About 50 African leaders are visiting Washington, D.C. starting today for the U.S.-Africa Leaders Summit. This is the first time that a U.S. president will bring together a number of a African heads of states at a single conference. The focus of the meeting is on Africa’s economic potential, to which U.S. investors and business owners should pay close attention. In addition to Africa’s economic potential and what that means for U.S. businesses, another issue should be discussed–the African Free Trade Area–which, according to the latest news, is scheduled to take place by 2015. In other words, what will the African Free Trade Area mean for the African economies themselves and trade between African countries?
Over the last few years, leaders from a number of African states have discussed the possibility of a large free trade area by 2015. A continent-wide free trade area has the potential to promote intra-African trade. At the same time, several challenges must be addressed to boost intra-African trade.
The African free trade area will consist of 26 countries from the Southern and East African regions. Furthermore, it combines several regional trading blocs–Southern African Development Community (SADC), East African Community (EAC), and Common Market for Eastern and Southern Africa (COMESA).
A free trade area reduces or eliminates tariff barriers that hinder trade between member countries.
An African free trade area presents a number of opportunities for the African countries and businesses seeking to invest in and access markets throughout the continent.
Opportunities – Africa
- Single market worth US$2.6 trillion
- Promotes intra-African trade, which stood at only 10% in 2011
- Output expected to expand by 50% by 2015 (South African President Zuma’s prediction reported in the news media)
- Africa’s spending power expected to rise 30% by 2015 (Zuma’s prediction reported in the news media)
Opportunities – Foreign investors
- GDP overall has shown significant growth (See Is Africa the Next Economic Success Story? and Foreign policy debate ignores Africa and its growing economic presence)
- Output has increased shows some economic stability (See Is Africa the Next Economic Success Story?)
- Inflation has decreased resulting in greater economic stability (See Is Africa the Next Economic Success Story?)
- Abundance of natural resources
- Growing middle class to also purchase goods
- Poor infrastructure
- Administrative and legal barriers
Africa’s growth and establishment of a wider free trade area also has the potential to give the African countries the ability to grow and shape their own economies. (See The Pursuit of Independence in the 21st Century). A free trade area also has the potential to benefit foreign investors and exporters. For those companies in the services sector, such as telecommunications, banking, retail and construction, pay close attention.
I will be watching the summit closely to see if Africa’s efforts to establish its own trade bloc will be discussed and what becomes of that effort by next year.
*To find out what contributes to Africa’s growth, check out the McKinsey and Company study
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.