What is a trade agreement and why do we have them? These are 2 important questions to understand if we are to make sense of the African Continental Free Trade Agreement (AfCFTA — the world’s largest trade agreement).
The purpose behind a trade agreement is to reduce barriers and the cost to trade between member states, hopefully resulting in the businesses in these countries directing more of their trade between the member states than the rest of the world. The less friction there is, the more trade will happen. This makes sense in the same way that if we built a wall around Cape Town and forced people to pay a tax every time they moved something through the wall, the cost of trading with Cape Town would increase and the amount of business the rest of the country did with Cape Town would decrease.
The AfCFTA aims to take this a step further and remove most of the barriers to and reducing the cost of moving trade between African countries, resulting in more business being done within the continent. Should all of this work, the result should be more money being made inside Africa, with greater prosperity for the citizens of the continent. Before this ambition can be converted into reality, the following big hurdles will have to be overcome for the agreement to generate any real benefit…