AfCFTA: Why Africa should be Every Smart Investor’s Choice Destination in 2023

AfCFTA: Why Africa should be Every Smart Investor’s Choice Destination in 2023

Africa currently accounts for only 2% of global trade, moreover, only 17% of African exports are intercontinental, compared to 59% in Asia and 68% in Europe. As a result, the potential for transformation across Africa is significant. As a result, the AfCFTA is a game changer that will allow the continent to attract more foreign investment.

The African Continental Free Trade Area Agreement (AfCFTA), a trade agreement between the African Union’s 55 member states, is the world’s largest free trade area in terms of the number of participating countries. Connecting 1.3 billion people across 55 countries with a combined GDP of $3.4 trillion.

On May 21, 2018, 44 African countries signed the Kigali Declaration, which entered into force on May 30, 2019. The AfCFTA is an important component of the African Union’s Agenda 2063, a roadmap for Africa’s economic, social, and political transformation. The agreement is also expected to aid in the achievement of the UN’s Sustainable Development Goals, as it will gradually eliminate tariffs on 90 percent of goods and reduce barriers to trade in services. Which could raise income by 7 percent, or $450 billion, by 2035, reducing the number of people living in extreme poverty by 40 million, to 277 million, according to a World Bank report.

What you need to know about the African Continental Free Trade Area - African Business

Benefits of the AfCFTA to the economy

The primary goals of the AfCFTA are to promote intra-African trade and to boost the continent’s economic growth and development. The AfCFTA is also expected to establish a single continental market for goods and services, and free movement of entrepreneurs and investments, paving the way for the formation of a continental customs union.

The agreement aims to reduce all trade costs and allow Africa to become more integrated into global supply chains, focusing on outstanding non-tariff barriers. Significant income gains will result from reducing red tape and simplifying customs procedures. Aside from trade, the pact addresses human and labor mobility, competition, investment, and intellectual property.

Furthermore, the AfCFTA is expected to benefit African economies; according to the African Development Bank, the AfCFTA has the potential to increase intra-African trade by 52% by the end of 2022. This would result in an additional $29 billion in trade each year.

The AfCFTA is also expected to promote industrialization and value addition in Africa. This is because the AfCFTA will provide African countries with greater access to markets for their products and services. In turn, this is expected to lead to increased investment and production in Africa, as well as create jobs and reduce poverty.

However, opponents of the AfCFTA argue that the agreement may fail to deliver on its promises. They point out that many African countries are still not ready to implement the AfCFTA due to inadequate infrastructure and capacity. Furthermore, they argue that the AfCFTA may benefit large corporations and businesses more than small businesses and entrepreneurs. Nonetheless, the AfCFTA represents a significant step forward for African countries in their efforts to promote continental trade and economic integration. If it is successful, the AfCFTA has the potential to provide significant benefits to Africans.

How the Pact will Benefit Investors

FDI investment in India grows by 16% to USD 49 billion in 2019

In recent years, Africa has expressed interest in and readiness to welcome more foreign direct investment (FDI) to the continent. UNCTAD’s World Investment Report of 2022 puts Africa’s FDI at $83 billion in 2021. And the AfCFTA is one of several steps taken by African leaders to make the continent more appealing to investors, as well as a seamless and rewarding investment destination.

The AfCFTA will improve market access and promote greater economic integration by providing foreign investors with a more predictable, stable, and transparent regulatory investment environment. It provides the best opportunity for investors to gain access to the world’s largest free trade zone in terms of the number of participating countries, a total of 55 countries with 1.3 billion people and a combined GDP of $3.4 trillion.

Furthermore, the AfCFTA is expected to boost competition and efficiency in the production and distribution of goods and services across the African continent.

Finally, the AfCFTA would contribute to lower business costs in Africa. This is because the AfCFTA would lower tariffs and other trade barriers between African countries while also improving access to financing and infrastructure.

To sum it up, the AfCFTA is not without its difficulties. To realize its full potential, the agreement must be effectively implemented. Africa’s infrastructure, trade facilitation, and capacity-building also require improvement; however, the agreement provides an opportunity for Africa to build an integrated and prosperous future. The AfCFTA is at the heart of the African Union’s Agenda 2063, as such it’s crucial to fulfilling Africa’s promises and providing a better return on investment to investors who will defy the odds and prejudice to invest in the continent.