Why we need to care about the African Continental Free Trade Area (ACFTA)

Understanding how and where  Uganda stands to benefit in the African Continental Free Trade Area.      
                
The recent proliferation of Regional Trade Agreements (RTAs) among african countries  has generated debate on the future of the African economies  that seem relatively less industrialized. It has raised empirical questions on whether these trade agreements  will really  stimulate the much needed growth and investment, shift comparative advantage toward high value activities and induce political stability. Nonetheless, this has raised key concerns on its impact on the infant industries in most developing countries

 The latest of these Trade agreements  is the African Continental Free Trade Area (AfCFTA),envisaged to be the world’s largest free trade area.It is  expected to cover a market of 1.2 billion people across the 55 member States of the African Union,and  also estimated to boost intra-African trade by 52.3 per cent by eliminating import duties amongest these economies

Richardo,among the many Scholars who  have attempted to explain the sources and possible scenarios that underpin this proliferation, argued that trade raises a country’s potential income (welfare) compared to autarky through specialization according to comparative advantage. He elaborated that countries will shift resources to production of goods where they efficiently produce and import goods where they are less efficient. This was his  argument  in his classical trade theory. He further raised concern that the existence of tariff and non-tariff barriers distort the final consumer price.Other studies however have painted a rather pessimistic picture of these regional trade agreements  especially in developing countries.This is on the basis of the frequent failure by these countries to implement fully the terms of their regional integration agreement as characterised by the previous trade agreements made.


The Economic Commission for Africa in 2015 noted that Over 75 per cent of Africa’s exports outside the continent were extractives with low value addition, thus no significant impact on the  development of local industries.This seems to pose  a big opportunity for the AfCFTA to pivot African economies away from extractive exports, with hope to secure more sustainable and inclusive trade including among others creating more jobs for Africa’s bulging youth population. This is on premise that the extractive exports on which Africa’s trade is currently based, are less labour-intensive than the manufactures and agricultural goods that are more labour-intensive 




Is it the Industrialists or agriculturalists?
While African countries that are relatively more industrialized seem well placed to take advantage of the opportunities for manufactured goods,the biggest concern is how the  less-industrialized countries can benefit from this seemingly well intended innitiative. Ideas around linking into regional value chains have already been shared with the argument that regional value chains involve larger industries which may need to source their supplies from smaller industries across borders.  Agricultural countries such as Uganda hence are seen to gain from satisfying Africa’s growing food security requirements, given that the  perishable nature of many agricultural food products means that they are particularly responsive to improvements in customs clearance times and logistics. Much as the Less-industrialized countries still stand to benefit from the implementation of the programme for the Accelerated Industrial Development of Africa. It is vital that AfCFTA is supported with accompanying measures and policies.


What about the youth ?
Liberalisation of Uganda’s economy, despite its associated challenges managed to spark an entrepreneurial spirit. This resulted into more participation and private ownership of business, despite their associated high failure rates. The last 30 years have also seen Africa change from an economically backward continent to being the world’s most exciting economic frontier with over 200 million youth between 15 and 24 yrs expected to  join the working world. This is likely to come with creation of vibrant small and medium sized enterprises as the youth seek to create jobs and gain economic prosperity.

Studies have  also shown that these small but growing businesses usually create around 80 per cent of the region’s employment, with formal small and medium sized enterprises contributing a significant percentage to employment in emerging economies. In Uganda, the Micro, Small, Medium, Enterprises (MSMEs) have been the engine of growth for the economic development, innovation and wealth creation,well spread across all sectors with 49 per cent in the service sector, 33 per cent in the commerce and trade, 10 per cent in manufacturing (UBOS).The sector accounts for approximately 90 per cent of the entire private sector, providing more than 2.5 million jobs and contributing 20 per cent of the gross domestic product (GDP).None the less  One of the biggest Challanges  affecting these small, medium enterprises in doing business has been lack of knowledge of opportunities in foreign markets and the different regulations in trading with our neighbouring countries.


Ugandan Government , Business community and the youth entreprises thus need to leverage this greatest opportunity the AfCFTA provides to grow the SME`s through eased supply of inputs to larger regional companies, which will  then export. These businesses which usually struggle to penetrate to more advanced overseas markets, are well positioned to tap into regional export destination.The question then remains if  we will use these regional markets as stepping stones for expanding into overseas markets at a later point.

Emmanuel Nambaale Is a 
young Economist with
Economic Hub Uganda-EHU
P.O Box 1337, Kampala- Uganda | Tel +256779373114/+256703744999
Email:economichubuganda@gmail.com|enambaale@gmail.com; 
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