THE ECONOMIC REPORT ON AFRICA 2025: THE TRANSFORMATIVE PROMISE OF THE AFRICAN CONTINENTAL FREE TRADE AREA (AfCFTA)

Introduction

Africa is on the brink of a transformative economic shift, driven by the African Continental Free Trade Area (AfCFTA). The Economic Report on Africa 2025 notes that the AfCFTA will likely enhance trade-led growth and regional value chains, moving Africa to a high-value products and service producer from the status of an exporter of raw materials.

Why the AfCFTA Matters
The AfCFTA, which began trading in 2021, is the world’s largest free trade area covering 54 nations. It aims to increase intra-African trade by 45% by 2045 and increase Africa’s GDP by 1.2%. The agreement can trigger industrialisation, economic diversification, digitalisation on the continent by eliminating trade barriers, harmonisation of regulations, and investing in strategic sectors.

Africa is at a crossroads. With a youthful population, abundant natural resources, and growing consumer markets, the continent has immense potential to emerge as a global growth pole. Yet, challenges such as high inflation, fiscal deficits, rising debt vulnerabilities, and the lingering effects of the COVID-19 pandemic continue to impede progress. The AfCFTA offers a transformative framework to address these challenges by:

• Boosting Intra-African Trade: The AfCFTA is projected to increase intra-African trade by 45% by 2045 and raise Africa’s GDP by 1.2%.
• Driving Industrialization: By shifting Africa from exporting raw materials to producing high-value goods and services, the agreement can enhance industrial competitiveness.
• Enhancing Resilience: The AfCFTA can reduce Africa’s vulnerability to global shocks by fostering regional integration and economic diversification.

Key Findings from the Report

The report highlights several critical insights into how the AfCFTA can unlock Africa’s potential:

1. Economic Transformation: The agreement could significantly boost trade in key sectors like manufacturing, agro-processing, energy, and services. For instance:
   • Industrial trade could grow by 48%, contributing $165.6 billion.
   • Agrifood trade could rise by 45%, adding $58.6 billion.
   • Energy trade could increase by 28%, contributing $46.6 billion.
2. Climate Resilience: By promoting renewable energy adoption and green industrialization, the AfCFTA can help mitigate climate change impacts while fostering sustainable growth.
3. Digitalization: Digital trade is vital for Africa’s transformation. Investments in digital infrastructure, such as broadband networks and data centers, are essential to enable e-commerce and innovation.
4. Women’s Empowerment: The AfCFTA offers opportunities for women in manufacturing and trade-intensive sectors. However, targeted policies are needed to address barriers like limited access to finance and education.
5. Urbanization Opportunities: With 60% of Africa’s population expected to live in urban areas by 2050, the AfCFTA can support job creation and infrastructure development to harness this demographic dividend.

Challenges to Implementation

Despite its potential, full implementation of the AfCFTA faces several barriers:

• Persistent non-tariff barriers and fragmented trade policies.
• Insufficient investment in infrastructure and productive capacity.
• High debt servicing costs that crowd out development spending.
• Limited internet connectivity (only 37% of Africans are online) hampers digital transformation.

Recommendations

To fully realize the benefits of the AfCFTA, coordinated efforts are required across multiple fronts:

1. Policy Harmonization: Governments must streamline customs procedures, reduce tariffs, and harmonize regulations across regional economic communities.
2. Infrastructure Investment: An estimated $120 billion is needed for transport equipment by 2030 to enhance market access.
3. Support for SMEs: Developing robust regional value chains in sectors like agro-processing, pharmaceuticals, and renewable energy will empower small and medium enterprises.
4. Gender-Sensitive Policies: Promoting women’s access to finance, education, and digital skills is crucial for inclusive growth.
5. Digital Transformation: Investments in broadband networks and digital technologies like blockchain will reduce trade costs and improve efficiency.
6. Climate Integration: Renewable energy investments could require $22 billion between 2025 and 2040 to support green industrialisation

Conclusion

The AfCFTA represents more than just a trade agreement, it is a blueprint for Africa’s future as a unified economic powerhouse. Africa can redefine its economic trajectory by fostering collaboration between governments, private sector actors, development partners, and financial institutions. Also, to leverage AfCFTA for industrialisation, trade-led growth, and sustainable development. With strategic investments and coordinated policy actions, the agreement can transform Africa into a competitive global economic powerhouse. The time for bold action is now.

Download the full report here

Author: AITCR 3