Why Africa’s free trade agreement is a game changer for the continent

The African continent has made a significant move towards economic integration with the initiation of a landmark free trade agreement. With the potential to reshape the continent's trade landscape, this agreement has been hailed as a game changer that could unlock Africa's immense economic potential. Bohani Hlungwane, the Regional Head of Trade and Working Capital at Absa Corporate and Investment Bank, shared insights during a CNBC Africa interview on the implications of this historic trade deal. The agreement, which involves 54 countries, aims to boost intra-Africa trade by eliminating tariffs and trade barriers, thereby creating new opportunities for businesses and economies across the continent. This development comes at a critical juncture when global trade tensions are on the rise. Hlungwane emphasized that this moment is pivotal for Africa, offering a promising avenue for economic growth and collaboration. The potential impact of the free trade agreement extends far beyond mere numbers and statistics. It has the capacity to transform the economic landscape of Africa, fostering intra-regional trade and collaboration. Currently, only about 15% of Africa's total trade occurs within the continent. By 2040, projections suggest that this figure could rise to at least 50%, mirroring the intra-European trade facilitated by the EU. This shift towards greater intra-Africa trade could translate into substantial economic gains, with the continent harnessing its $2 trillion economy for mutual benefit. The agreement presents a unique opportunity for businesses across Africa to expand their reach, access new markets, and maximize the value generated within the continent. By reducing trade barriers and increasing cooperation, African countries stand to gain significantly from this initiative. Despite the optimism surrounding the free trade agreement, several challenges and obstacles need to be addressed for its successful implementation. One key obstacle is the issue of tariffs and their implications on trade. Tariff discussions have already sparked tensions, underscoring the need for a cohesive strategy to navigate these challenges. Hlungwane emphasized the importance of addressing existing hindrances to intra-group trade, such as policy inconsistencies, regional infrastructure deficiencies, and limited political will. While the agreement sets a broad framework for cooperation, it will require careful negotiation and compromise to ensure equitable benefits for all member countries. The political dimensions of the free trade agreement also merit attention, considering the potential impact on regional dynamics and power structures. Hlungwane highlighted the importance of ensuring that the agreement does not disproportionately benefit larger economies at the expense of smaller nations. To prevent a scenario akin to Brexit, where political considerations overshadow economic cooperation, mechanisms must be put in place to promote inclusivity and fairness. By leveraging each country's unique strengths and resources, the agreement can foster balanced growth and encourage the development of regional value chains. The conversation on Africa's free trade agreement also underscores the need for tailored solutions that accommodate the diverse economic landscapes across the continent. While some countries may possess inherent advantages in certain sectors, others face challenges such as landlocked geography or limited industrial capacity. Hlungwane emphasized the importance of normalizing trade conditions and tariffs to facilitate seamless cross-border commerce. By capitalizing on each country's competitive edge and promoting strategic investments, the agreement has the potential to drive extensive economic benefits and promote sustainable growth. As Africa embarks on this transformative journey towards economic integration, valuable lessons can be drawn from global trade experiences, including the cautionary tale of Brexit. By learning from past mistakes and embracing a collaborative, inclusive approach, African countries can chart a path towards shared prosperity and economic resilience. The free trade agreement signals a new chapter in Africa's economic development, offering promise and opportunities for a continent on the brink of a transformative shift. With careful planning, strategic cooperation, and a commitment to equitable growth, Africa stands poised to unlock its full economic potential through enhanced intra-regional trade and collaboration.