As of February 5 2021, 54 member states of the African Union had signed the African Continental Free Trade Area (AfCFTA) agreement, and 36 countries have deposited their instruments of ratification.
Trading under the agreement began on January 1, 2021. The pact connects 1.3 billion people in the continent with a combined gross domestic product estimated at $3.4 trillion.
The agreement allows Africans to do business with one another and strengthens the continent’s resilience.
The AfCTFA is projected to create opportunities and boost African economic development.
Compared with other continents intra-Africa trade currently accounts for only 12 percent of trade — significantly lower than in many other regions such as intra-US trade at 50 percent, Asia at 60 percent and Europe at 70 percent.
This limits Africa’s foreign investments within the continent while increasing trade dependence on foreign markets.
AfCFTA not only reduces and eliminates tariffs but also addresses behind-the-border barriers that impede the flow of goods and services, encourages investment and improves the rules on issues such as intellectual property, e-commerce and public procurement.
Without free trade agreements, countries often protected their domestic industries and businesses. This often made them stagnant and non-competitive on the global market. With the protection removed, Kenya and other countries will be motivated to compete globally.
The government subsidises local industries and small businesses. With the trade agreement removing subsidies, those funds can be put to better use in the economy.
Investors will flock to the country, injecting capital to expand local industries and boost domestic businesses.
Free trade agreements give Kenyan businesses and consumers, improved access to a range of competitively priced goods and services, new technologies, and innovative practices.
The AfCFTA agreement will liberalise the market for goods and services through negotiations, contribute to the movement of capital and persons as well as boost investments, and lay the foundation for a continental customs union.
It will also enhance the competitiveness of the members’ economies and promote industrial development through diversification and improve regional value chain, agricultural development and food security.
And in the long run, it will attain sustainable and inclusive socio-economic development, gender equality, and structural transformation in Kenya and the continent.
Global firms have more expertise than domestic ones to develop local resources, for example, mining, oil drilling and manufacturing.
Free trade pacts allow global firms access to these business opportunities. When the multinationals partner with Kenyan firms to develop the resources, they train them in the best practices, giving local firms access to these new methods.
There is no doubt that if AfCFT works out, it will spur development in Africa.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
