Continental Free Trade Area (CFTA):

Creation of the Continental Free Trade Area (CFTA)

In January 2012 in the 18th Ordinary Session of the Assembly of Heads of State
and Government of the African Union in Addis Ababa, Ethiopia on the theme of
Boosting Intra-African Trade, the assembly of Head of state and Government of
the African Union decided to create the Continental Free Trade Area (CFTA) by the
indicative date of 2017 (This was an indication of their willingness to deepen
regional and market integration and finally move toward African Unity).
The CFTA will bring together 54 countries with a combined population of more
than one billion people and a combined GDP of over USD 3.4 trillion. Back then in
2012, seven of the worlds ten fastest economies were in Africa and Africa had a
fast growing middle class.
The CFTA will bring fragmented national markets into a functional continental
market. One of the main objectives is to address Africas low internal and
external trade performances (13% and 2%)
Boosting Intra-African Trade (BIAT) was also adopted on the date of creation of
the CFTA.
A computable General Equilibrium (CGE) analysis by Cheong, Jansen and Peters
estimated that the CFTA could stimulate intra-African trade by up to USD 35
billion per year (52% above the baseline) in 2022. It could also lead to a USD 10
billion decrease in imports from outside the continent, while boosting agriculture
and industrial exports by up to USD 4 billion (7%) and USD 21 billion (5%)
respectively.

Regional Economic Communities in Africa

See overlapping of memberships of the several African economic communities.

This will not happen with the CFTA as the free trade areas will be unified
together.

Creation of an African Economic Community (AEC) The

Continental Free Trade Area (CFTA) is just part of a big
long term plan (34 year plan) by the African Union to
create an AEC

Source:
International
Centre
for
Trade
and
Sustainable
Development
http://www.ictsd.org/bridges-news/bridges-africa/news/the-continental-free-trade-areawhats-going-on

The African Economic Union (AEC) is set to be completed in six phases over 34
years as seen above.

Table 1: Steps towards the creation of the Continental Free Trade Area (CFTA)
The CFTA is part of the process of creation the African Economic Union (AEC)
which is a very long term project.

Main objectives of the CFTA

Create a continental market for goods and services with free movement of
business persons and investments and thus pave the way for accelerating
the establishment of the Customs Union.
Expansion of intra-African trade through harmonization and coordination of
trade liberalization and facilitation and instruments across the Regional
economic communities (RECs) and Africa in general. This will help boost
intra Africa Trade (In 2012, Intra Africa trade stood at 12% of total trade
compared to 60% for Europe and 40% for North America and 30% for
ASEAN).
Deepening market integration and higher intra Africa trade can
significantly improve sustainable economic growth, employment
generation, poverty reduction and better integration of the continent into
the global economy.

Opportunities
1. The United National Economic Commission for Africa (UNECA) calculated
that the CFTA could increase intra-African trade by as much as $35 billion
per year (52% above the baseline in 2012) by 2022.
2. Reduced imports outside Africa and reduced trade deficits of African
countries.
3. Reduced tariffs The CFTA can open doors to West and Central Africa
through reduction and elimination of tariffs and improved trade facilitation
and infrastructure. Ultimate goal is to ensure easy movement of goods in
these countries without duties.
4. Reduce costs of customs & port handling.
5. Easy movement of labour can improve productivity and increase
competition in the labour market.
6. How far is Regional Trade Agreements (RTAs) helping intra African Trade.?
Most RTA has failed to deliver their targeted trade flows.
7. Infrastructure investment
8. The CFTA will create a critical mass effect (large amount of African
countries will be in the CFTA).
The Critical Mass Effect consolidation of gains in existing trade blocs.
African will not be left behind amidst global trends for trade deals. African
economies will be better represented in international fronts. Africa will be able to
speak with one voice and act in unity to ensure that Africas voice is heard and
fully integrated into the global development agenda
The critical mass effect (in terms of market size) will stimulate foreign
investment. The CFTA will bring infrastructure improvements in its wake. Projects
are more attractive to investors looking to minimise risk and maximise potential
returns the creation of a single electronic customs declaration for the area
which is a next step after the creation of the free trade area, expected in 2019
will be an important development.
Currently markets are too small individually to support economic diversification
and industrialisation.

9. Companies will benefit from an improved and harmonised trade regime

which would reduce the cost of doing business by eliminating overlapping
trade rules.
10.Such a market creates opportunities for scale production for producers in
the continent
11.Opportunities for SMEs

Challenges
1. Lack of consensus among discussants.
2. Governments still need to approve the Tripartite Free Trade Area (TFTA)
and it may take some time before its benefits become visible. The TFTA
need ratification by parliament within 2 years of 2015.
3. It takes time to remove barriers and it may take a while to see actual
improvement in trade flows. This is a long term project and respective
African governments will have to be patient and stay put.
4. Nigeria (the biggest economy) is not in the Tripartite Free Trade Area of
COMESA-SADC-EAC as it forms part of the ECOWAS community. Whether
its economic community agrees to form part of the CFTA is yet another
issue.
5. The UN stated in 2012 that the best way to boost African Trade was to
concentrate on developing local capacity rather than lowering tariffs (such
that Africans would have things to sell to each other at prices that are
more competitive than outsiders).

Intra-Africa
Communities

trade

of

African

Economic

SHARE OF INTRA-REGIONAL EXPORTS IN

GLOBAL EXPORTS IN % (2001-10)
Trade Groupings

ECOWAS

SADC

IGAD

COMESA

2001

8.3

8.9

17.9

5.9

2002

10.8

9.7

15.2

6.4

2003

9.2

10.2

15

5.7

2004

9.9

9.8

12

5.3

2005

9.4

9.3

10.5

4.6

2006

7.9

9.1

9.7

3.9

2007

7.9

10.2

4.5

2008

8.7

10.3

7.7

5.4

2009

10

11.3

9.4

7.1

2010

9.2

9.9

9.7

7.4

Year

Source: BMI, IMF Direction of Trade Statistics

Intra-Africa trade did not improve significantly for most RTAs (e.g For COMESA %
of intra-Africa trade improved only from 5.9% in 2001 to 7.4% in 2010).

References:
1) International Centre for Trade and Sustainable Development
http://www.ictsd.org/bridges-news/bridges-africa/news/the-continental-free-tradearea-whats-going-on
2) African Development Bank Group
http://www.afdb.org/en/blogs/integrating-africa/post/taking-stock-of-theproposed-continental-free-trade-area-13893/
3) African Union
http://ea.au.int/en/sites/default/files/Update%20on%20the%20Report%20on
%20the%20Continental%20Free%20Trade%20%20EN.pdf