The African Continental Free Trade Area (AfCFTA) came into force on 1 January, 2021. Once it becomes fully implemented and operational by 2030, the AfCFTA could be the world's biggest fully-realized free-trade zone by area. The bloc has a potential market of 1.3 billion people and a combined gross domestic product of $2.5 trillion. This moment should be celebrated as the AfCFTA could portend a new era of African openness, co-operation, trade, progress and innovation. The momentum of this new trade area thereof should be used to push African governments even further in the direction of free trade.
Whenever a nation restricts economic freedoms and civil liberties, humanity suffers. The ease with which people can trade (from the simplest good and service, to the most complicated) with both their immediate neighbors, and people from all over the globe, is a good indicator of a given government's view of economic freedom. When countries have more barriers to trade, including arbitrary regulations, widespread corruption, and myriad tariffs, we find a generally lower quality of life.
Over time, the AfCFTA will aim to eliminate import tariffs on 97 percent of the goods traded on the continent itself, while also reducing non-tariff barriers. Tariffs serve to discourage not just the physical movement of goods across borders, but also act as a psychological barrier to the exchange of ideas. They also prevent the flow of crucial goods and services in the case of an emergency. In 2020 alone, tariffs and other levies made the movement of COVID-19-fighting equipment and medicines far slower and more expensive than it otherwise would have been. To grow, supply chains (of all types) require an environment of robust property rights, underpinned by the rule of law – the AfCFTA can encourage such an environment across the continent.
According to the African Export-Import Bank, the AfCFTA could boost intra-African trade to 22 percent of total trade, up from 14.5 percent in 2019. If African countries are to step up the maturing of their industries and wider economies, they need more goods to flow – and the added expertise and insights of various businesspeople and manufacturers will also increase once it is easier for them to move between different countries.
According to Alexander C. R. Hammond, "when African states trade with one another, the goods traded are almost three times more likely to be higher-valued manufactured products, when compared to the goods that leave the continent." At the time of writing, all but one of the 55 African Union nations have signed to join the area, and more than half have ratified the accord. Through implementing the AfCFTA swiftly and effectively, the continent could set itself apart as a prime destination for investment and innovation.
In South Africa, policies such as expropriation without compensation (EWC), National Health Insurance (NHI), and further bailouts for failed state-owned enterprises – all examples of "state-led development and growth" – should be abandoned. The market, not the state, is the only proper engine for transformative growth. That South Africa can now be embedded in, and hopefully take the lead on, the increased opportunities provided by the AfCFTA, can also have the added benefit of dissuading the government from adopting yet more destructive, growth-inhibiting policies.
In Open: The Story of Human Progress, Johan Norberg writes, "My argument is that under open institutions people will solve more problems than they create, no matter their personality traits, and it will increase the chance that the paths of people with different traits cross, and that their thoughts and work can cross-fertilize."
With its immense human potential, no longer should Africa be held back by unnecessary, antiquated barriers.
After the ravages of COVID-19 and government-imposed lockdowns (the number of people unemployed in South Africa is now more than 11 million), many countries will be tempted to turn inward, to limit their interactions with neighbours and people – but nothing could be worse. For any noteworthy economic recovery (never mind meaningful growth) to occur, the world needs more trade, not less.
The damage caused by the most recent curtailment of economic freedom – the COVID-19 government lockdowns – cannot be underestimated. The World Bank projected that the number of people in extreme poverty would increase by up to 115 million, which would mean a total between 703 and 729 million.
No amount of state stimulus will generate the kind of economic growth needed to lift people out of poverty. Indeed, you cannot stimulate an economy that is not allowed to operate in the first place. Only more economic freedom, through avenues such as trade, can actualize people's economic potential.
Africa's history is one marked by exploitation; exploitation by European powers, and exploitation by politicians and bureaucrats who, since independence, have implemented policies of ever-increasing government control. Misguided—indeed, immoral—economic policies that undermine freedom have real, negative consequences, especially for middle- and lower-income people. As mentioned above, the combined GDP of Africa is estimated at $2.5 trillion, barely higher than Apple's $2.2 trillion market capitalization.
That one company (albeit one that has created immense value) can have almost the same level of economic evaluation as nearly an entire continent, serves to indicate just how much Africa’s economic potential has been suppressed.
The symbolism of the AfCFTA itself indicates a new era for Africa, and the potential thereof cannot be underestimated.
This article was first published on Foundation for Economic Education on 17 January 2021