How AfCFTA will fail

Verkehrsschild Zoll, Douane

The African Continental Free Trade Area (AfCFTA) is enormous with its 54 states. It should mean the largest Free Trade Zone globally in relation to countries. The EU provides €4 million. But instead of boosting economy, AfCFTA will fail.

Usually a Free Trade Zone (FTZ) ist helpful to economy. It lowers tariffs. It streamlines processes and administrative expenses. In one way or another, an FTZ is also a gift from states to their respective businesses. After all, they forgo important tax revenues. In rich countries, all of this actually leads to a further flourishing of the economy. The new alliance also works when a poor state is accepted into an alliance of richer states. The latter was fact, when (old and rich) Western Europe invited Eastern European Countries in the phase of EU enlargement. It works even if a small state like Singapore is accepted into the European Union as has just happened.

If, however, as in the case of AfCFTA, relatively poor states are suddenly starting trading freely among themselves, chaos is inevitable. In the Nigerian case, the largest African economy suffers from smuggling. Nigeria recently closed its borders.

On the other hand: Malawi. Its economy is one of the least developed ones on the African continent. The Malawian Ministry of Industry, Trade and Tourism held, in partnership with EU a validation workshop. “In his presentation at the meeting, Trade and Development Studies centre director Moses Tekere, who was team leader for the study, said there are greater trade and market opportunities that will be born out of the AfCFTA, but there are challenges that Malawi has to take into account because tariffs on imports coming from Africa will be removed. He said: “The major conclusion in the study is that there will be some revenue loss of up to $11 million by government and some industries will be affected, but there will also be positive outcome from the liberalisation process”, as Orama Chiphwanya reports in “The Nation”.

The African Union (AU) means a single market of 1.2 billion people. Promises on positive effects due to liberalisation are still there. But you also have to be able to afford them. But removed barriers and tariffs only work out when there are some preconditions. If not, a FTZ must certainly fail. People and states will suffer, instead of benefitting. This is again an example for a deep misunderstanding of the rich world. Its tools do not apply elsewhere.