For decades the 55 nations of Africa have lagged in the highly competitive race for world market share. Taken together their economies made up just 4.3% of global trade in 1970, a share that sank to 2.4% by 2018. The Netherlands, with a population about the size of Zambia's, accounts today for about 3.5% of global trade, more than all the countries in Africa combined.
Africa also compares unfavourably with other regions of the world on intraregional trade intensity, with intra-African trade accounting for about 16% of total African trade against 69% in Europe and 59% in Asia.
The marginalization of Africa in the global trade arena has been caused by a combination of factors. One is the persistence of the colonial development model of resource extraction. In a world where trade has been largely driven by manufactured goods with increasing technological content, that model has confined the majority of African countries to the bottom of the global value chain as exporters of primary commodities and natural resources. Another is the fragmentation of markets, which has inhibited efficiency and constrained both economic growth and intra-African trade. A new trade agreement is in a position to change that.
The African Continental Free Trade Agreement (AfCFTA) has established the largest free trade area in the world by membership, with a market of 1.2 billion consumers and a combined gross domestic product of $2.5 trillion. It has the power to defragment Africa and boost productivity to enhance its integration into the global economy. It has been touted as an economic and globalization game-changer because it has the potential to transform African economies and significantly raise Africa's share of global trade while strengthening its bargaining power in international trade negotiations.
Preliminary estimates support the agreement's tremendous growth and transformational power. Intra-African trade could increase by half within a decade--double that if trade facilitation, rather than just tariff liberalization, is undertaken. National and regional value chains (RVCs) catalyzed by the AfCFTA could connect the region to global value chains (GVCs) and drive its industrialization and integration into the global economy.
Investment flows are also set to increase, with their composition and direction shifting away from natural resources towards labour-intensive manufacturing industries, as corporations take advantage of increasing efficiency and economies...