African Continental Free Trade Area Research Articles

African continental free trade area and greenfield investment: Likely effect and transmission channels

AbstractWe examine the likely effect of the African Continental Free Trade Area (AfCFTA) on African investment using data on announced greenfield investment. Departing from existing work on this subject, we add value by providing estimates based on a general equilibrium counterfactual analysis in a structural gravity framework. Results suggest that the stock of announced intra‐African greenfield investment in 2018 would have increased by 0.7 percent from a successful implementation of the AfCFTA in that year relative to the baseline scenario of no agreement, with considerable heterogeneity across source and destination countries. Moreover, the positive effect is found to increase with the depth of the negotiated agreement. Exploring possible transmission channels we find the trade elasticity of announced greenfield investment to be positive, especially for trade in intermediates in African host countries with strong governance indicators. This suggests that, by improving institutional quality and galvanising regional value chains, integration within Africa could also incentivise investment.

Globalization and capital formation in Nigeria

No country can achieve sustained economic growth without substantial investments in capital formation. Nigeria is rich in natural resources but due to inadequate capital and technology, these resources have not been fully tapped and maximized. This study seeks to provide another gate way to unlocking the dearth of capital formation for development by specifically investigating the impact of financial and trade globalization on capital formation in Nigeria within the period 1990–2022. Autoregressive distributed lag (ARDL) technique was adopted for data analysis. The findings of this study indicate that while trade globalization has negative effect on capital formation in both the long run and short run respectively, financial globalization exerts negative effect on capital formation in the long run but a positive effect in the short run. Nevertheless, Financial and trade globalization exert detrimental effect on capital formation in the long run. A major policy recommendation is that Nigeria should play a key role in the African Continental Free Trade Area in order to boost her trade and financial competitiveness within Africa and so be able to lunch herself into the global space, and thus tap the potential benefits of trade and financial globalization.

A new era for African health systems: Market shaping and the African Continental Free Trade Area (AfCFTA)

AbstractThe COVID‐19 pandemic has forced a reflection on the origins of supplies in African healthcare market and underscored the need for an increase in local manufacturing of medical supplies. Several African countries’ health markets have been heavily reliant on imports. First, this article demonstrates how the African healthcare market has had a high import dependency and the role that the African Continental Free Trade Area (AfCFTA) could play to reverse this. It is estimated that African countries import between 80% and 94% of medical supplies, 75% of testing kits, between 70% and 95% of pharmaceuticals, and 99% of vaccines. Second, during the COVID‐19 pandemic, countries imposed export restrictions which impacted the flow of medical supplies to African countries. This finding highlighted the limited production capabilities on the African continent and reiterated the need to strengthen continental value chains and local manufacturing capacity to establish the continent's New Public Health Order. Third, there was the emergence of local innovations seeking to minimize the impact of these supply chain disruptions. Using case studies on the local production of COVID‐19 testing kits and personal protective equipment, the article highlights progress made toward health market reform. It calls attention to the implementation of the AfCFTA to strengthen the supply, manufacturing, and trade of medical resources. Fourth, this article highlights countries that have African‐made pharmaceuticals and vaccinations and the importance of regional hubs to expand these products in African healthcare markets. It concludes by discussing investments made to expand local manufacturing of health products.

The AfCFTA tariff offers: Current state and first revelations about members' stances towards openness and protectionism

AbstractMost signatories of the African Continental Free Trade Area (AfCFTA) agreement have submitted tariff concession offers, as published on the AfCFTA Secretariat's website. Over a year since the AfCFTA came into effect, it is time to take stock of these submissions and assess the data with respect to members' stances towards fostering intra‐African trade through openness on the one hand and maintaining protection against competing imports and revenues from import tariffs on the other. Combining the offers with corresponding trade and tariff data, we find that there are both significant data gaps and inconsistencies with the AfCFTA's trade liberalisation modalities and the trade classification standard. Constructing two tariff schedules, one which repairs the offers for compliance with the modalities and another that maximises the import tariff revenue retained as a benchmark, the analysis confirms that the modalities require regions to liberalise strongly, but most opt to liberalise even more and earlier than necessary. Stances towards freer trade, however, differ markedly between regions. Deriving a measure of liberalisation stance from the schedules above and associating it with trade, economic and geographic indicators reveals patterns that suggest potential motivations for the stances of some country groups.

The tax revenue implication of trade liberalisation in sub‐Saharan Africa: Some new evidence

AbstractDespite the advent of trade liberalisation, trade taxes still remain a key source of tax revenues in sub‐Saharan Africa. Further trade reforms in the form of the African Continental Free Trade Area could, however, hinder output growth in the region if these reforms lead to a decline in total tax revenues. Motivated by this conundrum, this paper investigates the impact of trade liberalisation on tax revenues across a panel of sub‐Saharan African countries. The results indicate that trade liberalisation is associated with an increase in total tax revenues. Also, the reduction of import and export duties significantly increases and decreases domestic and trade tax revenues, respectively. In addition, greater urbanisation is associated with an increase in total tax revenues, while inflation decreases tax revenues.

Prospects and challenges of achieving structural transformation in Africa through the African Continental Free Trade Area

The African Continental Free Trade Area (AfCFTA) agreement seeks to integrate markets in Africa into one large market. With the growing concerns about continental integration, this study identifies prospects and challenges of achieving structural transformation in Africa through the AfCFTA. The study employs the Interactive Structural Modelling technique, which helps to develop a contextual relationship between the factors in terms of their driving power or dependence power. The results indicate that unequal trade and investment opportunities, poor infrastructure, poor access to development finance, and the degree of industrialisation have a high driving power, hence a greater potential to create a ripple effect on other factors associated with African integration. Based on the findings, this study recommends that a platform be created within the agreement where these challenges can be tackled. In this view, the establishment of various development finance institutions monitored and facilitated by the AfCFTA affiliates, could be explored.

Sustainable Development Under AfCFTA: Dimensions, Limitations and Prospects

Abstract Sustainable development constitutes a catch phrase for integrated and inclusive development more so in Africa that is battling with development challenges. Despite its legitimization at the highest institutional level, a principal impediment encountered in the concretization of sustainable development principles (environmental, social and economic) in Africa remains the enforcement conundrum. The situation is compounded by indifference of the state and non-state actors. Cases of environmental damage, social malpractices and economic marginalization in the execution of trade and investment policies are largely treated with levity, with prioritization accorded to financial accruals over disciplining delinquent behaviour. Consequently, the emergence of the African Continental Free Trade Area Agreement (AfCFTA) with provisions on sustainable development renews hope for the concretization of the sustainable development principles in Africa. A crystallization of effective enforcement of sustainable development principles is deeply intertwined with an existence of an effective peer-review mechanism with a network of reporting linkages. Arguably, effective peer review system is fundamental to assessment of state of play, investigation of violations, collation of reports, and institutional strengthening to change the dynamics in favour of improved performance.

A framework of African Continental Free Trade Area dispute settlement mechanism: legal challenges

Abstract African countries have recently signed an ambitious and progressive trade pact titled the African Continental Free Trade Area (AfCFTA) agreement. The agreement establishes a free trade area, which also includes a dispute settlement mechanism (DSM). African countries further agreed on the Protocol on Rules and Procedures on the Settlement of Disputes to establish and regulate the process of the DSM. The Dispute Settlement Body formally launched its business on 26 April 2021. The Agreement and the Protocol are the first of the kind in the continent and are on the verge of implementation. Given that, the article examines the AfCFTA Agreement and the Protocol on Rules and Procedures on the Settlement of Disputes. Accordingly, the article finds that the Agreement and the Protocol involve some legal challenges that will constrain the efficacy of the DSM in the continent.

The dynamics of green innovation, environmental policy and energy structure for environmental sustainability; Evidence from AfCFTA countries

Environmental pollution caused by many factors including energy use has been a major problem around the world. A sustainable energy structure can help improve environmental sustainability. The roles of green innovation and environmental policies in determining an effective energy structure and achieving environmental sustainability have gained attention in recent research, but there are gaps to fill. Given the rapid development and unification of Africa to boost economies, this article aims to establish whether or not green innovation and environmental policies have influenced energy structure and environmental sustainability. Thirty-one (31) countries out of the 55 African Continental Free Trade Area (AfCFTA) countries were used in the analysis. The study adopted the Fully modified ordinary least squares (FMOLS) and the Dynamic ordinary least squares (DOLS) models in its analysis. Major empirical results revealed that a 1% increase in green innovations reduces ecological footprints by 0.7% and 1% (DOLS and FMOLS). Also, a percentage increase in environmental policies can reduce ecological footprints by 10.12% (DOLS) and 21.87% (FMOLS). A 1% rise in renewable energy improves their environmental sustainability by 3.26% (DOLS) and 1.82% (FMOLS). A 1% consumption of non-renewable energy reduces environmental sustainability by 4.59% (DOLS) and 1.55% (FMOLS). These results provide insights into the importance of green innovation, environmental policy, and renewable energy in improving environmental sustainability. Stringent measures and policies to boost green investment, sustainable energies, and environmental sustainability are necessary for the region.

Transition to Polycentrism and the Transformation of Regional Trade Agreements

Regional trade agreements (RTAs) are important instruments of the world trade system, which have been increasingly developed in recent decades, since they complement the existing World Trade Organization (WTO) and WTO+ agreements and allow taking into account the specificities of regions. The principle of ensuring non-discriminatory trade is the main principle of multilateral trade of the WTO, or in other words, observes the rule of not favoring one trading partner over another. RTAs are, in fact, an exception to this approach, as it is the signatories that enjoy more favorable market access conditions. At the same time, the WTO recognizes the legitimate role of RTAs in facilitating trade between their parties, but requires that they not create barriers to trade with third parties. RTAs cover more than half of world trade, and new transcontinental agreements have been concluded in recent years: the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, the Comprehensive Regional Economic Partnership, and the African Continental Free Trade Area. There are different types of RTAs in international cooperation, ranging from free trade agreements to common markets, including between countries of a territorially contiguous or transcontinental nature, based on WTO and WTO+ agreements or protectionist in nature. The article reflects the consequences for the national economies of developing countries, it is revealed that the European Union in the RTAs is actively promoting its values as the absolute truth for all peoples and nations, and their non-acceptance is considered as a factor causing possible restrictions. Other developed economies have also imposed obligations on signatories in terms of ensuring the transformation of the national economies of developing countries, but in recent years this trend has weakened somewhat. China, initiating the RTA, pursues the realization of its national interests, without imposing any political, mental or social aspects, and at the same time is ready to develop mutually acceptable compromises. The transformation of RTАs in modern conditions is carried out in three basic directions: preference for the preservation of full sovereignty by the signatory countries; the inclusion of articles that condition the promotion of sustainable development; control and monitoring to ensure compliance with labor safety regulations, non-damage to the ecological environment, as well as the use of tools of responsible corporate business conduct.

The AfCFTA: An Enabler or Hindrance of China-Africa Trade?

China is flooding Africa with its products. This phenomenon is referred to by various scholars and commentators as the “dumping” of cheap manufactured goods on the continent. Using terms such as “zhing-zhongs” in Zimbabwe and “fong-kongs” in South Africa to refer to the inauthentic cheap goods that mostly bear a “Made in China” label, China is said to have influenced the growing unemployment and closing of firms in Africa. This article investigates whether or not the African Continental Free Trade Area (AfCFTA) enables or hinders trade relations between China and Africa. Admittedly, the agreement is said to be a solution to enabling intra-trade in Africa. This intra-trade is also a positive response to Africans to not rely exclusively on China's manufactured goods but also produce and consume their own products. Through the AfCFTA, it is argued that the “Made in Africa” label will override China's finished goods in the long term. Given that China is not only the world's largest manufacturing hub but Africa's largest trading partner, the implications of China's manufactured goods in Africa is a terrain worth investigating. The article argues that although the AfCFTA is a stepping stone for intra-trade on the continent, the benefits of the agreement will not be realised anytime soon because of various challenges such as limited infrastructure, the affordability of the manufactured goods, and the convenience of having readily available products at the time of purchase.

Leveraging the Potential of the African Continental Free Trade Area: Logistics Challenges and Development Paths for Future Value Chains in Africa

Background: With a rapidly growing young population, the African continent provides a high but barely exploited economic potential. Creating an African free trade zone is one of the African Union’s major initiatives to increase prosperity. Even though the AfCFTA has already come into force, its potential has not yet been fully exploited. This study investigates the logistics challenges associated with the AfCFTA and potential solutions and development paths for future value chains. Methods: The study builds upon a two-stage research process. First, applying the Nominal Group Technique with a group of 19 industry experts, current challenges and strategies to deal with them are conducted, and statements about potential development paths emerging from the AfCFTA are synthesized. Second, a questionnaire among additional industry experts is done to assess the results of the first stage. Results: The article sheds light on the barely untapped field of logistics challenges hindering the AfCFTA to leverage its potential. Strategy fields to address current challenges are explained, and the first indications of how the AfCFTA will shape supply chains in the mid-term are outlined. Conclusions: The article underlines the importance of logistics in the development of pan-African value chains and highlights potential development paths that may arise in the medium term. It also emphasizes the growing need for cooperation between politics, business, and research to overcome current logistics challenges and leverage the potential of the AfCFTA.

Critical factors to consider in the trade–security nexus of the African Continental Free Trade Area: A catalyst for establishing peace

ABSTRACT This study examines the geostrategic importance of the African Continental Free Trade Area (AfCFTA), discusses its potential trade impacts on African states, and considers whether it could support regional peace. Regional integration is crucial for achieving industrialisation, promoting trade across African borders, and preserving regional peace and security. Inextricably linked to regional integration is a security community comprising a distinct group of individuals for whom the likelihood of large-scale conflict or violence has diminished. A comparative analysis was conducted using Africa’s trade patterns, milestones, and achievements during 2015–2017 and 2022–2023. Subsequently, the key causes of insecurity on the African continent were explored, focusing on the Regional Economic Communities and states embroiled in coups during 2020–2023. The findings suggest that African authorities view the AfCFTA positively and believe economic integration may bring about peace. However, African authorities would require a strong continental strategy – supported by robust regional and national programmes – to promote investor confidence and trade, considering Africa’s high levels of intercommunal violence, civil unrest, violent extremism, terrorism, and transnational crime. The AfCFTA delayed trade liberalisation to protect Africa’s less developed economies, resulting in poor working conditions, intellectual capital loss, and decreased tax collection.

Economic Transition Opportunities for Nigeria in joining the African Continental Free Trade Area

This article explores the African Continental Free Trade Area (AfCFTA) and its implications for Nigeria. AfCFTA, established in 2018, aims to create a competitive single African market by eliminating tariffs and barriers, fostering economic growth, job creation, and industrialization. The nature of trade in Continental Africa has been more with the rest of other continents than within Africa. Then comes the question of what is standing on the way of inter and intra Africa trade. With trade we can unlock Africa growth and development and by so doing, we can improve per capita income in the continent and by so doing reduce poverty in Africa. The article discusses the objectives and challenges of AfCFTA, emphasizing the importance of infrastructure, regulatory harmonization, and trade facilitation. For Nigeria, Africa’s largest economy, joining AfCFTA offers expanded market access, job opportunities, and economic diversification. The government’s rationale for participation includes promoting industrialization, increasing export opportunities, and improving trade balance and foreign exchange reserves. The reality is that we all need each other to get the wheel of life going. Keywords: , Globalization, AfCFTA, Regional Trade, Trade balance

The Growth Prospects for Nigeria in Joining the African Continental Free Trade Area

This paper examines the potential benefits and challenges of Nigeria joining the African Continental Free Trade Area (AfCFTA) agreement, which aims to create a single market for goods and services across Africa. Using a computable general equilibrium model, we simulate the effects of trade liberalization under different scenarios of tariff reduction, trade facilitation, and regional integration. We find that Nigeria stands to gain from participating in the AfCFTA, especially if it is accompanied by improvements in infrastructure, customs procedures, and regulatory harmonization. However, we also identify some potential costs and risks, such as trade diversion, revenue loss, and adjustment costs for some sectors and regions. We recommend that Nigeria adopts a proactive and strategic approach to maximize the opportunities and mitigate the challenges of the AfCFTA, such as diversifying its export basket, enhancing its competitiveness, strengthening its domestic policies, and engaging in regional cooperation. Keywords: AfCFTA, Nigeria, trade liberalization, regional integration, computable general equilibrium model

Positioning Nigeria as a First World Economy in the Era of Signing the African Continental Free Trade Area (AFCFTA)

The challenging circumstances of Nigerian businesses within the African continental free trade agreement has not really placed Nigerian economy at the desired global height as expected. The challenges in line with the ex post facto result of our study showed that, Nigerian was prepared to be launched at the global business circle but are still confronted with specific issues due to lack of proper African continental integration. Our report also showed that, Nigerian capital and financial markets are robust to leverage AfCFTA to boost trade and commerce, attract FDI, utilized our abundance natural and human resources and increase exports. It was however, recommended that: A special purpose vehicle should be created to monitor the progress of the AfCFTA strategies in each of the Member countries. Also, Nigerian government should work harmoniously with stakeholders to ensure trade liberalization especially export sector and start up so as to boost local production; trade Concessions should be given to infant industries, and laws should be made to protect SMEs from foreign and giant competitions; ease of doing business policies should be improved to attract foreign direct investment, FPI and capital inflows. Keywords: Globalization, AfCFTA, International trade, Trade balance, Classical & Neoclassical trade theories.

The Growth Opportunities for Nigeria in Joining the African Continental Free Trade Area.

This Article examines the African Continental Free Trade Area (AfCFTA), focusing on its inception, goals, challenges, and specific implications for Nigeria. Africa, with abundant natural resources and cultural diversity, faces hindrances like poor infrastructure and governance, limiting intra-African trade. Established in 2018, AfCFTA aims to create a competitive single African market by eliminating tariffs and barriers. AfCFTA objectives span tariff elimination, customs harmonization, dispute resolution, and cooperation on technical barriers. Challenges include infrastructure gaps, non-tariff barriers, economic diversity, competition adjustments, informal trade, political instability, capacity constraints, and financing issues. Mitigating these requires strategies like infrastructure development, trade facilitation, capacity building, and harmonizing standards. Nigeria, as Africa's largest economy, could benefit from AfCFTA by accessing cheaper goods. However, implementation faces delays due to unmet trade requirements. The National Action Committee outlines pillars for effective implementation, emphasizing institutional development, export growth, improved trade facilitation, and infrastructure development. Despite Nigeria's delay, the upcoming Guided Trade Initiative in October 2023 is anticipated to accelerate its participation in AfCFTA, fostering economic growth and trade relations within the continent. Keywords: Global trade, globalization, AfCFTA, Trade Block, Commerce.

Economic Transition Opportunities for Nigeria in joining the African Continental Free Trade Area.

This article explores the African Continental Free Trade Area (AfCFTA) and its implications for Nigeria. AfCFTA, established in 2018, aims to create a competitive single African market by eliminating tariffs and barriers, fostering economic growth, job creation, and industrialization. The nature of trade in Continental Africa has been more with the rest of other continents than within Africa. Then comes the question of what is standing on the way of inter and intra Africa trade. With trade we can unlock Africa growth and development and by so doing, we can improve per capita income in the continent and by so doing reduce poverty in Africa. The article discusses the objectives and challenges of AfCFTA, emphasizing the importance of infrastructure, regulatory harmonization, and trade facilitation. For Nigeria, Africa's largest economy, joining AfCFTA offers expanded market access, job opportunities, and economic diversification. The government's rationale for participation includes promoting industrialization, increasing export opportunities, and improving trade balance and foreign exchange reserves. The reality is that we all need each other to get the wheel of life going. Keywords: Globalization, AfCFTA, Regional Trade, Trade balance

Towards ICT diffusion and trade liberalisation on inclusive growth in Sub-Saharan Africa

AbstractWhile the debate over the nexus between trade liberalization and inclusive growth is progressively reaching some consensus in emerging and developing economies, the empirical findings are mixed for sub-Saharan African (SSA) countries. Some of the SSA countries experience rapid growth in information and communication technology (ICT) diffusion manifesting in increased green wealth via the invention of new ideas, access to wider markets like the African Continental Free Trade Area (AfCFTA), promoting accountability, social inclusion, and e-governance among others. The present study critically assesses how ICT diffusion modulates trade liberalization on inclusive growth throughout the 2005–2020 periods for 48 SSA countries. This study contributes empirically and methodologically to literature, specifically on the construction of the ICT index, inclusive growth index, and adoption of a better befitting econometric model. The study explores the direct impacts of ICT diffusion and trade liberalization, and their indirect impacts using an interaction term on inclusive growth. Contrary to the prior expectations, trade liberalization does not lead to inclusive growth in the SSA region, but ICT diffusion has a positive and significant impact on inclusive growth. However, the interaction term of ICT and trade liberalization improves inclusive growth. Therefore, the study advocates for policies that would build a knowledge-based human capital, stimulate innovation in socio-economic systems, and develop ICT infrastructure and its penetration among others, with the expectation that as AfCFTA takes effect, ICT diffusion will facilitate intra-regional trade, enhancing inclusive growth in the African region among other sound policy suggestions.

Addressing the Challenges Facing One-Stop Border Posts in Africa: Lessons from Chirundu

As African countries work towards establishing a continental market created under the African Continental Free Trade Area (AfCFTA), emphasis needs to be placed on improving connectivity and regional accessibility. One-Stop Border Posts (OSBPs) are central to enhancing interconnectivity among African countries to facilitate traffic flows along Africa's transport corridors. Under the OSBP concept, all traffic stops once to undertake both exit and entry formalities when crossing into another jurisdiction. Such a framework would help alleviate border congestion and delays that adversely impact transport costs, trade flows, and trade competitiveness. However, OSBPs present their own challenges. Using the Chirundu OSBP between Zambia and Zimbabwe (which was the first of its kind in Sub-Saharan Africa) as a case study, this article examines the challenges, highlights the issues, and suggests ways to address the problems. It reviews the border management and infrastructure challenges affecting operations and success of the Chirundu OSBP and points to implementation lessons that can be drawn to inform other African countries that intend to implement, or are in the process of developing, OSBPs.