Union (AU), the 54 heads of state came together and endorsed an action plan to Boost Intra-African Trade (BIAT).

After several rounds of negotiations in the following years, the heads of state had a signing ceremony on 21^st March 2018 in Kigali and the African Continental Free Trade Area officially came into effect.

Why was the AfCFTA necessary?

The Historical Circumstances That Gave Rise to the African Continental Free Trade Agreement

Historically, global trade developed because no individual, state or region was 100% self-sufficient. Even regions that had the capacity to produce a lot for themselves couldn’t sustain it for long because of the cost.

Take the example of a country in a cold region where bananas can only grow after a lot of investment. The government will opt to buy bananas from a country in the tropics where bananas grow with little effort or investment because it's cheaper.

That need for a cheap source of goods or raw materials shaped trade in Africa.

Before colonization, communities across the continent practiced barter trade. For example, the Maasai, a pastoral community in Kenya, often traded their livestock for agricultural products from the agrarian Kikuyu community.

When colonization started, trade changed to reflect the colonizers' objectives—to acquire cheap raw materials that would help the colonizing countries to industrialize quickly.

The colonialists built infrastructure (rails and roads) that would make it easier to take raw materials from Africa’s mainland and transport them to the coast for shipping across Europe.

The ruthlessness with which the colonialists ensured that the newly developed trade systems only served the west is captured in Kwame Nkrumah’s book—Africa Must Unite.

During the war, British troops were stationed in the Gold Coast. Everyone knows that potatoes are to the British what bread is to the French. A meal is not complete without them. 

Under wartime conditions, shipping was severely restricted, and it looked like the British soldiers would have to go without their potatoes. 

The British had always maintained that our climate was unsuitable for growing potatoes. But the administration, moved at the thought of British servicemen being deprived of their staple food, began a 'grow potatoes' campaign.

Before long, our hitherto 'unsuitable' climate was producing magnificent crops. Once the war was over, and normal shipping facilities resumed, the Department of Agriculture in colonial Ghana changed its tune.

Gold Coast potatoes, we were told, were unfit for human consumption. The result was that potatoes disappeared from our fields and once more figured among our imports.

Pause, scroll back up, and read that again, please.

Next came the independence era. Independence gave African countries political sovereignty but economically, it left them in tatters.

The newly independent countries lacked industries that could process the raw materials, make complex goods that were more valuable, and exchange with other countries fairly.

The colonial administration had deliberately not invested in industries on the continent. They had wholly focused on stealing taking raw materials out of the continent.

To add salt to injury, the newly independent countries did not have enough skilled individuals to build the required industries. Sure, there were some educated folk, but not enough. For instance, the entire French Equatorial Africa had only 850 elementary schools. Of all the kids in the region, only 18% were in school.

In Portuguese Africa, the officials were famous for boasting that Portuguese rule would last longer in their colonies because they held education back for natives. 

There was also a lack of infrastructure linking African countries to each other. It made it almost impossible for neighboring countries to trade with each other.

The effects of next to no infrastructure between African countries are still evident today. For example, some goods from Senegal and Tunisia go to France before being redistributed to the rest of the continent.

With such complex barriers to intra-African trade in independent Africa, the leaders of the time made the best out of a horrible situation.

They continued to export raw materials at low prices to the west. It was a detriment to the continent, but the hope was that they could quickly build the capacity—in terms of agriculture, skilled individuals, and infrastructure—then start trading in sophisticated goods.

66 years after the first African country gained independence, no country in the continent has successfully shifted from primarily exporting raw materials. Some countries, such as South Africa, are ahead, but raw materials are still Africa's primary export.

When exporting raw materials globally, the producer (Africa) does not receive payment that is commensurate to the product's value. That’s because the west sets the global prices of raw materials and they make sure the prices are favorable to them.

Mwalimu Nyerere explained this phenomenon in one of his speeches through an elaborate example.

Assume I have a business with my brother, where I (Africa) sell cotton to him , and he (West) sells sisal to me. If the rules dictate that he (West) is the one who will determine the price of the sisal which he sells to me, and the price of the cotton, which I sell to him, then I am in trouble.

Unless he is God or an angel, he will raise the price of the sisal he sells and keep down the price of the cotton he buys from me.

It is inevitable.

That is what is happening on a global scale.

The west are certainly not angels. As such, Africa finds itself in a situation where it always sells cheap and buys dear.

If Africa continues on the same path, then the continent might as well resign itself to unending poverty.

That is where African Continental Free Trade Area (AfCFTA) comes in. It is an agreement that allows Africans to create trade infrastructure, systems and policies amongst themselves.

If Africa trades with itself:

• It can set fair prices

• Manufacture and exchange a lot of the products it imports from the west (instead of Nigeria importing toothpicks from China, it can import from another African country that has taken advantage of opportunities in the AfCFTA to start manufacturing toothpicks)

• Reduce over-reliance on the export of raw materials (if Nigeria is manufacturing other things and selling them to other African countries, it does not have to over-rely on exporting its oil)

Why Does the AfCFTA Matter?

AfCFTA matters because it might be the only way for the continent to free itself from the shackles of poverty.

To demonstrate how this will happen, consider the example of coffee. A 2014 study by KPMG noted that Africa produces and exports coffee worth $6 billion. When the importing countries roast, blend and package the coffee, they sell it abroad for $100 billion.

That means 94% of the value of coffee benefits individuals outside the continent who've never stepped on a coffee farm.

That happens to a lot of goods in the continent.

The AfCFTA will create an enabling environment for companies in the continent to process these goods and trade with other African countries based on demand.

As a result, a large percentage of the value will remain in the continent. In the case of coffee, for instance, instead of the continent keeping only 6% of the value, it might end up with 40 to 50 percent.

If you apply the same reasoning to high-value industries such as automobiles, computers, IT products, clothing, fashion accessories, pharmaceuticals and chemicals; the potential revenue is mind-blowing.

That is why a World Bank report noted that if AfCFTA is fully implemented and adopted, it has the potential to lift 100 million Africans out of poverty by 2035.

As of 2021, over 490 million Africans live under the poverty line. The chance to liberate 100 million of them within 15 short years is an opportunity the continent cannot squander.

Now you know why the African Continental Free Trade Area matters. It is a way to change the established structure to one that can aid accumulate wealth in the continent.

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1. This is the first of many AfCFTA articles. While this first one comes to you on a Tuesday, the rest will arrive in your inbox every Friday morning.